Consolidation grips fintech, banking sectors

Weeks after The Changing FinTech Landscape: A Snapshot of M&A Themes and Trends,was published, a record number of fintechs and financial institutions have entered into mergers, acquisitions and strategic partnerships, confirming analyst expectations of increased consolidation within banking and fintech sectors.

The analysis, published July 21, 2021, by Shearman & Sterling, Rise by Barclay, and S&P Global Market Intelligence, found intense competition between banks and fintechs.

"The growth of FinTech has been cited as among the enormous competitive threats facing banks, with many traditional banking products and services, from payments to lending, increasingly moving out of the banking system," Shearman & Sterling researchers wrote. "As one bank executive recently described, the competitive threat posed by FinTech is 'everywhere,' and FinTechs' 'ability to merge social media, use data smartly and integrate with other platforms rapidly, (often without the disadvantages of being an actual bank) will help these companies win significant market share."

Researchers additionally noted that M&A activity is rising to meet consumer demand for digital services. They cited noteworthy examples of JPMorgan Chase's acquisition of Nutmeg, a UK-based robo-advisory service and OpenInvest, an ESG-focused investment management platform, as well as Fifth-Third Bank's purchase of Provide, a digital healthcare banking platform and Visa's planned acquisition of Tink, a European open banking platform.

These activities led researchers to conclude that the second half of 2021 through 2022 will be an M&A landscape shaped by three factors: a change in fintech rankings, traditional banks moving to digital services and increased regulatory scrutiny.

Fintechs fight for share

A rash of M&A activity within the fintech sphere lends further credence to the claim that the strongest and most robust fintechs will rise quickly to the top. Shearman & Sterling researchers suggested that fintech M&A investments and partnerships "are an effective route of adding or improving digital capabilities, and perhaps more quickly than doing so organically."

Following are recent examples:
• Voyager Digital Ltd., a cryptocurrency trading platform, disclosed plans on Aug. 2, 2021, to acquire Coinify ApS, a cryptocurrency platform with a global base of users in 150 countries. Voyager stated the merger will improve its global footprint and B2B presence.

• Paysafe, a specialized payments platform, revealed on Aug. 2 that it entered into a definitive agreement to acquire PagoEfectivo, a Peruvian alternative payments platform. And two days later, Paysafe publicized a strategic partnership with ARC, a Virginia-based provider of settlement services for airline transactions.

• Evo Payments Inc., a global provider of payment technology integrations and acquiring solutions, indicated on Aug. 2 that it will acquire Anderson Zaks, a UK-based omnichannel payment gateway.

• NCR Corp. an enterprise technology provider, disclosed on Aug. 2 that it will acquire LibertyX, a cryptocurrency software provider. The solution will "accelerate our ability to rapidly deliver these [digital currency] capabilities to the market," said Tim Vanderham, chief technology officer at NCR.

• Feedzai, a cloud-based financial risk management platform, disclosed plans on Aug. 4 to acquire Revelock, a behavioral biometric platform. Feedzai and Revelock representatives noted that pooling capabilities will enable financial institutions and merchants worldwide to detect and prevent financial crime before it occurs, a phenomenon the companies characterized as "hypergranular risk-level assessment."

Hypergranularity

Feedzia and Revelock's forward-looking statements reflect the global, aspirational scope of the newly formed company, which aims to reinvent digital trust through pre-transaction behavioral intelligence. In addition, the combined databases of Feedzai and Revelock will create a massive financial intelligence network with more than a trillion data points, sessions and profiles of good and bad actors, according to representatives from both companies.

Nuno Sebastiao, chief executive officer at Feedzai, noted that more than 20 percent of the world's money flows through his company and that Feedzai secures one in every five bank accounts. "We already knew what transactions took place for more than 800 million consumers," he said. "Revelock adds the intelligence of how a transaction takes place. Combined with the why from using Feedzai's Responsible AI, we're moving to the next level of machine precognition."

Pablo de la Riva, chief executive officer at Revelock, concurred, stating that his company's hypergranular technology can detect subtle changes in user behavior—even down to the way people hold their phones or navigate a banking app—to identify "bad intentions even from a single keystroke and stop fraud before it occurs, all while safeguarding your privacy and anonymity, even from the people that are protecting you."

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