Big payment deals are just getting started
Last year, firms like CB Insights predicted that the fintech industry would see less merger and acquisition activity than in years past.
However, with deals announced earlier this year like FleetCor’s acquisition of Nvoicepay and Fiserv’s acquisition of First Data, it’s debatable whether that forecast came to fruition. As we look ahead to 2020, M&A transactions will continue to evolve and keep momentum as more new players enter the market and tenured fintechs begin to reach scale.
Historically, there’s been a lack of strategic players in fintech that have reached the size where smaller acquisitions become part of a larger growth strategy — but that is changing. Over the past several years, well-established companies in the space like Klarna and FIS have become big enough to buy competitors, fueling the majority of the M&A we’ve seen of late.
Before, most of the acquirers were banks, but now there is a whole category of nonbanks that have demonstrated success purchasing or partnering with another company to expand their resources, making more products and services available to customers. Currently, there is a solid base of potential acquirers now outside the traditional banking market.
This solid base of potential acquirers gives burgeoning fintechs more options than ever before, as early-stage entrepreneurial companies are faced with the big decision to raise additional capital to continue organic growth or team up with a larger strategic industry player. Merging, partnering or selling to a bigger company provides young organizations with capabilities that are challenging to build from scratch, like the ability to develop new products while continuing to expand distribution for existing ones.
Essentially, companies have the choice to either face an increasingly complex market alone, tackling challenges like building a payment services organization and meeting increasing pressures around regulatory licensing, or they can sell to a partner that has existing resources already in place to leverage.
For example, BankTEL, a fintech that works with 20% of middle-market banks in the U.S., was recently faced with this decision and elected to go the acquisition route to continue building company resources and growing its banking customer base.
While some companies will choose to go the self-gen route and seek to raise more capital, more will agree that now is the right time to sell. The market will continue to consolidate, especially with the emergence of key players who can provide end-to-end functionality and products that fit all industry needs, rather than focusing on just one process or vertical. It’s the vendors that have it all in one platform, paired with the scalability for continued growth, that will continue to win in the fintech market.