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How Is Fintech M&A Affecting the Financial Future

November 16 — According to a new survey from Reed Smith and Mergermarket, the overwhelming majority (91 percent) of fintech-focused investors and as well as banks and financial institutions (94 percent) are planning two or more fintech acquisitions in the next 12 months.

“There isn’t a significant financial services institution that isn’t already either a consumer or developer of fintech,” said Herb Kozlov, a partner at Reed Smith. “I think it’s on the radar of every major institution because they’re at a competitive disadvantage if they’re not as well positioned as their competitors to adopt new technologies.”

Key drivers for fintech investment identified by survey respondents included the need for enhanced compliance and reporting functionality, the need to upgrade legacy IT systems, and improved customer outreach through digital/mobile.

(Image courtesy Reed Smith.)

 

“There has been a lot of adoption of machine learning and AI in the investment and payment spaces,” added Maria Earley, partner at Reed Smith. “I think that payments are really moving to machine learning as well as blockchain. Technologies that are moving forward are then being gobbled up by the bigger institutions.”

While deal-making activity in this space has been most apparent in European markets such as Germany and the U.K., there is growing potential in other markets, with China and Singapore, for example, being seen as possible key regions for investments in technology.

“In Singapore, the jurisdiction has made becoming a fintech hub a priority,” said Matthew Gorman, another Reed Smith partner. “The monetary authority has attempted to be supportive with sandbox initiatives and some regulatory guidance, without being overly restrictive.”

Other key findings include:

  • 76 percent of banks/financial institutions feel that fundraising for fintech firms will increase considerably over the next 12 months, compared to 67 percent of fintech-focused VC/family office/PE investors.
  • 54 percent of fintech-focused VC/family office/PE investors are considering investing in data analytics companies.
  • 28 percent of banks/financial institutions see robo-advisory companies as their most important future M&A targets.
  • 46 percent of banks/financial institutions expect distributed ledger technology focused on cryptocurrency to see the biggest increase in valuation over the next 12 months, compared to 42 percent of fintech-focused VC/family office/PE investors.

The report, which features interviews with 100 corporate senior executives (CEO, chief information officer, director of strategy) globally, highlights the increasing importance of the fintech M&A market.

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