Last year saw record levels of mergers and acquisitions in the Financial Technology (FinTech) sector, according to a new report from M&A and corporate finance specialists, Hampleton Partners.

Transaction volume in the second half of 2019 hit a three-year high of over $130 billion. However, investors and acquirers are getting increasingly choosy as the market consolidates, says the firm.

Four enormous M&A deals set the record for the largest transactions ever recorded in the sector: Fidelity’s acquisition of Worldpay ($44 billion); Fiserv’s acquisition of First Data ($22 billion); the merger of Global Payments with Total System Services ($21 billion); and the London Stock Exchange Group’s acquisition of Refinitiv ($14 billion).

These deals alone were valued at $101 billion and were “testament to the readiness of large players to stay relevant while sustaining strong revenue growth”, says the report.

North American target companies accounted for 54 percent of transactions in the second half of the year, down six percent year on year. Meanwhile, 60 percent of European targets were bought by European acquirers and 35 percent by North American purchasers.

The 2020 outlook is likely to remain positive for M&As, with InsurTech, RegTech, WealthTech, and B2B platforms all well positioned for growth and the Payments vertical dominant. Blockchain and artificial intelligence (AI) are among the technology hotspots.

Visa’s recent acquisition of Plaid for $5.3 billion and Worldline’s $8.6 billion acquisition of rival Ingenico Group are already setting the tone for this year.

A world of disruption

The context is ongoing disruption in Financial Services, which is seeing FinTech startups attracting new banking customers and mobile-savvy users, with both groups wanting low-friction alternatives to traditional services.

Meanwhile, Big Tech providers and investors – such as Google, Amazon, Facebook, Apple, SoftBank, and Tencent – are also vying for market share, bringing with them large quantities of data, strong brands (if not necessarily trust), vast capital resources, and formidable technology platforms.

However, the advertising-based nature of many of these businesses raises questions over data protection, security, and transparency.

Challenger banks will continue to grow their service offerings and expand across international borders, adds the report. At the same time, regulations around open banking will be a boon for technology giants and startups alike.

To survive in this febrile atmosphere, established players need to engage proactively with the disruption by building in-house capabilities, seeking new partners, or making acquisitions of their own.

The report explains: “For incumbents, the heat is being applied on the new battleground for relevance and scale – relevance being the ability to offer solutions that are ubiquitously available and in demand; and scale referring to the number of customers incumbents can gain and retain in the face of non-traditional competition.

“The new battleground requires new capabilities and incumbents must adapt and acquire now, or they will decline later.”

A number of recent reports have found the FinTech sector to be consolidating fast in the US, UK, and Europe. Early-stage deals have indeed dropped, confirms Hampleton Partners, with a decline in the number of Series A rounds.

Nevertheless, rounds are continuing to grow in size as the market matures, with investors gaining knowledge of the vertical winners and the new FinTech ecosystem.

As a result, they will continue to be “very selective” in deploying capital, concludes the report, favouring larger, more promising fundraises and moving away from the ‘spray and pray’ approach of the early days of the sector.

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