Fintech: Oportunidades para el M&A en un sector en desarrollo

Nov 12, 2018




Asier Arriola

Analyst IMAP Albia Capital

The Fintech concept illustrates the connection between the traditional financial sector and the most disruptive technology. Entities in the Fintech sector enjoy the benefits of a technological base whose applicability spans a wide variety of services and products (transactions and payments, personal finance and wealth management, financing, insurance, real estate, etc.).

The main appeal of these entities lies in the attributes inherent to their technological core, namely, the ability to customise products and services, the agility of operations and the automation of processes. As a consequence of the optimization and streamlining of processes and costs sought by traditional financial players, combined with the need to offer the ease of use and intuition demanded by users, there has been an increase in the funding of these types of entities.

The Fintech Market

The global Fintech market is breaking records with the commitment of $57,800 million in financing in the first half of 2018. That figure is much higher than the amount received in all of 2017 and 2016, and is poised to surpass the 2015 record of $62,500 million. This breakthrough is mainly due to the operations of the Asian payment platform, Ant Financial, which raised $14,000 million last June, and Vantiv’s acquisition of the British World Pay for $12,860 million.

By geographical area, Europe has invested US$26,000 million in financing and acquiring Fintech companies; US$14,800 million in America (excluding the United States), US$14,200 million in the United States and $16,800 million in Asia, all figures that bode well for a year similar to 2015, which marked a world record.


Key Trends

  • Maturity of the industry

The Fintech industry is approaching maturity in certain areas. As a consequence, a process of consolidation is taking place which is creating opportunities for buying and selling the operations of certain entities. There are two main reasons for this.

On the one hand, the development of profitable business models and products that are more easily integrated into the financial sector, together with a growing interest on the part of owners to sell their companies, especially those who already have investors among their shareholders, makes them more appealing to traditional financial players.

A good indicator of this is the notable change in the ratio between the number of transactions and their value over the last five years. Transactions are larger: the number of transactions over US$20 million accounted for just 12.1% of the total in 2014 while in 2018 that number jumped to 38.2% H1. On other hand, the number of transactions under US$ 1 million has dropped from 41% in 2014 to 3.4% in 2018 H1.

However, as noted above, the Fintech sector is not maturing evenly across all sub-sectors. To a large extent, the disparate maturity levels of the different Fintech subsectors is owing to the time when they were created and the interest shown in them by traditional players and investors. As a result, the subsectors related to traditional banking are now the ones with the greatest financial maturity (large amounts of financing and acquisitions) because of their early development.

For example, it is worth noting that since 2014-2015 the creation of Fintech companies has experienced a general decline, especially striking in the subsector dedicated to providing banking and capital market services. By contrast, the decline has been less pronounced in the sub-sectors related to the insurance sector.

  • Increased collaboration between traditional and new players

According to the survey conducted by PwC and published in its 2017 Global Fintech Report, in 2017 the collaboration between traditional financial institutions and the Fintech industry rose to an average of 45%, up from 32% in 2016. There are several reasons for the increased collaboration among players.

First of all, traditional banking, which experienced a reduction in margins due to declining interest rates (the spread between deposits and loans fell from 3.7% in 2003 to 2.3% in 2017; the interest margin obtained by banks in the euro zone from retail activities has fallen from €280,000 million in 2008 to €230,000 million in 2017), is looking for new paths to profitability. Secondly, declining margins have forced banks to restructure, which includes things like optimizing processes and reducing costs, as well as leaning more heavily on the use of digital solutions and IT services. And thirdly, the growing demand from customers for more agile, efficient and intuitive services has forced traditional banks to increase their technological commitment to their products and services.

These factors have led to increased collaboration between actors and the figure is expected to grow over the next few years, as 82% of financial institutions anticipate that their relationships with Fintech companies will intensify over the next 3 to 5 years.

As far as the collaboration format is concerned, three different methods of action are observed: build, buy, partner. Until now, the channels chosen by banks were construction and association through minority shareholdings in Fintech companies, mainly of the kind that responded to the factors mentioned above. This was due to the difficulties of integrating Fintech into traditional financial institutions and the dangers of inaccurate company valuations.

 Even so, it is anticipated that the purchasing option will increase as Fintech entities consolidate and the traditional companies forge ahead with the technological integration of their companies. For example, it is interesting to note the acquisitions of Financeit and Final by Goldman Sachs, Gambit by BNP Paribas, Wepay by JP Morgan and Tradeplus24 by Credit Suisse, all carried out since September 2017 in the Fintech subsectors of financing, wealth management and transactions and payments.

In short, whereas Fintech companies were initially viewed as competitors, they are now considered a new path to growth and development thanks to their technological base and the agility of their operations, something that traditional financial entities are often lacking.

  • Regtech on the rise

The increasing regulatory pressure being applied to the financial sector has opened up a new channel of investment and growth for Fintechs. The sub-sector of the Fintech industry that is focused on this opportunity is known as Regtech, or regulatory technology.

Its current development is based on the ability to reduce costs by automating processes (compliance costs rose by 60% for consumer and investment banking after the crisis), the reduction of risks and with it the associated sanctions (since 2008, the financial sector has been fined more than US$300,000 million), the ability to quickly implement the constant flow of regulations, and the applicability to non-financial sectors.

As a result, the financing obtained by these companies in the first quarter of 2018 alone is more than 50% of the financing for each of the years from 2014 to 2017, and has continued to grow steadily in recent quarters, more than doubling the figure for the first quarter of 2017.


In addition, the initiatives created by the different regulatory authorities of the capital markets reflect their interest in the development of these type of entities, and this encourages the joint growth of new business models and the corresponding legal framework. By way of example, the launch of various sandboxes (test environments supervised by institutions for business models not currently regulated) in different countries is interesting, with the United Kingdom pioneering the launch of the first sandbox related to these issues in 2016.

M&A Market

The number of operations and the volume of M&A transactions in the industry have grown to record levels in the first semester of 2018. With more than 200 transactions valued at $34,200 million in the first half of 2018, it is the best start in recent years.

The $34,200 million of funding for M&A transactions is close to the total amount for all of 2017, when the total figure was $38,100 million. On the other hand, the (median) Pre-Money Valuation of Fintech companies through Q4 2018 was $24,8 million, double the 2017 figure. This is a result of the maturity of the companies in the sector, especially those that had previously obtained funding.

The multiples in the Fintech industry are especially diverse, with the Q4 2018 EV/EBITDA of the different subsectors standing somewhere between the minimum of 11.4x (Payment Services) and the maximum of 41.4x (Financial SaaS). On the other hand, EV/Sales for Q4 2008 range from a maximum of 16.8x (Card Networks/Associations) to a minimum of 2.1x (Payment Services). This disparity is mainly due to the different business models, cost structures and billing levels in each subsector and type of Fintech service.

Key Transactions

The key M&A transactions involving Fintech entities in the first half of 2018 were completed in Europe. At the forefront is the aforementioned acquisition of the British payment platform, World Pay, by Vantiv for $12,900 million. Secondly, the Swedish iZettle, also in the payments and transactions sub-sector, was sold for $2,200 million to PayPal, which has carried out several acquisitions in 2018.

On the domestic front, at the beginning of this year the money transfer platform Transfer Zero was acquired by the bitcoin services company, BitPesa, and Finametrix, a service provider to asset managers, was acquired by the investment fund platform, Allfunds Bank. The middle of the year saw the purchase of the online financing platforms Aplazame and Instant Credit by Wizink Bank and Banco Sabadell, respectively.

In short, the Fintech sector has grown exponentially in recent years and is now approaching a stage of greater maturity. Even so, its ability to improve existing operational models and the agility and novelty of its proposals suggest that it will continue to be a key driver of growth in the financial services area. This will undoubtedly translate into more M&A with higher price tags. To the extent that this will benefit both consumers and entrepreneurs, let’s drink a toast to them.



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