The fintech industry will see a wave of consolidations in the coming six to 12 months as banks grab up fintechs and larger fintechs eat their own.

These are the predictions from “The Changing Fintech Landscape: A Snapshot of M&A Themes and Trends,” a collaboration between Shearman & Sterling, S&P Global Market Intelligence and Rise, a fintech accelerator created by Barclays.

While mergers and acquisitions were “record-breaking” in 2018 and 2019, COVID slowed activity in 2020, the report notes. However, some of the most notable transactions were in payments, including Worldline’s $8.6 billion acquisition of Ingenico, and Nexi’s $17.8 billion merger with SIA and its subsequent $9.2 billion acquisition of Nets.

But mergers and acquisitions are about to re-emerge, thanks to consumer adoption of mobile payments, banking, insurance and investment services. That activity makes “consolidation in the fintech sector inevitable, as traditional banks and service providers race to acquire or partner with technology companies to meet their customers’ needs,” the report stated.

Banks seek mobile app, digital currency capabilities

Banks will grab up mobile payment options as a means of enriching their own mobile app offerings or providing digital currency transactions, the report stated. As evidence, the paper points to:

• JPMorgan Chase’s June announcement that it would acquire Nutmeg, a U.K. robo-advisor, and OpenInvest, an environmental, social, and governance -focused investment management platform;
• Fifth Third Bank’s plan to purchase Provide, a digital health care banking platform; and
• Visa’s announced acquisition of European open banking platform Tink.

The report also pointed to trends already widely recognized across the industry, including that regional banks and credit unions are seeking to expand mobile banking as physical proximity to a branch becomes less of a selling point for customers. Whereas community banks tend to partner with fintechs, regional banks increasingly seek to buy, the report noted.

Fintechs will acquire weaker fintechs

Banks won’t be the only ones making deals, though; Fintechs will also seek acquisitions.

“Coupled with record low interest rates, healthy venture capital flows, and a sizzling SPAC market in the early part of the year, 2021 is already a watershed year for M&A activity in the Fintech Sector,” the report stated. “Deal activity for fintechs is also driven by a wider re-bundling of financial services and a quest, by some fintechs, to become a ‘single money app’ for certain client segments.”

Often, this push leads to partnerships with banks so that fintechs can provide deposit accounts and other banking products. One case noted in the report is Stash’s offer of an account through a partnership with Green Dot Bank.

M&A activity from the first half of the year includes Equifax Inc.’s $640 million deal to buy anti-fraud specialist Kount, Inc., and NCR Corp.’s $1.84 billion announced merger with ATM network operator Cardtronics, according to the report.

Non-financial sectors may join feeding frenzy

But fintechs and banks aren’t the only players that will be looking to acquire fintechs. Non-financial firms such as retailers are now offering embedded financial products, for example, Walmart’s recent partnership with payments firm PayNearMe. “Some fintech firms have niche specialties targeting individual industries, such as medical services or sports,” the report stated, pointing to consumer credit card fintech Cardless, which has a co-branded credit card program with sport franchises.

Atmosphere of increased scrutiny

The report also warned that all this merger and acquisition activity will attract increased scrutiny from regulators as the Biden administration gears up its antitrust enforcement.

“As the financial services industry undergoes ‘massive transformation,’ the DOJ is taking on a ‘muscular’ role for antitrust in fintech,” the report notes. “Based on early appointees in the antitrust space, including the designation of Lina Khan as FTC chair, it appears that the Biden Administration will take a tougher approach to antitrust enforcement, particularly in technology markets.”