The role of M&A in driving fintech innovation

By Jonathon Parkinson, managing partner at Marktlink
Jonathon Parkinson, managing partner at Marktlink, on how mergers and acquisitions activity is helping to drive innovation in the fintech industry

One of the fundamental reasons companies enter into M&A deals is to unlock the tremendous possibility for growth. As these motivations are increasingly leaning towards the ability to capture disruptive innovation opportunities, the pool of interested parties is expanding from traditional technology companies to include various other sectors. Consumer businesses, telecoms, and financial services industries alike, are each becoming active dealmakers in pursuit of expanding beyond their organic capabilities and achieving innovation that is traditionally difficult to attain.

Why is fintech gaining M&A traction? 

The digital landscape is changing. Consumers and organisations are no longer satisfied with human advisors and consultants sitting at the top of the technology framework – they want access to financial services and online commerce to be instantly available on their own devices and to their own timescales. With the very nature of fintech organisations lending itself to this dynamic and continuing to offer technology that revolutionises how people interact with financial services, M&A within the fintech industry holds tremendous long-term growth potential. 

Whilst various industries were struggling to contend with the challenges posed by the pandemic, including the forced adaption to changing patterns of consumer behaviour, it was unable to impact the lean operating models and sophisticated technology ingrained within fintech companies. Witnessing this resilience, spectators began to re-evaluate their own technical capabilities and the strength of their future strategies. Consequently, confidence in fintech solutions has accelerated and created an incredibly active M&A market. 

M&A drives fintech innovation

Running parallel to this growing consumer and institutional demand is a pressure on fintech companies to provide innovative products and services that stand out within an increasingly competitive technology arena: there are an abundance of claims to be the ‘next big thing’. However, SMEs face a broad range of restrictions relating to accessing capabilities, resource bottlenecks, and managerial challenges that create barriers to achieving the level of growth required to successfully expand and innovate their service offering. Consequently, fintech organisations that wish to secure their position as a leading provider over the coming years mustn’t waste valuable resources in pursuit of achieving organic growth that is incredibly difficult to attain. Instead, they must look for opportunities to arm themselves with the capital, resource and power required to streamline their capabilities and establish themselves as a market main player. 

The customer experience has always played a crucial role in securing customers and maintaining long-standing business. However, despite the vast majority of companies implementing new technologies to ensure customer satisfaction is met, their introduction alone is not enough to secure this. Financial technology must be measurable, take into consideration the requirements of the business and its consumers, and have the ability to seamlessly integrate with current systems. The injection of financial support provided by mergers and acquisitions provides fintechs with the foundations for innovation, ensuring that that they can support the system enhancements and technological assets expected by customers. As a chain reaction, this increased financial power also results in businesses occupying a larger share of the fintech market and having a greater influence by reducing the competition. 

The future of fintech M&A 

The boost in fintech M&A has been accelerated by specific trends across the industry. With a practically limitless target audience due to the applicability of its technologies throughout the financial services industry, it is unsurprising that the surge in technology behind online and mobile payments is one of those trends leading the fintech M&A expansion. Likewise, asset management and enterprise software relating to financial services is also making waves within the industry.

The confidence in the value of fintech M&A is not lost on investors. Several acquirers have taken a broad-minded approach towards the correct time to purchase a fintech asset, with many saying that they would be open to deals at various stages of a company’s maturity lifecycle. This is particularly apparent across Europe, where in recent years the volume of deals undertaken here has surpassed the numbers completed throughout other regions. 

As an increasing number of industries look to integrate the capabilities of fintech companies into their core offering, innovation is a crucial ingredient to successfully influence central business strategies and surpass rising competition. Consequently, so is the introduction of M&A. 

The injection of capital, resources, enhanced distribution, and extended customer networks represent just a few of the ways in which M&A can assist with achieving this innovation. As well as providing fintechs with a greater market share, and in turn, greater power, it is able to facilitate entry into new markets to leverage cross-selling opportunities. Particularly alongside the accelerated pace of digital transformation, taking advantage of these opportunities at an early stage cannot be understated. 

About Marktlink 

Since 1996, Marktlink is active as an independent specialist in mergers & acquisitions for SMEs in the upper segment. With an international team of over 120 M&A specialists, Marktlink facilitates companies with transactions valuing between 5 and 250 million euros. With a broad network of offices in Europe and a large international network of buyers and sellers, Marktlink gets over 100 deals done each year.



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