M&A continues to reinvent Banking propositions

Updated: Sep 30

Q3 Update on FinTech M&A (Mergers & Acquisitions)


In June this year, we released a report summarising a study of 51 M&A deals in the FinTech space since the beginning of 2022.


  • Banks had been the acquirers of FinTechs in only 8 cases of the 51 in total, and more than half of these were Neo-banks.


  • We also found that from the sample, Traditional Banks were more likely to acquire an older FinTech, possibly as they seek companies which are better-known and well-capitalised, representing less risk for shareholders.


  • The acquisitions of FinTechs providing Buy Now Pay Later services only accounted for 4% of the deals.


  • Meanwhile, FinTechs offering Payments, Credit and Cryptocurrency services were most popular, accounting for 54% of all deals combined. The popularity of these three categories has prevailed throughout the year, however this number has been adjusted to 51%.


Over the last few months our sample has grown from 51 deals to 93.


In this blog we highlight some of these deals and consider any emerging trends.



Note: Previous pie chart published on June 24 can be consulted for comparison purposes.


Deel makes 2 FinTech acquisitions within 2 months


Deel, San Francisco-based FinTech providing payroll and compliance solutions to international employees and contractors, has recently acquired PayGroup and LegalPad.


The acquisition of PayGroup will help Deel extend its presence in Asia, Africa and the Middle East as well as enable cross-selling opportunities. PayGroup helps franchises and companies with multi-national jurisdictions manage their payroll and remain compliant. As the takeover was announced back in June, PayGroup shares on the ASX surged 158%, good news for both firms.




Source: PayGroup


The acquisition of LegalPad followed in early August, and will help Deel to solve the immigration challenges employers face when building teams through its visa application service.



Source: SlideShare


Both acquisitions reinforce Deel’s presence as the go-to FinTech for start-ups looking to grow their teams and attract the best talent. The payroll and visa services provided by PayGroup and LegalPad respectively will allow Deel to widen its geographical footprint in APAC, home to two-thirds of the world population and a huge talent pool. This in turn will attract businesses from around the world looking to access these candidates.


Lemonade acquires Metromile, lays of 20% of staff, then partly divests services to EIS


At the end of July, Lemonade, the online insurance company using AI to process and pay claims within minutes, acquired Metromile in order to offer a car insurance product. Through the deal, Lemonade acquired over $155 million in cash, more than $110 million in car insurance premiums, and a licence for 49 North American states.

The transaction should enable Lemonade to bypass the riskiest phase of the Lemonade Car growth trajectory and to leapfrog to a leadership position as a provider of pricing and underwriting.



Source: Lemonade x Metromile Investor Presentation




Source: SeekingAlpha


Just a couple of days later, Lemonade laid off about 60 staff primarily from the product, engineering and design teams. This decision was quickly followed by the sale of the Metromile Enterprise Business Solutions Platform (EBS) to EIS, the digital insurance platform for businesses. EBS was Metromile’s claims automation and fraud detection platform.


This is a somewhat perplexing divestment given the context of the 2021 lawsuit Lemonade insurance faced over its anti-fraud AI system, “AI Jim”. AI Jim tracks user-generated data-points to help identify suspicious activity, helping Lemonade to avoid underserved payouts.


In July, Lemonade agreed to pay $4 million to settle the lawsuit, admitting to unlawfully storing biometric data from users which informed AI Jim. No reason was given as to why Lemonade has sold, rather than embraced, EBS, an alternative fraud detection solution.


Banks' M&A appetite for FinTech has reached record levels


According to S&P Global data, in 2021 banks’ acquisitions accounted for a small portion of the overall fintech M&A activity. Banks purchased eight of the total 484 fintech M&A deals last year, a number which remains small but has increased steadily to 12 deals in 2022 before year-end.



The below graph shows that 42% of deals are part of a strategy to expand the current offering. This type of deal is the most popular amongst Traditional Banks, whereas Neo-banks are more likely to seek product enhancement and geographical expansion. Accenture finds that “ecosystem deals” (or product expansion deals here), where the buyer purchases outside of its core industry, deliver 3.4x more value to the acquirer in the long run than “builder deals” (product enhancement deals), where the buyer builds on an existing portfolio. It is for this reason that innovative FinTechs are so attractive as acquisition targets, as they provide Banks with ecosystem diversification.




Qonto acquires Penta to expand geographical footprint, a similar strategy to Lunar Bank


As discussed in our previous M&A update, Lunar Bank offered to purchase all shares of Instabank for almost $140 million (€132m) back in March. The acquisition will help Lunar to not only cement its presence in Norway, but also continue its Nordic expansion, as Instabank serves more than 60,000 customers in Norway, Finland and Germany. Although the deal has not yet been finalised, Instabank’s board of directors unanimously recommended the offer, as well as all top ten shareholders. Instabank’s footprint in Finland and Germany will accelerate Lunar’s geographical expansion in these countries.


Qonto’s recent acquisition of Berlin-based Penta follows a similar narrative. By taking over Penta, Qonto will be one step closer to becoming the largest bank for businesses in the European market. In 2021, Germany was Qonto’s fastest growing market with 170% YoY growth, and by reducing its competition in the region, this can only increase.



UBS and Wealthfront mutually cancel a merger deal worth $1.4 billion


Originally, UBS made an offer to acquire Wealthfront, a robo-advisor, in a bid to widen the Bank’s client base by catering to “less-rich people” in a cost-effective way, opposed to the ultra rich who are UBS’s typical client demographic.


According to UBS’s 2021 letter to shareholders, the Wealthfront acquisition was also expected to help “deliver a digital wealth management offering to Millennial and Gen Z affluent investors in the US, allow [UBS] to expand [its] wallet share, lower the cost to serve and drive long-term growth.”


The deal was cancelled in September, however neither firm gave a specific reason for backing out. Although robo-advisors have long been coveted for their money/time/personnel saving solutions, the cancellation raises questions about the disadvantages of integrating robo-advisor technology. As we see in the case of Lemonade and its anti-fraud advisor ‘AI Jim’, maintaining security and confidentiality can be problematic if the advisor requires swathes of data in order to function properly.


As part of the report ‘Robo-advising platforms carry new risks’, Deloitte states that the SEC expressed concern with operational risks involved, such as business continuity, privacy, resiliency, and the safety of automated systems. Deloitte also discusses the importance of a firm’s Know-your-customer (KYC) approach, as a robo-advisor integration should constitute more than a defensive stance, but also increase opportunities for heightened performance. The report places particular importance on Governance and Supervision and Customer Suitability, as shown below.




Source: Deloitte


Given UBS’s reputation for strict bank–client confidentiality and its strong culture of banking secrecy, the question of digitalisation through a third-party FinTech such as Wealthfront could pose a dilemma vis à vis current account holders who are preoccupied with discretion and a human touch when it comes to investment advice. By 2025, Deloitte estimates that assets to be managed with the support of Robo-Advisors will rise to over $16 trillion not far from the $18 trillion managed by traditional advisors as of 2020.


In the last months of the year we are keeping our eyes peeled for more cases of divestment as firms attempt to free up capital to combat a slow-down in markets. We are also interested to see the different ways that BNPL will make its comeback, as this last year is likely just a speed bump rather than a game-changer for the industry.


Stay tuned for the Q4 update on M&A in the FinTech space!




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