Value Creation for Banks, FinTechs and Non-FinTechs through FinTech M&A

Updated: Jul 15

A sample collection of 51 mergers and acquisitions (M&A) in the FinTech space has been used to inform this analysis. All deals date between January 1st to May 25th, 2022 - the majority closed in 2022, however some are still under negotiation.

Banks are increasingly acquiring FinTechs, however have only been the acquirers for 8 of the 51 deals recorded since the beginning of the year. Of these Banks, less than half were Traditional banks, which generally acquired companies that were considerably older and better established than those acquired by their Neo-bank counterparts.

Despite the 2021 hype around companies offering Buy Now, Pay Later services, the sample shows that this sector is decreasing in popularity - BNPL only accounted for 2 deals, or 4%. This indicates that the recent crash of BNPL stocks like that of Affirm and Sezzle cannot be blamed on Apple’s launch of its Pay Later product, but may be a result of compounding stress on the industry as interest rates rise, spending decreases, and top BNPL players like Klarna run low on money from investors. It is rumoured that Block paid $23 billion too much for Afterpay.

Companies offering Payments, Credit and Cryptocurrency services are most often the acquisition targets, accounting for 54% of deals combined. Although BNPL firms historically threaten the market share for Credit companies and Banks alike, Credit companies are profiting in unexpected ways from the competition.

Continue reading for a more in-depth analysis on what successful acquisition looks like for Banks and FinTechs, as well as why Credit companies are making their comeback.

Image displays only the first 20 deals included in our sample. If you would like access to the full list, please visit the C-Innovation website.

What are banks targeting?

Focus on smooth integration


The sample of deals from the last 6 months suggests that Traditional Banks are more likely to acquire an older FinTech, as they are better-known and well-capitalised, representing less risk for shareholders.

The sample shows that Neo-banks acquire companies with an average age of 10 years, excluding Revolut’s acquisition of Arvog Forex, a company established in 1996. For Traditional banks, the average age of acquired companies is 17 years, excluding Goldman Sachs’ acquisition of NextCapital Group, also established in 1996.

Although neither Wealthfront nor FLOA Bank are considered Blue Chip companies, when they were acquired by UBS and BNP Paribas, the banks gained immediate access to almost 3.5 million customers. In fact, from the sample, the average number of customers acquired by Traditional Banks is almost 8 times greater than the average number acquired by the Neo-banks Tinkoff, Tandem, Lunar, Revolut and bunq.

An increased customer base can, however, pose disadvantages to the acquiring Bank, as with significant customer acquisition may come post-integration difficulties. If some customers do not see the benefit of the M&A, or integration dissolves important relationships or services, this can render the deal obsolete. Deloitte reports that through the process of acquisition, FinTech employees may struggle when forced to merge with a Bank because they believe in disrupting the very industry that the Bank represents.

The risks involved through significant customer acquisition make it improbable that customer acquisition be the focus of the M&A strategy. Instead, Traditional Banks seek first and foremost to fulfil a niche capability by completely absorbing the smaller company in order to gain its intellectual property or resources. Otherwise known as a Tuck-in deal, this is an alternative to chasing strategic transformations.

Although it did not participate in any of the deals so far in 2022, Starling Bank’s M&A strategy resembles more closely that of a Traditional Bank than a Neo-bank. Rather than focusing on sky-high valuations like Revolut and N26, Starling Bank sought profitability, and as of May, Starling Bank and Zopa were the only two Neo-banks currently profitable in the European region, both operating out of the United Kingdom. At this time, Starling Bank boasted a war chest (a pool of funds it uses for acquisitions in the lending space) at the value of $160 million (£130.5m). These funds enabled its acquisition of Fleet Mortgages in July last year for $61 million (£50m), a Bolt-on deal that allows the Bank to expand its offering through a new niche by poaching FinTechs in adjacent areas of banking rather than acquire a competitor through want of customers. bunq follows a similar narrative, last year acquiring Irish lender CapitalFlow, and more recently, Tricount from Belgium.

This is a different strategy to that of Lunar Bank, which offered to purchase all shares of Instabank for almost $140 million (€132m). If accepted, the deal 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. This deal is motivated by a desire to increase customer reach, and even for a Neo-bank, is a rare occasion. Radboud Vlaar, managing partner at Finch Capital, sums it up in Sifted’s article when he says, “All of [the Neo-banks] wanted to go to the US, all of them wanted to be pan-European, all of them were adding all the same ‘different’ features… There’s been a lot of duplication.” He adds that Revolut would rather see bunq and N26 go bust than buy them.


In May, S&P Global reports that since 2012, only 3 deals by Banks surpassed $1 billion in deal value, whereas in 2021 alone, a total of 16 FinTech deals worth over $1 billion were made by FinTech firms and private equity investors. In other words, Traditional Banks do not have a strong track record of targeting FinTechs.

Traditional Banks and Neo-banks alike encounter similar challenges when it comes to FinTech acquisition. A report by McKinsey explains that Banks should make M&A an integral part of the capital-planning process in order to best place their assets for future success and expansion, and constitutes a process that can last many months or years. It involves constant adjustment of their candidate scanning, prioritisation, and progress review, enabling identification of the highest-potential investment. The high-growth nature of FinTechs and their competition-intense market mean that Banks should make deals quite quickly to gain an advantage, yet this is not compatible with the long-term approach to M&A that is historically essential to value creation.

Regardless of how many customers FinTechs may have, or how innovative their technology is, if they have not yet proven their long-term sustainability, they risk being overlooked when it comes to acquisition by Traditional Banks. FinTechs may be able to increase their ‘attractiveness’ to Traditional Banks if they focus on profitability and their unique selling proposition more so than customer acquisition. It may be through a fixation with increased customer base and valuation that FinTechs unwittingly create challenges for smooth client and shareholder integration with Traditional Banks. Alternatively, Neo-banks’ superior digital infrastructure makes FinTech acquisition less frictional than for Traditional banks, and for this reason customer acquisition plays a more prevalent role in their strategy for market dominance. Neo-banks toe the line between Traditional Bank and FinTech, making it possible to either be acquired, or acquire. Their growth strategy should be implemented accordingly.

What are FinTechs targeting?

Focus on differentiation

Global FinTech saw its biggest drop in funding in three years in the first quarter of 2022, Sifted reports. As companies look ahead for the best opportunities in M&A, they will have to consider the consequences of the current economic downturn and rising interest rates all over the world.

From the sample, 25 firms that acquired FinTechs are also FinTechs themselves.

This sample includes big names such as Robinhood, Coinbase, and Zip. The companies’ press releases cited a number of varying reasons as to what drove the deal, ranging from a desire to launch crypto derivatives, as was the case for Coinbase’s acquisition of FairX, or global expansion and scale-up in the case for Zip’s deal with US-based Sezzle. Despite the varied reasons for each deal and their unique context, when simplified, they can be categorised into a desire for either Product Expansion, Geographical Expansion, or Product Enhancement.

Product Expansion: the integration of new technologies and services to the existing offering

BeSmartee, Coinbase, Block, Amount, FIS, SoFi, Shift4 and Fireblocks seek Product Expansion. In February, Fireblocks’ acquisition of First Digital, a stablecoin and digital asset payments technology platform, provided the digital asset security firm with the infrastructure required to now allow payment service providers and acquirers to deal in digital currencies.

Geographical expansion: the expansion to other countries or regions as a way of increasing customer reach

Robinhood, Amber, Evertec, Zip, Shift4, PPRO and FTX made acquisitions in the beginning of this year which were primarily motivated by Geographical Expansion. Zip co-Founder and Global CEO, Larry Diamond, explains that combining with Sezzle positions Zip as a leading global BNPL provider, and “prioritises our ability to win in the US market,” as part of the road to profitability.

Although Lunar Bank’s proposed acquisition of Instabank seems rooted in a desire to swallow the competition, Instabank has a footprint in Finland and Germany, which would accelerate Lunar’s Geographical Expansion in these countries. Instabank was arguably targeted over Holvi, another Nordic Neo-bank, for its modest size, serving 60,000 customers compared to Holvi’s 200,000, but also due to the direct competition it poses in Norway.

Product Enhancement: to improve, but not significantly change, the pre-existing offering

Plaid, Trulioo, MeridianLink, MoneyMe, Perfios, Papaya, Fiserv, Alkami, Paddle and are FinTechs acquiring for Product Enhancement. acquired the Over-the-counter Desk from Altonomy in March, adding to its existing OTC trading capabilities. Altonomy handled over $16 billion in spot market OTC trades last year, according to Coindesk, and has since sent 26 of its employees to as part of the deal. Paddle, a firm offering payments infrastructure for Saas companies, acquired ProfitWell in May, with a plan to leverage its subscription growth services to improve analytics, customer retention tools, and increase its customer base - ProfitWell’s customers include Canva, Prezi, Meetup and Vice.

What are non-FinTechs targeting?

Focus on building the ecosystem

Non-FinTechs, for the purpose of this analysis, are defined as any company whose primary operations do not involve Financial Technology. The group is a mix of firms ranging from sectors such as HealthTec and software engineering to venture capital. Apple has been considered in this group as it is predominantly BigTech, not FinTech, despite an obvious overlap with services such as Apple Pay.

As McKinsey points out in its report advising banks on successful M&A, it is important to establish a value-added integration management office (IMO), rather than make acquisition just one part of another checklist. The top tier consulting firm recommends frequent evaluation of company synergies, as over the course of the deal, they can change. Partnerships, joint ventures and alliances should be assessed when considering the right acquisition target. In the case for Apple, the company’s size allows it to benefit from such alliances directly, but also by proxy.

Since August last year, Apple has worked with Goldman Sachs as its bank issuing partner to deliver the Apple Card, and both Apple and Goldman Sachs acquired companies in March 2022; Credit Kudos and NextCapital Group respectively.

Credit Kudos, a firm that develops software for more informed credit checks through Open Banking, is a valuable asset to Apple given the development of Pay Later and Apple Cash through the subsidiary Apple Financing LLC. NextCapital Group, on the other hand, is a firm delivering digital financial advice and retirement plans to customers. As Goldman Sachs pursues its own acquisition strategy, it has the potential to create new opportunities for its allied companies, such as Apple.

This phenomenon has already been observed by McKinsey when, in 2018, Goldman Sachs acquired Final. Goldman Sachs gained a dozen engineers and product managers who knew how to build a finance product from scratch, and Final’s expertise allowed it to add features for fraud and theft protection which directly benefited the Apple Card. On this premise, Apple may be able to leverage the HealthTec infrastructure that Goldman Sachs will acquire through NextCapital Group to further develop its own products already catered predominantly to seniors.

Source: PatentlyApple

This is not to say that the priority is always to build on the ecosystem, through new alliances and partnerships. McKinsey also suggests that a bank, or company in this scenario, should tap divestitures to strengthen value creation. In February, Apollo acquired WorldLine’s TSS (Terminals, Solutions & Services) activities, and although this represents only a partial acquisition, from the group sample it is the only case of divestiture by WorldLine. The transaction will simplify the group structure, help to increase its focus on its core activities, and “massively deleverage” its balance sheet by cutting debt.

3 standout trends

27 FinTechs of the 51 acquired in the sample provide services in either Payments (15), Credit (6) or Cryptocurrency (6). The graph below demonstrates these trends in green. The graph also suggests frequent acquisition of Business value services (11), which serve as an umbrella category for Invoicing services, Salary services and Customer ID services - lines of business which are infrequent when isolated.

Payments & Crypto

30% of FinTechs acquired in our sample provide payments services. It is no secret that since the Covid-19 pandemic, e-commerce sales have boomed. In 2021 in the US, e-commerce sales represented 13.2% of all retail sales, and were up by 50% compared to 2019, accounting for $870 billion. McKinsey research suggests something similar, that not only will this shift in consumer behaviour persist in the long term, but that online sales could account for close to half of all retail revenues by 2024.

Increase in cashless payments is not limited to the retail sector, but these numbers give a good indication of the success (and need) for FinTechs offering digital payments services. FIS’s acquisition of Payrix is part of its strategy to enhance embedded payments for SME customers, whilst Fireblocks’ acquisition of First Digital is an example of cryptocurrency platforms’ efforts to integrate mainstream payments networks.

Just as cryptocurrency firms aspire to collaborate with those in payments, the reverse is also true. Payments firm Shift 4 acquired The Giving Block, a firm specialising in cryptocurrency fundraising for non-profits, which will allow it to develop its first-ever cryptocurrency services.

In addition to The Giving Block, the acquired firms from the sample which provide cryptocurrency services are Aximetria, DeCurrent, Liquid, and Ziglu (excluding OTC Desk from Altonomy). Robinhood’s acquisition of Ziglu will facilitate its expansion into Europe, whilst Amber’s deal with DeCurrent, and FTX’s deal with Liquid, will allow for access to the Japanese market.

CoinMarketCap reports that as of April this year, the total market value of cryptocurrency sat at just over $2 trillion. This is significantly higher than the Global Payments Market Cap which stood at about $35 billion around the same time. If payments firms can tap into the cryptocurrency industry, they expose themselves to a lot more capital. Deloitte expects to see more tie-ups between FinTechs as cryptocurrency and decentralised finance capabilities evolve, having observed that crypto and blockchain was the fastest growing sector for early- and late-stage funding in 2021.

Source: PWC


For the purpose of this analysis, a distinction has been made between Credit and Buy Now, Pay Later (BNPL) and are not the same. BNPL business models rely on consumer spending and as interest rates rise, providers’ margins are suffering. Credit, on the other hand, is a different story. This section examines the popularity of Credit firms in more detail in order to make sense of the BNPL ‘bubble’ and what this means for other FinTech lenders.

A survey by Finder and Pureprofile found that in 2021, 53.2% of Americans said they had taken out a personal loan in their lifetime, and this is on an upward trend. This is partly due to the nature of millennials' career goals and exposure to quick and easy loans in the digital age, accelerating the growth of the Credit sector. A Bentley University Study found that 66% of millennials surveyed indicated they would like to start their own business, meaning they will also need tailored loans, an idea supported by Milton Ezrati, chief economist for communications firm Vested, and Senior Contributor to Forbes. These are the kinds of loans you cannot get from BNPL providers, whereas firms like FLOA and SocietyOne, part of the sample group, exercise minimum loan amounts of about 500 EUR and 5,000 AUD respectively, judging from their simulators.

Ezrati also explains that as banks are more adept to “shift quickly” among FinTech firms, and competition and innovation continues to increase, so will the demand for more lending and better ways of accessing it. This is compounded by Banks’ need to retrieve lost market share as fast as possible, preferring to buy or lease digital lending solutions than build them themselves.

In 2016, Bain & Co. estimated that banks could only process around 7% of their loans digitally. Although billions of dollars are invested into the institution’s technology, most of it is focused on improving security and analytics rather than lending. This has allowed non-bank lenders like Credit FinTechs (as well as BNPL firms) to take significant market share, causing community banks’ share of small business lending to drop from 77% to about 40% in just a few years (region not specified). According to McKinsey, consumer finance, mortgages and lending to SMEs are areas that could lose up to 40% of their revenue by 2025. The aftermath of the GFC contributed to these losses when many banks tightened regulation around lending, and the new rules designed to improve banks’ resilience also resulted in widening the SME credit gap.

Finder and Pureprofile also show that of the 131 million Americans surveyed, the most popular reason for borrowing was debt consolidation, at 37%. The second most cited reason was to build a business, at 27%. These numbers suggest that Credit FinTechs are not only in a position to capture interest from lending to entrepreneurial millennials, but first and foremost to profit from loans being used to pay off… other loans. The charity Citizens Advice recently reported that 51% of 18- to 34-year-olds in the UK borrowed money to pay off their BNPL debts.

As financial regulators begin to catch up with BNPL providers, M&A in FinTechs offering broader forms of Credit allows the acquirer to capture a greater share of interest from borrowing that may first meet the eye. Credit FinTechs are also far better equipped to absorb losses, as thorough checks are performed and revenue streams are more complex than those of most BNPL companies, which charge little interest and zero/few late fees. What’s more, firms like Afterpay cannot legally sell a customer’s debt to a debt collector if the person proves financial hardship, making the company vulnerable to irresponsible borrowing.

To conclude, Payments and Cryptocurrency are becoming increasingly complimentary. Companies that want to expand Payments opportunities will be looking to do the same for Cryptocurrency, and vice versa. While expectations that BNPL will reach $860 billion in sales in Europe by 2028 may now seem overly optimistic, Credit makes its comeback.

Banks have varying strategies depending on their own size, war chest and digital capabilities; across the board Banks have a pension for gaining intellectual property and a profitable company. Customer acquisition poses unique challenges and advantages depending on whether the acquirer is Traditional or Neo. As for non-FinTechs, building an ecosystem whereby companies can access/benefit from digital partners is essential for sustainability.

Note that the above summary is an analysis based on online research carried out in May - June, 2022, and is intended to inform a conversation on the role of M&A in the financial industry.

Any information that lacks a hyperlinked source has been taken directly from the report, in which each source is cited. For any queries about our sources, please contact us here.

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