28 February 2024
As we wait for interest rates to fall in the UK, the FinTech market is back in play. The signs are favourable again after a volatile couple of years due to various global economic and political challenges.
Looking at the WealthTech sector in particular, which is very strong within the FinTech world, 2023 was surprisingly active on the M&A front. Research published this week shows 104 deals involving WealthTech companies, up 8.3% from 2022 and within touching distance of the 108 mergers and acquisitions in 2021. That was a record year for the WealthTech sector!
While the digital revolution was already underway, as interest rates seem set to turn downwards, more companies are now looking at long-term cost savings. This has brought the broader FinTech sector into play with a particular interest in wealth management.
Two of America's largest credit card companies, Capital One and Discover, have agreed to a $70 billion-plus merger. This places the enlarged group in direct competition with JPMorgan Chase and Citigroup and is already causing ripples on the payment network front.
While the headline news is focused on credit card operations, Discover also has a payment network system that will now (due to the power of the combined group) be in direct competition with Visa and MasterCard. Capital One expects regulatory clearance by the end of 2024/early 2025, but there may be some delays with the presidential election on 5 November.
Analysts believe this deal will prompt M&A activity in the US and the broader FinTech sector. It looks like Capital One has lit the blue touch paper, and for many large financial operations in the US in particular, it could be a case of acquire or be acquired.
It has been a volatile couple of years for previous UK FinTech darling Monzo. Founded in 2015, before the economic challenges of recent years, the company was doing everything right, and the valuation kept rising – then the downturn. The ongoing £350 million fundraising is expected to value the company at £4 billion and reflects a sentiment change amongst investors.
While the company is still loss-making, it passed the 9 million customer mark in 2023 with an impressive 380,000 business customers. This covered the period up to February 2023, after which the company confirmed it was profitable in March, but no exact figures were provided.
This latest fundraising has attracted the attention of international investors, with many suggesting it is a precursor to the much-rumoured IPO. This was initially expected in 2025/26, but if the market continues to recover and demand for IPOs follows suit, could the long-awaited IPO be brought forward?
Even though we knew significant funding was still available for FinTech companies during the downturn, a strong 2023 and high expectations for 2024 have surprised some analysts. There is uncertainty about the timing and speed of interest rate reductions in both the UK and the US, but markets are taking it for granted they will be sooner rather than later.
While the Fed and the Bank of England have confirmed as much, mixed economic data is causing some confusion. Even more potent than expected financial data in the US has merely delayed the inevitable move by the Fed, a welcome degree of certainty in difficult times.
There are signs in both the US and the UK that the FinTech market is improving, with WealthTech proving particularly popular in the UK. The merger of Capital One and Discover in the US has lit the blue touch paper for the US FinTech M&A market. As we know, what happens in the US tends to be replicated elsewhere. Is it starting to feel like a bull market in the FinTech sector?
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