Industry experts have opined that JPMorgan’s interest in Worldpay is likely to mark the beginning of acquisition of European fintech startups by banks. Although JPMorgan eventually decided not to table a bid, it had demonstrated an interest in acquiring the UK based payments processing company which is now set to be acquired by Vantiv, a U.S credit technology firm, for $10 billion.
Spencer Lake, the former vice chairman of global banking and markets at HSBC and currently the chairman of the Dublin based Fenergo says that it is “just a matter of time” and banks will start buying fintech companies as part of an initiative to automate more of their operations. He believes that while banks are currently investing as minority shareholders in fintech firms especially those that they are using in their businesses, this is set to change with time and banks will turn out to be not only majority shareholders but increasingly owners of fintech firms.
To Oliver Bussman, the ex-CIO at UBS, the fact that JPMorgan was interested in acquiring Worldpay did not come as a surprise. In fact, he believes that the bank dropped out not because it lost interest but probably because of the hefty price. He explains that banks are fully aware that with payments, the scale is an important aspect. He gives the example of the private equity subsector where many banks have invested in payment utilities. Bussman predicts that these payment utility companies will either be acquired by banks or stand alone and be listed. The U.S banks are expected to lead the way as most of them are very active and have corporate VC arms.
In April, the London based law firm of Simmons & Simmons surveyed 200 financial institutions and found that 31% of banks and asset managers expected to acquire a fintech startup within the next one and half years. According to Angus Mclean, the partner in charge of fintech at the law firm, while it is difficult to say the specific time when these deals will start happening, it would be surprising if no high profile acquisitions are witnessed in the next 12-18 months.
John Salmon, a partner at Hogan Lovells says that he often speaks to banks “that don’t want to miss out.” He also believes that M&A activities in the payments space are likely to increase in the next few years. This is likely to be motivated by the PSD2 and the Open Banking Regulations expected to take effect in the European Union from January 2018- under which, banks are required to open up their payment infrastructure to third party providers such as fintech companies.
Although many people see fintech companies as a threat to traditional banks, Salmon sees them as an opportunity. He believes that some banks will acquire fintechs to gain an advantage over their competitors. He notes that while some established fintech companies may not be willing to be acquired by banks, once they are listed or there is a majority shareholding, they will have no option.