It’s no secret that financial tech like digital banking services and even more speculative solutions like cryptocurrency have gained a lot of popularity over the recent years, and their popularity does not stop at the retail investing level. In fact, many large companies are buying out fintech companies so they can incorporate them into their own business.
In this article, we’re going to go over what fintech is, what M&A is, and why M&As for fintech are on the rise.
So what is Fintech?
Fintech is a pretty broad term. It is a shortened version of “financial technology,” which is exactly what it sounds like. This covers things from transaction apps like Venmo to your online bank account. It can also apply to cryptocurrencies, as those are entirely digital assets.
Contrary to popular belief, fintech is not that new of an industry. It was first conceived in 1886 when the first electronic transfer of funds occurred. That’s right, the first transatlantic cable allowed financial transactions to happen electronically in the 1800s. This technology would obviously evolve over time until it became the ultra fast and secure system that we know today.
What are M&As?
M&As are an abbreviation for mergers and acquisitions. Basically, when one company joins another company, you’ll have either a merger or an acquisition. A merger is when both companies combine to form a new company, and an acquisition is when one company incorporates the other under its name.
Mergers and acquisitions are an important concept to understand for every industry. If you want to know more about the M&A industry, check out this M&A expert’s profile on Crunchbase.
Why are Fintech M&As on the rise?
With cryptocurrency in particular making large moves in the market, many financial companies have announced large deals with fintech companies. $348 billion dollars worth of mergers and acquisitions relating to fintech companies were announced in 2021, and the trend is continuing into 2022 even with the bear market
For example, cryptocurrency company BitGo was recently acquired by GalaxyDigital for $1.2 billion dollars. The deal was first announced in May of 2021, and was set to happen in the first quarter of 2022. It was delayed, however, and is now set to close this week.
Cryptocurrency is not the only fintech that has been making huge strides in the past years though. Many new banking apps have emerged and have become widespread. For example, Venmo, a person to person money sending app, launched in 2009 and now has 83 million users. To learn more about Venmo, check out this Investopedia article on them.
Another fintech service is neobanks. They are companies that have started out their banking services online through apps or websites. The most common fintech neobank would probably be Chime. These banks differ from your typical banks as they offer little to no fees, no overdraft penalties, and earlier wage deposits.
Many larger financial companies are looking to acquire some of the newer neobanks and incorporate their services into their main brand. For example, Walmart’s fintech company, Hazel, is acquiring a neobank by the name of ONE – and is set to happen in 2022. You can read more about this acquisition in this article from PR Newswire.
Wrapping it Up
To summarize the contents of this article, we went over what fintech is, what an M&A is, and why fintech companies are being acquired and merged into other ones. Fintech is pretty much just internet money in layman’s terms. It is financial technology, so things from your bank app to cryptocurrency would fall under this. M&A refers to mergers and acquisitions. A merger is when a company joins another company to form a new entity under a different name. These types aren’t as common. An acquisition is when a company buys another company and does not change their name.
Fintech M&As have been on the rise recently for a number of reasons. First of all, cryptocurrency has recently taken off in recent years and has interested a lot of financial companies to invest into the scene more. Additionally, many startup fintech companies are becoming quite successful and are also attracting larger financial companies.