FinTechs: A Question of Acquisition or Partnership

FinTechs & Incumbents – a difficult relationship

The relationship between FinTechs and incumbent players has been a dynamic one. Attitudes differ significantly – some players view FinTechs as a competitive threat, whilst others see them as a resource – someone that they can partner with. The same is true on the other side of the coin, specifically FinTechs either looking to establish a partnership with an existing player, or break free from the shackles that such a partnership may entail. Notable examples include TransferWise announcing its intentions to move forward with a greater degree of independence.

Are FinTechs an increasingly attractive acquisition target?

An emerging trend that has come to light has been large incumbents viewing FinTechs as more of an acquisition opportunity as opposed to partner. A survey carried out by IDC and SAP highlighted these trends in more detail. The acquisition attitude is most prevalent in APAC, where 31% of global banks view FinTechs as possible technology acquisitions. This contrasts with EMEA, with just 22% of banks holding this view. This raises a particularly interesting point as EMEA is the region that feels most threatened by FinTechs. 30% of banks in EMEA believe that FinTechs represent a possible threat, which contrasts with a mere 18% in APAC . Based on this, it is possible to assume that the perceived threat of FinTechs is not the driving factor behind acquisition. Indeed globally, many banks see them as potential collaborators – this view is most present – two regions where FinTechs are seen as more of a competitive threat.

The natural path from partnership to acquisition

It is clear attitudes towards FinTechs globally contrast. However, the current hypothesis is that incumbents will increasingly view FinTechs as acquisition targets. This is due to the fact that incumbents have/ will have had the chance to partner and experiment with FinTechs. Having had this opportunity, many will feel in a stronger position to take a calculated bet and make an acquisition. Effectively, this will likely become the common trend as incumbents reach the end of the path, having experimented with trying to compete directly, partnering with FinTechs and finally settling on acquisition. Regardless, one trend remains consistent – the desire amongst incumbents to be in some way linked to a FinTech. This sentiment is born out of a FinTech’s ability to move fast, innovate and bring the technical capabilities that incumbents often lack.