No Match Found
A recession, should one occur, has a way of separating the weak from the strong in any industry. And many fintechs may be at risk of failure in an economic contraction. Among neobanks, just 5% of 400 firms worldwide are profitable as a slowdown looms, reports American Banker.1
Additionally, many fintechs are dealing with more regulatory questions about their products. And they’re trying to convince employees to stay as a rout in stock prices dashes dreams of a rich, stock-option payday. We've seen ETFs that track the value of global fintech stocks lose as much as half of their value since last year's all-time highs.
The disruption could prove advantageous to incumbent banks and other financial industry players. Buying a fintech’s intellectual assets, executive experience and cloud expertise could help them transform their use of the cloud to mine data and get closer to the customer. And incumbents’ regulatory expertise, along with their stable balance sheet, could make a difference between success and failure in a tough economy.
All told, the conditions might be ripe for more mergers. And plunging fintech valuations might be the spark that makes it easier to structure a deal that’s accretive to both firms’ earnings.
That’s easier said than done, of course. PwC’s work for top tier financial services companies has revealed some valuable fintech integration lessons. Below, my colleagues Joshua Carter, Chelsea Hamilton and Jacob Sciandra share their five steps towards a successful fintech merger.
1Crosman, Penny. “Warning signs emerge for neobanks: ‘Doomed to not survive,’” American Banker, June 22, 2022, accessed on Factiva on June 22, 2022
“Quite often, no one within a company is clearly accountable for delivering on the business thesis driving a deal,” says PwC principal Joshua Carter.
Deal terms should be structured to both reward top talent for their past success and keep them motivated to deliver on their part of the merger strategy.
There are two potential points of failure related to technology competition that require executive leadership before and during integration.
For fintech employees who are used to informal ways of working, it can be bewildering to navigate a large company.
Deal terms should make clear that there are items on which there can be no compromise, such as consumer marketing rules, money laundering and cybersecurity.
Negotiating a merger with a fintech might be more challenging than other kinds of deals, but in this time of accelerating technological change, it can be well worth the effort if the tie-up strengthens your institution and its digital transformation.
We believe that banks and financial services firms that can honestly address issues of fintech leadership, culture shock and compliance early in the process have a higher probability of successfully integrating a fintech than those that don’t.