The fintech market is smokin’ hot right now. But is it headed into a warm, steady burn, or will it end up as a dumpster fire?
After a year in lockdown where consumers and investors saw Zoom stock zooming, investors are flush with cash (or stock) at the ready. Whether housing, used cars, or timber, demand is driving activity to record levels. Fintech is no different. Q1 2021 was the largest funding quarter on record, according to CB Insights, with fintechs raising $22.8 billion across 614 deals.
As fintech startups, challengers, and even mature fintech providers laser in on evermore specific pain points, investors pour funds into the payments, lending, data, and other approaches to pain relief. Here are some of the recent deals that have caught my eye.
Banks and fintechs are in a heated mashup and seeking niches.
- SoFi announced an agreement to acquire Golden Pacific Bancorp for ~$22 million, advancing the digital personal finance company’s regulatory pain point to obtain a national bank charter and offer more choices to both consumers and businesses. Reminiscent of LendingClub’s acquisition of Radius Bank, we first saw fintech challengers competing with banks, then partnering with banks, and now they are becoming the banks.
- Square acquired streamer TIDAL for $297 million, tapping into a customer segment of traditionally underbanked artists. As with SoFI becoming a bank, Square filed for a charter that would essentially make it a bank. Now, if Square can translate streaming business into banking business, it may bode well for further inroads into affinity communities for the fintech.
- Fifth Third Bank is acquiring healthcare fintech Provide. If SoFi and LendingClub’s acquisitions and Square’s charter acquisition show fintechs becoming banks, Fifth Third’s announced acquisition of Provide shows just the reverse … the bank becoming the fintech. Following competitor Key Bank’s acquisition of Laurel Road and creating a medical focused Laurel Road for Doctors, what Fifth Third gets in Provide is a focused, national medical capability.
- Sterling Bancorp made a strategic investment in digital banking company BrightFi’s parent Verdigris Holdings following a cloud-based banking-as-a-service partnership hatched to support non-banks. And, by the way, you may have noticed that BAAS is the buzzonym (buzzword + acronym) of the year and [insert anything]-as-a-service is the buzzonym sequence of the last decade? I’m seriously considering renaming this blog post GonzoBanker-as-a-Service just to see if it juices my portfolio by 25% and I can score a pile of new vintage vinyl.
- MVB Bank acquired the majority interest in fintech software development firm Trabian back in April following MVB’s fintech focus and prior acquisition of specialty fraud prevention company Paladin.
- Robinhood filed for an IPO which its CEO hopes is valued at $40 billion and S&P Global analysts pegged at $20-30 billion. Hey, what’s a mere $10 billion difference among friends? Perspective: that value would have Robinhood, a seven-year-old company that’s had more of its fair share of cold water thrown on it, worth half of established fintech giants like FIS, Fiserv, and Square and a quarter of veteran fintech challengers like PayPal and Intuit. You know a fintech app is sticky when your 19-year-old son is checking his Dogecoin position on the app during his first live concert after months of pandemic. So yeah, for any of you GonzoBankers still thinking that fintech is just a flameout, it may have lasting embers, okay?
- VISA acquired Sweden-based open banking apps platform Tink for a record-breaking 60X estimated revenues. It’s hard to think of a company more focused on traditional banks than VISA. And yet, VISA has been hankering for an acquisition in fintech-arming open banking with its first attempt being the scuttled Plaid acquisition (which Plaid doesn’t seem to mind, having since tripled its value). While Tink is Euro-focused, the intellectual property and lessons learned from the acquisition will ultimately help VISA worldwide.
- Wisconsin-based Horicon Bank announced the acquisition of Georgia-based fintech Monotto, which developed RoboSave, an app that looks at spending patterns to drive daily amounts into savings with goals and priorities. Part acqui-hire and part tech acquisition, the bank essentially made the two Monotto principals the leaders of all of the bank’s digital offerings, continuing to work remotely out of Georgia. Horicon pointed to being introduced to Monotto by its core provider Finastra. The bank plans to offer solutions to both its customers and other financial institutions. This acquisition speaks not only to the bank/fintech mashup but also to the future of remote-based talent.
- Nymbus announced two funding rounds totaling $68 million (including $20 million from Vystar Credit Union) and the related launch of a new CUSO – led by former Partners FCU CEO John Janclaes – to connect credit unions with fintech providers and advance digital solutions tailored to niche customer segments.
So What? Banks are becoming fintechs, fintechs are becoming banks, and all parties are increasingly looking for inspiration with specific use cases spawned from specific niches or target markets. Meanwhile, a rising number of players (including global firms like VISA) are looking to be connectors in the middle of it all.
Payments deals continue to heat up at the intersection of companies and payroll, commerce and communities.
- Fiserv acquired one of its distribution partners in Pineapple Payments, further integrating its payments platforms with small business needs. Fiserv will add Pineapple Payments’ existing merchants to the 25,000 already utilizing the Clover Network (gained from the First Data acquisition) to handle POS services. Combine this enlarged merchant network with the card control capabilities Fiserv gained through its Ondot acquisition a few months back and it’s an impressive batch of capabilities.
- Global Payments announced the purchase of Zego, strengthening Global Payments’ software portfolio in the real estate vertical.
- PayPal acquired Israeli crypto wallet Curv, investing in institutional technology that will make it more secure for buyers to hold cryptocurrencies. While it isn’t clear that PayPal has figured out how to make crypto work for the average user, its partnership with Paxos and acquisition of Curv suggest the company expects increased adoption of cryptocurrencies among institutional investors.
- If PayPal’s crypto investments don’t convince you that crypto has gone mainstream, how about NYDIG’s partnerships with FIS, Fiserv, Q2, and Alkami? Totally unprecedented for all four of these strong competitive providers to partner with the same firm and announce it within a series of weeks. Add in Kasasa’s and NYMBUS’s prior NYDIG announcements and Allied Payment Network’s announcement that followed and it’s like NYDIG is running the early cryptobanking table.
- Deluxe acquired First American Payment Systems for $960 million in cash, increasing the firm’s presence in the merchant services market and opening additional verticals for cross-selling. According to payments guru Tony DeSanctis, this acquisition seems like Deluxe’s response to Stripe …. which is to say, online payment processing for Internet-based businesses.
So What? Fintechs that offer early access to funds, better spend control, specific niches and crypto have been top of mind for investors in 2021. Financial institutions are learning what consumers have known all along: status quo payments are not quite good enough. And, they are investing rapidly to address the pain felt by employers, employees, and communities.
Delivery never stopped being hot.
- Alkami announced a 2021 IPO valuing the company at more than $3 billion as it heads from a strong run in the credit union market into the midsize bank market.
- NCR acquired both Cardtronics and Terafina. As GonzoBanker noted in February, NCR was one of the few digital banking providers without dedicated account opening capability. Terafina’s POS and digital deposit origination capabilities were attractive.
- Blend filed for an IPO seeking a valuation of $4B, or ~30X revenue (Q1 2021 revenue of $32M), marking a significant milestone for the mortgage point of sale (POS) and origination tech company that claims marquis clients like Wells Fargo and U.S. Bank. While the company initially focused on mortgage lending, the delivery ambition here is way beyond mortgage and point-of-sale. Alex Johnson covers this development well in FintechTakes. With Blend’s announcement (and Terafina’s acquisition by NCR), don’t be surprised by more acquisitions and investments in the hot POS space.
So What? Converting digital engagement into revenue through data, POS and origination solutions continues its hot streak with no end in sight.
Lending: Where there is smoke, there’s a growing fire.
- MeridianLink filed for an IPO estimated at $100 million following past funding from ThomaBravo, among others, as it seeks to pay down debt and further expand in the market.
- Jack Henry acquired its partner Stackfolio, gaining the intellectual property that drives a lending marketplace, centralizing communication and digital purchase/sale/trade transactions and related document transfers.
- Black Knight announced a planned $250 million acquisition of Top of Mind Networks, extending the mortgage banking tech firm’s capabilities into tech to help financial institutions grow as well as run their shops.
- ICE Mortgage (FKA Ellie Mae) acquired eVault Technology, integrating secure storage into its loan origination system.
So What? Whether it’s buy-now-pay-later or just getting digital lending done, look for midsize banks to learn from the experiences of 2021 to digitalize their services and reduce turnaround time through third party vendors that can add capabilities – especially capabilities that grow loans, not just process them. While we hear from banks looking to partner in fintech, we hear from more that want to learn from and copy how fintech challengers drive loan leads.
Traditional financial institutions have seen fintech challengers catch up to their position in many ways. Midsize banks and credit unions are racing to catch up with upstarts, acquisitions, or new value propositions supported by more established fintech providers. As financial institutions continue to spend to close this gap, watch for more deals related to third party digitalization and niche banking. With demand hot and new supplier deals growing by the day, the fintech market is a steady burn ahead as far as I can see. Tell me I’m wrong. What do you think could pour cool water on this hot market?
Any other fintech deals you’ve been watching that I missed here? Email me.
Shout out to Connor McAndrew for his contributions to this article.