Investment in fintech boom: Acquiring Fintech Startups goes mainstream

Business growth through acquisition, mergers are particularly felt in the fintech sector recently. Potential buyers are turning to e-money institutions and payment institutions that have already gone through the licensing process. Fintech startups are popular acquisition targets for both banks and private equity firms. Fintechs themselves are also increasingly buying other fintech companies. As a result, the market for fintech mergers and acquisitions is growing steadily.

Fintech startups have been shaking up the traditional banking sector for several years. Fintech start-ups are becoming a significant force in the financial market. Thanks to modern technologies, customer needs can be met more effectively while ensuring a scalable cost structure. Although payments are the largest segment in terms of turnover volume, the margin of fintech companies is often low due to the intense competition. For this reason, size matters in this segment and increasing consolidation are to be expected. M&A represents an opportunity to advance their capabilities and expand into adjacent areas or geographies as their ventures mature and innovate.

M&A represents an opportunity to advance their capabilities and expand into adjacent areas or geographies as their ventures mature and innovate.

Moreover, not only size and opportunities for the expansion matter. Acquisition of a fintech depends on whether it has a team of IT and AML specialists. The access Single Euro Payments Area is important for companies planning their activities in the European Union / European Economic Area. For instance, a payment system operated by the Bank of Lithuania, CentroLink, lets EMIs and PMIs directly access the Single Euro Payments Area (SEPA) just like banks. It means that fintechs don’t need to do payments via a commercial bank. CENTROlink offers the widest range of SEPA services of any payment system in the region: credit transfers, direct debit and instant payments. Acquisition of an existing fintech with a Lithuanian license could be an option to get fast access to SEPA.

Fintechs are being snapped up by larger players

“For fintechs, consolidation and partnerships can drive scale via extending customer networks, access to new markets and deliver international growth. Bigger investors essentially admitting they would rather acquire a licensed company and will pay more, but will save time”, says Inga Kalulaitytė, a partner of law firm ECOVIS Proventuslaw, specializing in fintech licensing and advising companies in the field of mergers and acquisitions.

I. Karulaitytė also sees big tech and non-financial services firms enter the financial services space, with white-labeled fintech solutions likely to accelerate. Electronic money and payment institutions are an important part of the cross-border payment infrastructure. The latter, licensed in EU countries (also in Lithuania), they provide access to a wide range of payment processing services across the EU. For fintech companies, white labeling allows to expand a customer base, gauge interest in a potential product and stay relevant within a hyper-competitive market

ECOVIS ProventusLaw is an experienced M&A adviser

Fintech M&A must be done simultaneously with the protection and retention of their vital assets, including intellectual property, know-how, employees etc. Furthermore, the arranged contractual matters with investors, employees, business partners, suppliers, and customers must be legally valid, subsisting, and enforceable, while safeguarding the commercial interests. Regulatory matters– approving of the new investor by the Bank of Lithuania, detecting regulatory risks, etc. – are of key importance in Fintech M&A. As a result, a strong legal partner is vital during M&A process.

ECOVIS ProventusLaw has extensive experience in the technology market, with specific emphasis and expertise in financial technology (Fintech). It is a “one-stop” shop for FinTech clients pursuing strategic transactions, striving for regulatory compliance, or facing government investigations or litigation matters. ECOVIS ProventusLaw serves electronic money institutions, payment institutions, brokerage companies, insurance brokerage companies, investment funds, technology companies operating locally and worldwide. It provides local know-how as well as legal help provided by the ECOVIS partners from more than 80 countries worldwide. ECOVIS ProventusLaw experts provide legal help in M&A transactions with an emphasis on regulatory requirements, including AML/KYC, internal governance, outsourcing, etc.