Fintech forces the fate of US financials

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By Arlene Hahn and Dan Latham

 

Banks and insurers turn to M&A, as technology transforms how financial services are purchased and used

The financial services sector recorded 212 deals worth US$38.6 billion in H1 2017, a 42.4 percent uptick in value compared to the same period in 2016.

The insurance and asset management sub-sectors were especially active, with notable deals including KKR’s purchase of insurance broker USI Holdings for US$4.3 billion and Japan’s SoftBank buying investment manager Fortress Investment Group for US$3.3 billion.

Banking goes mobile

Digitalization has been a major contributor to M&A in the sector. Established corporations with large branch and sales networks have been challenged, as technology changes the way people use their products. JPMorgan Chase, Bank of America and Wells Fargo, for example, are all reporting double-digit annual growth rates in the take-up of mobile banking services.

“As consumers become more agile with smart devices, and therefore more trusting of devices and more dependent upon them, it is a necessity for every company that interacts directly with the customer to digitize‚ÄĒregardless of industry,” says White & Case partner Arlene Hahn.

For finance groups, which have significant investments in legacy infrastructure and are tightly regulated, M&A has been a valuable tool for exploring the market, bringing in new technologies and re-engaging with customers.

In March, for example, JPMorgan Chase acquired the payments technology of Merchant Customer Exchange (MCX), enabling its own digital wallet, Chase Pay, to include more merchants and attract new users by providing discounts and special offers.

Blockchain and beyond

As the application of technology to financial services develops, M&A will remain at the heart of how banks and insurers react to a changing market. Blockchain and artificial intelligence, for example, are still new developments, but will undoubtedly have a significant impact on financial services in the future.

According to boutique investment bank Architect Partners, 83 percent of blockchain deals occur between companies both involved in early-stage development. But the technology is gaining traction, with Airbnb buying ChangeCoin, a blockchain technology that enables micro-payments over social media, and Rakuten buying Bitnet Technologies, a developer of an e-commerce platform that accepts bitcoin payments.