One of the clear winners, if there is such a thing of the current economic situation, will be fintech companies. And we can expect to see a wave of fintech M&A as a result.

There was already a trend towards digital platforms in the financial services industry.

Now it’s just accelerating.

Even those who prefer a hands-on face-to-face meeting on financial matters are turning to online platforms. They have to do so. Many banks are only offering drive-through services. This means more complex transactions are moving online.

Why Fintech M&A Will Heat Up

The shift to increased digital use in financial services will also accelerate the fight between incumbent banks, brokerages, and insurance companies to capture market share in a new digital marketplace.

Underfunded startups will struggle. They lack the ability to spend billions of dollars a year like their larger financial counterparts. The smaller firms will also need to find funding sources to survive until economic activity begins to normalize.

Fintech companies also have to be very careful about execution risk right now.

Consider Robinhood, the online brokerage firm.

Their system failed as markets became disrupted by the spread of the coronavirus virus in the United States. The future of the firm is uncertain at best. Active traders are moving their accounts, and there may be lawsuits over lost opportunities due to recent outages.

I expect to see an increase in Fintech M&A activity as the crisis begins to come to a close. In fact, some players like Intuit are being aggressive in the face of this crisis. Consumer-facing targets appear to be the key market for the years ahead.

Many smaller fintech companies have great ideas and products, but they lack funding. As larger traditional finance and fintech firms are looking to increase their offerings, they will find it easier and cheaper to buy rather than build.

By: Tim Melvin