Global fintech funding hit record high last year, but M&A in the space hasn’t followed suit.
VC-backed fintech companies raised nearly $40 billion (up 120%) across 1,707 deals globally (up 15%) over the past year, according to data tracker CB Insight’s latest fintech report on Tuesday.
Despite this funding surge, big banks have largely stayed on the sidelines when it comes to buying these upstarts.
From 2013 to January 2019, banks acquired or took majority stakes in a total of 20 fintech companies. Goldman Sachs was the most active fintech buyer over this time-period, acquiring companies including personal finance app Clarity Money and credit card startup Final.
Big banks are largely known for their archaic, slow-moving technology systems— why aren’t they buying disruptive fintechs at a faster clip?
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Regulatory challenges to getting deals approved are the biggest impediment, said Lindsay Davis, a senior intelligence analyst at CB Insights. In addition, it’s cumbersome to integrate cloud-native startups into the banks’ legacy infrastructure. Finally, there are cultural barriers — it’s tough to bring in a young entrepreneurial team and integrate them into a structured banking environment.
This trend is likely to continue in 2019, as these challenges will continue to hinder banks’ efforts to do big deals, Davis said.
To be sure, big banks are still making investments in startups, even if they aren’t making outright acquisitions. A separate CB Insights report shows that the 11 largest US banks by assets participated in 49 equity rounds to fintech startups through November 2018.
Another trend the report highlighted is North America’s role as the powerhouse underpinning global fintech funding growth is weakening.
In 2018, deal-making activity in US reached a 5-year high, with fintech upstarts raising nearly $12 billion. Yet, that figure is overshadowed by a big uptick in Asia. During the same period, Asian fintech companies raised $22.6 billion across 516 deals. Ant Financial, which runs one of China’s most popular mobile pay systems Alipay, made a total of $14 billion investments in fintech, accounting for a whopping 35% of total funding into the industry.
“The US has been a global leader in the last 10 years, but Asia has quickly caught up,” Davis said. “Even though the US continues to be a leader, Asia is closing the gap. ”
The US has also lagged behind Asia when it comes to the adoption of digital payments. North America still heavily relies on payments methods like cash and cards, whereas in Asia, mobile payments apps like Alipay and WeChat Pay have sweepingly pushed those countries towards cashless economies.
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