The year 2024 is expected to witness an increase in fintech consolidation, driven by a search for synergies, efficiencies and enhanced competitiveness in an increasingly saturated market amid a tight financial tap.
Fintech players are likely to engage in more frequent mergers and acquisitions both within and across segments to expand their offerings, capabilities and customer bases, according to experts.
The consolidation trend can manifest itself in various forms, including mergers or acquisitions of Non-Banking Financial Companies (NBFCs) by fintech companies, aiming to leverage established licenses, capital and networks. Additionally, fintech-to-fintech mergers or acquisitions could become more prevalent, with players looking to enrich their value propositions, improve differentiation and foster innovation. For example, increased activity in the mergers or acquisitions of digital asset platforms is expected, as fintechs strive to tap into the burgeoning crypto and token economy.
The competitive nature of the market is likely to drive more collaborations and partnerships, both within the fintech sector and beyond. Fintech players are expected to collaborate with non-fintech entities, such as e-commerce, social media or healthcare platforms, aiming to integrate financial services seamlessly into their offerings. Similarly, collaborations with data providers, borrower agents, lenders and derivative data partners are envisioned as fintech firms seek to leverage an open and interoperable network.
Recent merger offers
Recent years have provided glimpses into this trajectory, with two significant acquisition bids failing. In 2022, CRED’s attempt to acquire a box faced challenges attributed to valuation differences, while PhonePe pulled out of the ZestMoney deal the following year due to issues discovered during due diligence.
The build-versus-buy debate in fintech is further complicated by regulatory uncertainties. Companies investing large sums in building verticals may face setbacks due to regulatory changes, making acquisitions an attractive alternative. Acquiring smaller players not only allows firms to tap into talent but also to import technologies better suited to navigating regulatory changes.
The revenue from acquisitions is also evident in cases like CRED’s acquisition of lending SaaS startup CreditVidya and the spin-off of NBFC Newtap in 2022 and 2021, respectively.
Similarly, BharatPe’s acquisition of Trillion Loans NBFC in 2023 signals its intention to deepen its lending footprint. The move is critical for BharatPe, which has traditionally relied heavily on commercial lending, and reflects a broader industry trend of large fintech platforms expanding their networks to accommodate smaller players with niche products.
There is a growing possibility that established fintech platforms may open up their networks to smaller players, fostering collaboration and innovation in the evolving fintech landscape.
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