No man is an island when it comes to fintech, and in the pursuit of a better world driven by better financial services, it’s clear that standing together means progressing together. This September at The Fintech Times, we’ll be delving into every corner of what it means to be a fintech ecosystem. We’ve dedicated the entire month to investigating what makes a successful fintech ecosystem, how fintechs can work together more effectively, as well as providing a regional view of some of the industry’s best examples of community collaboration.
It’s difficult to overstate the impact of the covid-19 pandemic on the fintech industry. While being kept apart, financial technology brought us closer together, and while cash crept away, digital services filled its vacancy.
But what does the situation look like through the lens of our fintech ecosystems coverage? In line with our investigation into expansions, mergers and acquisitions (M&A), which is headlining our final week of stories, today we’ll consider how the pandemic went on to redefine the behaviour of M&A, and we’re joined by a range of different experts to help us find out.
The Blind Date M&A
“The Covid-19 pandemic has redefined the way in which we conduct day-to-day business,” begins Karl Viertel. “Not only have working conditions changed (remote working, hybrid working) but, more importantly, the attention decision-makers put into critical aspects of their business like: supply chains, cyber security risks, compliance with different key regulations, and many more.”
Viertel is the GRC general manager at Mitratech, a provider of end-to-end software solutions for enterprise legal, compliance and HR professionals.
According to Viertel, although many enterprises suffered economic losses due to the pandemic and the new challenges it created, it didn’t quite slow down mergers or acquisitions in the financial services industry.
“Why?” he questions, “well, innovative fintech solutions have the potential to create significant socioeconomic impact and redefine the mechanics of the financial services industry.
“After all, fintech organisations are born out of a need to bridge the gap in traditional approaches to doing business in this space.”
Continuing his argument, Viertel confirms that the pandemic did make the M&A process very interesting.
“Building practices that effectively help analyse, acquire and integrate technology into the organisation is crucial to any successful M&A,” he explains.
During the virtual-only phase of the pandemic, the company completed three transactions completely virtually without meeting any stakeholders in person or at best very late in the process.
“If you don’t have the right technology, the right people, or the right processes in place you are at risk of a ‘Blind Date M&A’ scenario,” continues Viertel.
So, why are there still many successful mergers happening in the fintech space throughout the challenges of a pandemic? Viertel goes on to share some of his thoughts on the matter.
Opening his first point, Viertel points out that many fintechs are less than a decade old, making the probability of these companies being highly digital to begin with very high.
“This makes due diligence processes significantly easier as relevant assets are available digitally and sharing without physical meetings is easier,” he explains.
Developing his second point, Viertel comments that the willingness of buyers drove M&A through the challenges of the pandemic.
“Nothing is more true if this will has a strong financial motivator attached,” he says. “Even if the working parameters for M&A transactions were more difficult during the pandemic, the strong financial incentives in the sector made many teams go above and beyond to make the deal happen.”
Concluding with his third point, Viertel emphasises how, although regulatory oversight might be considered a curse for some fintechs, “in this case, it may reveal itself to be a blessing.”
“Maturity of processes in risk management, operations, certifications, cyber security management, and even ESG risk management is required of many fintech in an early stage,” he says. “This makes them grow beyond their age and become more attractive targets for a simpler M&A process.
“As business needs grow and evolve, so does the demand for innovative digital solutions unfolding the possibility of new M&As that power up organisations and take them to the next level.”