M&A is driving digital transformation across financial services
We have witnessed significant growth in the number of mergers and acquisitions (M&As) taking place within the fintech space to meet the growing demand for a digital experience offering.
However, due to high market multiples, many companies opt to go public rather than to be acquired, which has given birth to a fresh wave of special purpose acquisition companies (Spac) deals. When faced with inflation and an overpriced stock market, these types of deals are perfect for market players looking for a more creative approach to bringing a private company into the public market.
Yet we are already starting to see a calm down in terms of quantity and scale of Spac deals taking place. While the number is falling, likely due to a lack of liquidity, the subject has raised some interesting questions.
Should the UK be relaxing regulation on these types of deals? To ensure healthy capital flows into the industry, many argue that the UK needs to take a fresh look at its approach to the more exotic financial instruments.
For those companies that are deciding to go down the M&A route, there have been some noticeable trends taking place, including a strong preference to partner with companies that can provide the following:
- Single solution provider to orchestrate multi-vendor operation
There are an increasing number of new technology vendors approaching financial services firms offering solutions that promise to reduce the noise and offer clear access to a variety of technologies.
- Customer experience (CX)
Due to the pandemic, financial services are looking to enhance client engagement and improve how they interact with their customers.
- Data insights
Increased automatisation of decision making and on-boarding of clients based on data orchestration.
- Building a foundation in the cloud
For an organisation’s digital transformation to reach its full potential, the proper infrastructure is essential. Open-banking partnerships, powerful consumer behaviour insights, and instant transactions from any device are entirely dependent on access to the right technology.
Levelling the playing field for financial services
While the pandemic has undoubtedly been an unavoidable catalyst for many, the increasing regulation of financial services has long been a digital transformation driver.
The increasing list of standards and regulatory demands for financial institutions to meet has created an almost constant technological improvement chase. Larger banks have profitability and scale, which has allowed them to build technology in-house rapidly. However, this is not possible, nor profitable, for the smaller and medium-sized banks.
To overcome this, a recent report by PitchBook outlines how incumbent banks are increasingly choosing to partner with managed-services providers to look after their non-differentiating banking activities.
We believe that this is an essential first step for any smaller or regional bank looking to improve its profitability. It will enable them to focus on what truly makes their bank unique and what makes it stand out against its competitors. A managed service provider can then allow banks to focus their energy on building strong customer relationships and trust.
This realisation was undoubtedly a key driver for Prytek’s acquisition last year into Delta Capita, a global managed service, technology solutions, and consulting provider for financial services. The purpose of the acquisition was to create a new vertical in Prytek’s technology supply chain offering and broaden our unique Business-Operating-Platform-as-a-Service (BOPaaS) business model, which currently extends to financial services, education, and HR.
Leveraging acquisitions for technological innovation
There will always be one clear winner when it comes to the collaboration of banks and fintech companies – the consumer. Combining different technologies, different expertise, and diverse backgrounds that come together through a merger or an acquisition is almost always likely to result in new products and services to enhance user experience. Through their digital transformation, businesses across financial services can engage and interact with consumers in ways that before were not possible.
We know this from our own experience. Through our acquisitions, we have been able to leverage the deep technologies that have been built in one business and use it to develop new technologies across other companies. For example, through our corporate venture capital arm, we recently invested in Blackswan, and by using Blackswan technologies, we were able to build Karbon, a Delta Capita customer lifecycle management (CLM) product.