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Fintechs deals set to surge over next two years, survey finds

A White & Case survey finds conventional financial institutions are becoming more proactive in their investments to Fintech players.

Most financial institution executives in the U.S., Europe, and Asia Pacific expect to invest in financial technology players within the next two years in a quest for speed, efficiency and security, a survey by White & Case LLP found.

Of the 150 senior financial sector executives the New York-based law firm surveyed, 95% said they expect to invest in a fintech deal over the next 12 to 24 months, with 22% of them looking to take a majority stake in a target, 18% wanting to take a minority stake and another 18% considering a joint venture.

A change in the approach by conventional financial players towards the burgeoning newcomers, whose businesses are backed by the use of technologies involving elements such as big data or Blockchain was highlighted by the White & Case report Fintech M&A: From threat to opportunity

“Financial institutions are becoming more proactive in their approach to fintech,” the report said. “In order to keep pace with rapid technological advancement, financial institutions are increasingly turning to external investments and M&A deals rather than relying only on their own fintech development.”

White & Case conducted the survey in the third quarter of 2016 to CEOs, CFOs, M&A heads and other senior executives at banks, asset management firms, insurers, fintech businesses, private equity and venture capital firms. The respondents included 30 executives from each of the five groups and split evenly among the U.S., Europe and Asia Pacific regions.

Notable fintech deals include Transferwise Ltd, a London-based money transfer service, which since it was established in 2010 has raised $116. million in six rounds from 13 investors, most recently from Baillie Gifford & Co. in May 2016. The new round of funding is said to value the company at $1.1 billion. 

In November, the Royal Bank of Scotland Group plc rolled out its tie-up with Iwoca Ltd., a London-based fintech player which lends to small businesses utilizing technology to check an applicant’s data and enable speedy credit checks.

Insurers such as Swiss Reinsurance Company Ltd, AXA SA, Aviva plc are proactively in discussions to collaborate with so-called insurtechs and investing in incubators for such players.

Despite the high proportion of respondents expressing interest in fintech deals, 39% of them said they would be aimed at expanding existing businesses, not new ones. Meanwhile, 19% said that by acquiring a fintech business they want to branch out into regulatory technology, another 19% into Blockchain, distributed ledger technology and virtual currency.

Meanwhile, 27% of respondents cited expansion of customer base to be the biggest driver of fintech deals, while 19% see access to new technology as the driver and another 19% see cost savings to be so.

Separately, 54% of the respondents said they want to “collaborate with mature fintech companies,” and 32% said they wanted to acquire a fintech player “to enhance or replace current services offering.” The remainder said they either wanted to invest in early-stage fintech startups, create incubators or acquire talent to develop technology from within.

Targets located in Silicon Valley and San Francisco are considered the clear favorite among the respondents for such fintech deals within the next two years, followed by London, Singapore, Hong Kong, Munich and Amsterdam.

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