Financial institutions M&A sector trends: consumer finance — H2 2019 and outlook for 2020

Financial sponsors see opportunities to back new entrants targeting under-serviced customer segments, including gig economy workers and solopreneurs.

Overview

CURRENT MARKET

• Flat

WE ARE SEEING

• Partnerships are a common route to market (e.g., Simplex/OKCoin, SoYou/Bankia, etc.)
• Financial sponsor-backed new market entrants (e.g., Portify, backed by Redalpine and Finiata)
• The sun sets on UK payday lending—QuickQuid collapses into administration

KEY DRIVERS/CHALLENGES

• Banks:
  • Brexit planning (e.g., Starling's new £/€ dual currency debit cards)
  • Retaining customer touch points (e.g., Bank of America's new digital debit card)
  • Fraud prevention (e.g., Deutsche Bank's Spanish 'motion code' partnership with Mastercard and Idemia)
• Financial sponsors—market opportunity to:
  • Disrupt incumbents and control the customer experience (e.g., Uber Money's new debit and credit card offering)
  • Conquer new market segments (e.g., finance for the gig economy)
• Payment providers—connecting digital assets to the 'real' world (e.g., Wordline's partnership with Bitcoin Suisse and Simplex's partnership with OKCoin)
• The UK Financial Conduct Authority's interest rate caps have done their job of crippling megamargin lending

TRENDS TO WATCH

• Increasing appetite for new technologies to combat growing fraud risk
• Competition from new entrants, providing consumer financing options to suit lifestyle options and needs

OUR M&A FORECAST

Disruption across the European consumer finance market is likely to continue in the short term. M&A activity is likely to experience a marginal uptick as incumbents and alternative providers lock horns for customer connectivity.

Publicly reported deals & situations

Healthy investor appetite

Private equity/Venture capital:

• Redalpine and Finiata: Participation in £7 million Series A funding round for Portify (December 2019)
• Sarwa Capital: Consumer finance JV Premium Card (November 2019)
• Deserve: Successful US$50 million Series C funding round, led by Goldman Sachs (November 2019)

Management:

• PPRO Crosscard: Acquisition of Crosscard by existing PPRO investors (December 2019)

Strategic investors:

• Agos Ducato: Acquisition of ProFamily (July 2019)
• Cembra Money Bank: Acquisition of cashgate (July 2019)

Trade consolidators:

• Paragon ID: Acquisition of Thames Technology (November 2019)

New entrants

• Portify: Successful £7 million Series A funding round, led by Redalpine and Finiata (December 2019)
• Uber: Launch of Uber Money debit and credit cards (October 2019)
• Starling: Launch of £/€ dual currency debit cards (October 2019)
• Crédit Agricole: Consumer financing JV, SoYou, with Bankia (October 2019)
• National Bank of Kuwait: NFC-enabled credit card JV with Visa (June 2019)
• Simplex: Debit/credit card US$ deposits JV with OKCoin (June 2019)
• Amaiz: Launch of specialist lending service for 'solopreneurs' (June 2019)
• Bank of America: Launch of digital debit card (June 2019)

Payday lenders—end of an era

• QuickQuid: Collapse into administration (October 2019)

Combatting growing fraud risk

• Deutsche Bank: Spanish 'motion code' card JV with Mastercard and Idemia (December 2019)

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