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
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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