Financial Institutions M&A: Sector trends - June 2019: Credit cards/Consumer finance

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White & Case LLP Financial institutions M&A sector trends: credit cards/consumer finance — H1 2019 and outlook for H2 2019.

CURRENT MARKET

Consistent, marginal upward

WE ARE SEEING

  • New market entrants securing funding from financial sponsors and 'big bank' venture funds (e.g., Anyfin, Salary Finance, Jaja Finance, etc.)
  • Trade buyers seeking scale
  • Partnerships between incumbents and technology providers (particularly biometric fingerprint technology)

KEY DRIVERS

  • Financial sponsors—market opportunity to:
    • Level-up in-store consumer finance solutions/ experience
    • Disrupt credit card market
    • Filling the void left by payday lenders
  • Strategic investors:
    • Big banks—tapping new markets and expanding geographical reach (e.g., Bankinter is to enter the Irish market following its acquisition of Avantcard)
    • Payment providers—expanding footprint in the POS financing space
    • Existing card operators—seeking technology to combat growing fraud risk (e.g., Visa's and Mastercard's partnerships with Nitecrest for the manufacture of biometric fingerprint cards)
  • Decline of appetite for payday lending

TRENDS TO WATCH

  • Competition from new entrants, keen to disrupt the credit card market by introducing new consumer finance alternatives and a smoother/richer retail experience
  • Increasing risks associated with card businesses:
    • Clampdown on "unfair" business practices (e.g., 40% reduction of fees for tourists using their cards in the EU)
    • Low tolerance for IT meltdowns and malfunctions resulting in loss of coverage/customer data

OUR M&A FORECAST

The European consumer finance market is ripe for disruption. M&A activity is likely to experience an uptick as incumbents jostle to retain market share and remain competitive.

Other financial services—Publicly reported deals & situations

Healthy buyer appetite

Market highlight:

Card payments in Germany eclipse traditional cash-based payments for the first time in 2018—card payments accounted for 48.6% of total retail sales, overtaking the 48.3% of cash payments*

Private equity/Venture capital:

  • Brightly Ventures: Participation in successful £4 million Venture funding round for Kaching Retail (May 2019)
  • FinTech Collective: Participation in successful US$8 million Series A funding round for Anyfin (May 2019)
  • Finch Capital: Participation in successful US$14 million Series B funding round for Twisto (May 2019)
  • Blenheim Chalcot: Participation in successful US$32.8 million Series C funding round for Salary Finance (April 2019)
  • LMK Industri: Participation in successful €48 million Seed funding round for Bynk (February 2019)

Trade consolidators:

  • Paylate: Acquisition of AmmoPay (January 2019)
  • NVM Private Equity and Maven Capital Partners: Participation in successful £7 million Series A funding round for Mojo Mortgages (February 2019)
  • Celeres Investments: Participation in successful £3.5 million Series A funding round for Jaja Finance (January 2019)
  • ING Ventures: Participation in successful US$14 million Series B funding round for Twisto (May 2019)

Strategic investors:

  • Bankinter: Acquisition of Avantcard Ireland (June 2019)
  • Mastercard: Acquisition of Vyze (April 2019)
  • J.P. Morgan: Launch of 'My Chase Plan' (March 2019)

New entrants

  • China UnionPay: European debit and credit card JV with Tribe Payments (June 2019)
  • JCB International: European joint licensing agreement with Viva Wallet (May 2019)
  • Marqeta: Expansion into Europe through customer relationships with Morning, Yapeal, Aplazame and Auka (April 2019)
  • Apple: Launch of Apple Card and credit card/Apple Wallet JV with Goldman Sachs (February–March 2019)
  • Jaja Finance: Successful £3.5 million Series A funding round, led by Celeres Investments (January 2019)

Payday lenders—had their day?

Acquisitions:

  • Kruk: Acquisition of Wonga Poland (May 2019)

Disposals:

  • Provident Financial: Disposal of 53,018 shares by Invesco Asset Management (March 2019)

Increasing operational risks— regulatory scrutiny

  • Mastercard: Reduction by 40% of fees for tourists using their cards in the EU to settle European Commission probe (April 2019)
  • Visa: Reduction by 40% of fees for tourists using their cards in the EU to settle European Commission probe (April 2019)

Combatting growing fraud risk

  • Nitecrest: Partnerships with Visa and Mastercard for manufacture of biometric fingerprint card (May 2019)
  • Gemalto: Biometric fingerprint card JV with Combatting NatWest (April 2019)

Wider market influence—new regulatory burdens

  • Diebold Nixdorf: Merger of Diebold Nixdorf and Diebold Holding Germany Inc. & Co. (May 2019)

[View source.]

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