The sun will shine after the eclipse. It is the resurrection. That is what is happening in the sector. It is a good sign. It forebodes hope – not doom – that soon the legacy fintech and start-ups will eat from the same dish. If a soothsayer had predicted this, I would not believe it. Perhaps, I would believe it because I am a believer.
On The One Hand
Initially, you would have thought of the incumbent firms swallowing fintech start-ups. At least, not in Europe or America. But fintech start-ups have acquired the incumbent. Open the book. Research shows that in February 2020, LendingClub announced plans to acquire Radius Bank in a cash-and-stock transaction valued at $185 million. The deal closed in February 2021, leading to a very quick and surprising second-quarter profit.
In March of 2024, SoFi agreed to acquire Golden Pacific Bancorp (GBP) for about $22.3 million in a deal designed to accelerate its acquisition of a national bank charter. Blockchain-based lender Figure Technologies agreed to merge with mortgage firm Homebridge Financial Services, which has 180 retail branches and funded more than $25 billion in home loans in 2020.
The fintech start-up and challenger bank Jiko acquired Wadena, Minnesota-based Mid-Central National Bank in a deal that took years of due diligence and whose sales price fell in the range of a Series A round, according to the founder. Did you see that coming? No, you did not.
On The Other Hand
For some fintech companies, an acquisition is about speed and the ability to gain all the licenses. It creates the opportunity to avoid some hurdles associated with building a financial institution from the ground in a highly regulated industry. That is what Interswitch – backed by Visa – has done when it announced a merger with mobile money provider M-Kudi.
This move is a precursor to becoming a Payment Service Bank (PSB). Well, first it must obtain a license from the Central Bank of Nigeria. The merger, contingent on regulatory approval, marks a significant shift for Interswitch as it looks to expand beyond traditional payment services. This strategic move aligns with its goal to extend its services beyond payment solutions and enter the realm of banking services. A statement read.
The proposed marriage between Interswitch and M-Kudi will help improve Interswitch’s financials. Aside from the technical flexibility of the merger and other sources, acquiring M-Kudi provides multiple benefits. Interswitch will gain by being able to hold loans on its balance sheet and gain confidence from investors.
In The Long Term
For one, the merger will give Interswitch the audacity to compete with the likes of Moniepoint, Kuda, Carbon, Fairmoney et al to serve the unbanked, underserved, and underbanked customers. That is when Interswitch’s commitment to redefine its role in the financial landscape will shine through.
This commercial transaction is great news for fintech start-ups, after the series of demise experienced last year. In the year 2023, many start-ups in the ecosystem did not survive. Funding dwindled by 43 per cent. All of these contributed to dampening the outlook of the ecosystem in 2023.
In The Short Term
It is the resurrection morning. The sun will rise after the eclipse. An incumbent will produce even when the fintech start-ups have ceased to create.
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