There is sunshine after the eclipse. It is like the resurrection morning. That captures 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 have believed it. Perhaps, I would have believed it because I am a believer.
On The One Hand
Initially, you would have thought the incumbent firms would swallow 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 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. This institution has 180 retail branches, and it funded more than $25 billion in home loans in 2020.
On The Other Hand
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, I did not.
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.
In The Long Term
This move is a precursor to becoming a Payment Service Bank (PSB). Well, first Interswitch must obtain a license from the Central Bank of Nigeria. The merger will mark a significant shift for Interswitch as it looks to expand beyond traditional payment services. This strategic move aligns with its goal to extend 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.
For one, the merger will give Interswitch the audacity to compete with the likes of Moniepoint, Kuda, Carbon, and 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 shine after the eclipse. An incumbent will produce even when the fintech start-ups have lost.
