Financial services (FS) companies and technology, media and telecommunications (TMT) companies used to swim in different lanes. The lines that once divided these industries have become blurred. Many TMT companies are applying for FS licences, and FS organisations have begun calling themselves technology companies. Financial Technology (FinTech), is at the epicentre of a radical transformation.
With goals of operational efficiency, lower costs, improvements in customer experience and product innovation, the FinTech industry is enjoying a second wave. The question no longer seems whether FinTech will transform FS, but which firms will apply it best and emerge as leaders.
FinTech is now spread across various segments (including InsurTech, Alternative Lending, Payments and processing, Digital Currency, WealthTech and RegTech) and the rise in applications of technologies (including AI, Blockchain and IoT) means agile disruptors can be seen targeting all points along the financial services value chain.
Themis is uniquely placed to understand this market. Our underwriters have led the market in writing risks for financial institutions for the last decade and our underwriting approach is shaped by the cutting-edge technology we have at out fingertips. The latter is a result of us being backed by one of the latest InsurTech innovators - Innovisk Capital Partners.
The expansion of FinTech cannot be understated. 81% of outperforming insurance businesses surveyed by IBM have now either invested in or are already working with InsurTech companies. State Street have said that more than half of asset managers fear technology-driven new entrants.
This is reflected in Global investment activity, which for Fintech, continued to reach record levels in recent years. 2019 saw $135.7 billion invested across 2,693 deals – more than double every year prior to 2018. 2019 activity also proved to be the second richest of the decade, with median EBITDA multiples jumping to 17.3x – just shy of the 1H2015 record.
The start of 2020 followed the booming activity of the last couple of years, underlined by significant transactions by Morgan Stanley, who acquired E*TRADE for c.$13bn, Worldline, who acquired Ingenico Group for $8.7bn and Visa who acquired Plaid for $5.3bn.
However, the continuing COVID-19 pandemic has predictably thrown cold water on a significant proportion of M&A activity in recent weeks. The resulting uncertainty has already begun to manifest, with median price multipliers for all wider technology transactions in 1Q2020 falling to 2.0x sales – a level not seen since shell-shocked buyers emerged from the 2008 financial crisis.
Whilst 2020 will certainly be difficult to navigate, particularly for the true FinTech disruptors and innovators, we believe the post-pandemic future is bright. Clients and consumers have already begun to move to implement social distancing as the new norm and FinTech is well placed to deal with increased digital demand and remote working conditions.
We believe that M&A will be used as a strategic expedient to capture innovative growth opportunities. With a growing proliferation of FinTech hubs globally, and the ever-widening scope of FinTech offerings, we expect industry activity to be buoyant, post COVID.
If Themis can help you in understanding the risks associated with a FinTech transaction and how these risks can be managed, please contact either Oliver Giles (Oliver.Giles@Themisunderwriting.com) or Richard Winborn (Richard.Winborn@Themisunderwriting.com) .