eResearch | The financial industry, which has been lagging in technology advances, is starting to realize the necessity for online platforms, software, and applications, to enhance customer experience through customized products and services.
As a result, large financial companies are investing and acquiring FinTech software while new start-ups constantly figure out new ways to change how financial services such as lending is facilitated.
According to CB Insights, in 2019 (as of December 11, 2019), financial services firms invested a record $9.6 billion across 368 deals, a 500% increase over the same period in 2014. In addition to FinTech’s enormous corporate venture activity, funding for the industry has also grown to a record $24.6 billion.
Below are 4 FinTech deals in the past month:
Lending Club Corp. (NYSE: LC) – First Fintech to Acquire a U.S. Bank
In an effort to receive more favorable sources of funding, Lending Club, an alternative lending start-up, announced last week a US$185 million acquisition of Radius Bancorp, an American online bank with US$1.4 billion in assets.
The acquisition will provide Lending Club with a bank charter and US$1.2 billion in deposits, with expectations of US$80 million in synergistic benefits from the acquisition of existing bank infrastructure and human capital, as well as from extended underwriting capabilities.
Lending Club uses an online platform with automated loan processing and is focused on connecting borrowers and lenders to create unsecured personal loans between US$1,000 and US$40,000, an amount traditional loan companies take too long to originate. It was also the first peer-to-peer lending platform to register its offerings as securities on the SEC and in 2014, it raised US$1 billion to become the largest technology IPO within that year.
Morgan Stanley (NYSE: MS) – Acquires E*Trade Financial to Target Millennial Group
Last week, Morgan Stanley announced a US$13 billion all-stock acquisition of E*Trade Financial, an online discount brokerage, making a serious move towards targeting millennial brokerage customers, increasing online reach, and expanding deposits. Once merged, Morgan Stanley will have revenues of US$44 billion, eight million customers, and US$3.1 trillion in client assets.
E*Trade brings US$56 billion in deposits, which is one of the major benefits of the acquisition as Morgan Stanley is a firm which started as an investment bank, and unlike other banks such as Bank of America or Wells Fargo, it did not have as long a history of deposits, the most coveted form of funding since the financial crisis. The merger is estimated to save US$400 million from synergies including scaled technological infrastructure and combined corporate services.
Mike Pizzi, CEO of E*Trade, will join Morgan Stanley and will be reporting to James Gorman, Chairman and CEO of Morgan Stanley. As Mr. Pizzi leads E*Trades’s integration, he will also become a member of the Morgan Stanley Operating and Management Committee.
The acquisition is awaiting regulatory approvals as well as approvals from E*Trade share holders, and is expected to close in Q4/2020.
Intuit Inc. (NASDAQ: INTU) – Potential US$7 billion Acquisition of Credit Karma
Intuit, a Fintech company focused on accounting software, announced today that it may acquire Credit Karma, an online credit score and tax filing service, for US$8.1 billion, with expectations to potentially close the deal by the end of 2H/2020 if regulators approve of it.
Credit Karma will report to Intuit but will remain operating separately with its CEO, Kenneth Lin, continuing as its leader.
Intuit has proprietary software focused on delivering financial management and compliance products for three business segments: (1) Consumers, (2) Small Business & Self-Employed (“SBE”), and (3) Professional accountants. The Company generates 90% of its revenue from Consumers and SBEs through its proprietary products TurboTax and QuickBooks.
The two companies use similar models in its software, which will allow easy integration as the combined entity offers a higher level of personalized financial assistance for both credit and tax related offerings.
Green Dot Corp. (NYSE: GDOT) – Activist Investor May Push for Changes
Not everything is rosy in FinTech lands as Starboard Value, a New York-based hedge fund with a 9.3% stake in Green Dot, the world’s largest prepaid debit card company, announced early this month that it may push for operational changes to improve business performance. Starboard is a firm with a history of being an activist within their investments, specifically through influencing executive hires.
Green Dot is a FinTech company with a bank subsidiary, through which it can provide prepaid debit card services without getting a sponsor from a regulated bank. The payment platform brands itself as a “branchless” bank and has been used by large technology companies such as Apple Pay Cash, Uber and Intuit.
Last December, both co-founders who held positions of CEO and CFO announced retirement from Green Dot.
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