FinTech Winter May Lead Banks to Increase Acquisitions

Banks looking to boost their digital capabilities reportedly may be taking a closer look at acquisitions of FinTechs.

That’s becoming an attractive play as interest rates are up and valuations are down, Reuters reported Thursday (Nov. 17).

The valuations of FinTechs have fallen 70% this year while those of banks have slipped only 33%, and the S&P 500 has dipped 23%, according to the report.

The decline in FinTech valuations has been driven by the economic downturn, rising interest rates and lower investor confidence after the collapse of cryptocurrency exchange FTX, the report stated.

At the same time, banks have been earning more as their lending business benefits from rising interest rates, according to the report. In addition, it’s easier for banks to buy FinTechs than to merge with other banks because the latter involves more regulatory scrutiny.

It all adds up to an opportunity for banks to get new technology or products around digital banking, online payments, other financial services and even travel services — without having to develop them themselves, the report stated.

As PYMNTS reported in October, once-hot FinTechs are facing continued pressure and a “FinTech winter,” particularly when it comes to funding.

The business models, by and large, have been propelled less by profits than by customer acquisition. And the question remains as to whether the cash on hand is enough to get through winter itself.

The fact that there are so many busted initial public offerings (IPOs) out there puts at least some doubt that funding the next wave of FinTechs sets up a smooth path to that traditional exit strategy known as the IPO.

The Nov. 11 edition of PYMNTS’ FinTech IPO Index found that although the group retraced some losses seen during the earnings season, it stands 45% lower year to date.