Why purchase a FinTech?

It hasn’t been more than 3 or 4 years that this industry emerged and started to draw a great deal of attention from new entrepreneurs, financial services companies, clients, journalists, banks, telecoms, and web giants. This was associated with fast-developing technologies, especially mobile-first services, which were massively changing the customers’ preferences, and those of Generation X & Y customers in particular.

McKinsey & Company provide a very well-articulated framework in their publication “Cutting Through the FinTech Noise: Markers of Success, Imperatives For Banks”.

The publication notes that FinTech is most certainly having a moment, but will this time be different? – that is, as opposed to the dot-com bubble for instance. There are currently more than 2000 Global FinTech startups which collectively have attracted more than $23bn of funding capital. However just because everyone is doing something,  it doesn't mean it's the correct strategy for your company.  A company looking to purchase a FinTech needs to asses:

1. What are your strengths and opportunities? (Track record, customer base, relationships, balance sheet, data, people)
2. What are your weaknesses and what are the threats posed by FinTech and could you mitigate these risks by either:
1. Buying a Fintech company
2. Build your internal capabilities
3. Why would you acquire a FinTech company (i.e. the problem you are trying to solve)

There are 8 reasons that a company would look to acquire a fintech:

1. To buy customer acquisition
2. To buy market differentiation
3. To buy lower risks
4. To buy time

Even if this seems cheaper and of a good quality, companies have just spent lots of time on copying yesterday’s practices, and the market is already ahead of you. So everything depends on how ambitious you are: either you want to create the future or are constantly try to catch up.

1. To buy talent

You can buy a specialist, maybe a good one, even a lot of good specialists, but you can’t buy entrepreneurs and teams. It interesting to note that, buying startups is the main HR tactic for Google, Facebook, and Yahoo.

1. To buy knowledge and access to new industries
2. To buy internal company changes

In this context, buying a startup seems like a blood transfusion to resuscitate an ageing body.

1. To buy “surprise”

Companies need to look at fintech’s as “the sense of future”, not the cash flows. If a startup can draw attention, we should invest in it, and the ways to monetize it will eventually turn up.