Paying for Payments
While uncertainty arising from the COVID-19 pandemic has slowed down most deal activity, Fintech, in particular the payments space, is a big exception. Recent analysis from KPMG revealed that UK payment deals in the first quarter of 2020 alone exceeded the total number of deals in 2019. Granted, deal sizes were relatively low value, but the incredible rate highlights how the usual frantic activity in this area has only been propelled by the unique challenges this pandemic has presented, namely the need to switch to cashless and contactless transactions. Canadian Fintech is also poised for more deal activity. Despite a Fintech adoption rate of 50%, the Canadian market still lags behind adoption rates in Asian and European countries, such as China and India at 87% and the UK at 71%, and the global average rate of 60%.
These trends set the stage for some potentially fierce battles in the Fintech deal arena in the months to come.
Who is making deals?
- Banks. Unlike in 2008, large traditional banks are in better financial shape and are playing a significant role in supporting consumers and businesses through this crisis. However, with customers stuck at home, banks whose digital offerings that are not as end-to-end as they hoped may turn to deals with Fintechs to build out their digital capabilities swiftly and compete with new payment providers and other disruptive innovators in the field.
- Non-financial services. Fintechs are no longer confined to the traditional financial services industry. Non-financial service products are finding ways to leverage their valuable consumer data to offer personalized financial products and services using the tools provided by Fintechs. From ecommerce platforms lending to their supply chains to health and fitness tech products offering health insurance, more and more industries are finding creative ways to offer consumers longer-term value through digital financial service add-ons.
- Private Equity. Towards the end of 2019, private equity investors were becoming more cautious with valuations in Fintech investment. However, analysts remain optimistic of continued strong private equity investment in Fintech as the pandemic has not changed the factors that make this space attractive. Whereas other sectors are still recovering from the pandemic, Fintech remained resilient and is now even more relevant.
The Canadian Landscape
In recent years, Canadian banks have invested heavily in Fintech through partnerships as incubators and accelerators along with their in-house initiatives, all as part of their transformation efforts to keep pace with innovation and position themselves strategically for the future. The pandemic has accelerated consumer demand for digital banking options, so that future is arriving much sooner. Finally, due to Canada’s friendly start-up environment, it is now home to many relatively mature Fintech companies that have passed their experimental growth stages and would thus be attractive for non-financial sector partnerships and cautious private equity investments.
The author would like to thank Joyce Cai, Summer Student, for her contribution to this legal update.
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