What Banks Need To Know About Vendor M&As
The recent Fiserv/Open Solutions and FIS/mFoundry deals suggest that the banking industry is going through another wave of vendor consolidation. What’s driving the fintech vendor M&A trend this time around? How is this consolidation surge in the solution provider space different from previous industry restructuring? What are the potential impacts on banks, and what do the financial institution customers of these companies banks need to watch for going forward?
What’s the Best Way to Grow?
Marc DeCastro (pictured to the right), Research Director, IDC Financial Insights
We noticed starting in 2012 that M&A activity was changing course. In 2009, within IDC Financial Insights’ FinTech 100, we lost only two vendors through acquisition. In 2010, that number doubled to four. Last year, the number doubled again to eight. This is clearly a trend and not just a one-time blip. The main reason continues to be that companies must increase scale in order to make money in such a competitive environment. Vendors have realized that they need to figure out how to grow organically, acquire competing or complimentary solutions, or become an acquisition target themselves.
Obviously, during and following the 2008 financial crisis, acquisition activity slowed to a halt. There were few acquisitions because companies were worried about their own business models and keeping their financial affairs in order. Now that these companies have survived, they are now looking to grow their business. When you’re operating in a consolidating industry, where the number of institutions continues to shrink, you need to look to expand your product offerings and increase your client base.
The mobile banking space was the most recent technology to really drive a wealth of one-off vendor solutions. Companies that used to have these stand-alone offerings have all of a sudden become part of larger core providers or larger networks. Perhaps social will be the next wave, where we see some stand-alone social solutions come out -- and then we might see another wave of vendor consolidation follow. However social solutions are being woven into existing platforms and the market for a stand-alone solution may in fact be past.