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Are We About to See a Wave of M&A in Fintech?

By Matthew Frankel, CFP® - Apr 23, 2021 at 8:17AM

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We haven't seen too many exciting mergers between fintechs and traditional banks, but could that change?

We haven't seen too many big mergers in the financial technology space, especially when it comes to acquisitions made by traditional banks. However, that might change after the massive wave of disruption we've seen over the past decade or so. In this Fool Live video clip, recorded on April 12, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why the big banks should seriously consider a more aggressive acquisition strategy. 

Jason Moser: I think most of us would agree JPMorgan (JPM -0.65%), one of the top performing banks out there. That's a bank with a stellar reputation, not only as a bank but from an investor's point of view as well. You imagine, had they been able to make a meaningful acquisition, bought Square three years ago or four years ago, something like that, to really add to that toolbox, to add some of that tech ammunition. It could put them in a little bit of a different place. But back to your point though real quick, it's not fintech is a bad thing and it's not fair. It's like you have to recognize that the banks have something that the fintechs don't, and the fintechs have something that the banks don't. There's a lot to be said for the stability in the banking system, thanks to that regulatory environment, thanks to those capital requirements. That's not just lip service, those are real services. Even if consumers don't think about that on a daily basis, that's something real, it exists, and also is not free.

Matt Frankel: Well, it sounds like we have a case of great minds think alike here, because here's a quote from Jamie Dimon: "We have mentioned that our highest and best use of capital is to expand our businesses and we would prefer to make great acquisitions instead of buying back stock."

Moser: Well.

Frankel: Given how much money that JPMorgan in a normal year spends on buying back stock, you're talking in tens of billions of dollars.

Moser: Yeah.

Frankel: I agree with you that they are late to the party.

Moser: Yeah.

Frankel: They probably should have acquired a Square or something like that back in 2012, 2013 when they could have done it for nothing. Because a lot of very smart acquisitions were made during that timeframe.

Moser: Yeah.

Frankel: But unfortunately, most of the big banks missed out on that, in my opinion.

Moser: Yeah. Look at something like Plaid, Visa (V 0.29%) trying to acquire Plaid, that deal was shut down. But it makes you wonder why wouldn't the big bank be looking at, hey, maybe that's an opportunity, but maybe those same antitrust concerns keep them on the sideline. I don't know.

Frankel: Maybe. One of the companies we talked about, I think, is it nCino (NCNO) that does the bank operating system software?

Moser: Yeah. The bank operating system software.

Frankel: Instead paying hundreds of thousands of dollars for this company to provide you operating system, why not acquire it, and then provide it to other banks as well? I don't get why there hasn't been more acquisitions in the fintech side of traditional banking. We've seen a great deal of M&A activity between banks like BB&T and SunTrust.

Moser: Sure.

Frankel: Some other brokerages have acquired one another in the past few years. But none of the big banks seem to really be thinking outside the box when it comes to acquisitions.

Moser: Yeah.

Frankel: It sounds like Jamie Dimon is starting to realize that that was bad thinking.

Moser: Yeah. Well, better late than never. Maybe there's still the opportunity to get in there and make a meaningful deal, something with a big splash.

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Stocks Mentioned

JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$111.89 (-0.65%) $0.73
Visa Inc. Stock Quote
Visa Inc.
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Block, Inc. Stock Quote
Block, Inc.
$64.97 (-2.64%) $-1.76
nCino, Inc. Stock Quote
nCino, Inc.

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