What’s driving fintech M&A? See Experian’s recent deals
Experian is extending its U.K. shopping trip.
The consumer credit bureau’s $385 million deal for the credit reporting fintech ClearScore, announced Thursday, came just three months after it took a minority stake in the mortgage brokerage London & Country Mortgages Ltd.
The deals are part of a trend in which large, traditional players like Experian are making fintech acquisitions to diversify their product offerings, speed innovation to market and satisfy the demands of global customers, experts say.
“We’re seeing more firms in this category focus on being a data provider as opposed to their legacy definition,” said Jason Langan, national M&A industry leader for financial services at Deloitte. “You want to increase your wallet share in financial services, so firms are trying to open their aperture in terms of role and ecosystem.”
ClearScore, which was founded three years ago and offers a free credit report service similar to Credit Karma’s, said it has served over 6 million customers in the U.K. and South Africa. The deal is subject to regulatory approval.
“This acquisition will allow us to grow faster and develop exciting new innovations that will deliver improved financial well-being to our current users [and] hopefully millions more around the world,” ClearScore’s founder, Justin Basini, said in a blog post.
ClearScore competed with Experian’s existing U.K. free credit score service, CreditMatcher, which the credit bureau launched in 2016.
Meanwhile, Experian’s 25% stake in London & Country, announced in December, provides the firm with a foothold in the U.K. mortgage market.
“When you expand upon your offerings, you expand your brand,” Langan said.
Deloitte reported 140 completed fintech M&A deals in 2017, down from 209 deals in 2016. Deal sizes last year averaged $255 million, a drop from their peak of $601 million in 2015.
But U.S. fintech investment has grown, reaching $5.8 billion in the fourth quarter, according to KPMG’s recent “Pulse of Fintech” report.
Notable fintech deals this year include Citi Ventures and PNC’s undisclosed investment in the commercial payments startup HighRadius in February. In January, TD Bank acquired Layer 6, an artificial intelligence company based in Toronto that uses technology to offer personalized and predictive communications to financial services customers. Also in January, BB&T announced it will set aside $50 million to invest in, or acquire, emerging financial technology companies in the upcoming year.
Fintech buyers are aiming to improve the digital customer experience, streamline back-office operations and reduce systemic costs, Langan said.
But there is also a need to remain competitive by staying ahead of disruption, Langan added. “It’s less about responding to anything today, and more of, ‘I don’t want to be cannibalized,’ ” he said.
Though fintech M&A slowed in 2017, banks and other segments in financial services will be back in the hunt for deals this year, said Larry Berlin, senior vice president at Chicago-based First Analysis.
“Thanks to tax breaks and lower regulation, there is a greater ability to use cash or balance sheets than in the past,” Berlin said, adding that competition is spurring firms to look at M&A to quickly create new bundled services for customers.
Langan noted in a recent banking M&A report that machine learning, digital lending, financial media and data solutions, and payment processing are current focuses of fintech M&A.
Such activity comes in waves, Berlin said.
“Core processors came up in the last five years," he said. "Mobile payments were really hot for four to five years. Anything bitcoin or blockchain got high valuations before they cooled off. It really pushes along with the herd in acquisition trends.”