5 reasons why fintech M&A is hitting new highs

Deal: Block (formerly known as Square) acquired Afterpay

Announced: August 2021, closed January 2022

Amount: $29 billion

The BNPL and installment lending space is rife with activity as providers forge partnerships and add features to fend off competition from each other and from larger institutions. In September, Goldman Sachs announced it would buy point-of-sale loan provider GreenSky. Australia-based BNPL provider Zip is snapping up U.S. rival Sezzle. PayPal even used its acquisition of a Japanese BNPL firm as a way to further its reach globally.

“Fintechs are still trying to position themselves,” said Robert Le, senior analyst in emerging technology at PitchBook. “If you look across any segment, they are not a market leader. In buy now/pay later you’ve got Klarna, Affirm and Afterpay trying to jostle for market share.”

The fifth-largest fintech deal on record, according to FT Partners, and a marquee deal of 2021, was the sale of buy now/pay later lender Afterpay to Block for $29 billion.

Block, which rebranded from Square in December, will be able to access a wider range of buy now/pay later merchants and extend such loans through its consumer-facing Cash App without building out its own service. Block competes in the U.S. with PayPal, which benefits from strong name recognition and wide reach among merchants, as well as several other BNPL providers.

“The addition of Afterpay to Cash App will strengthen our growing networks of consumers around the world, while supporting consumers with flexible, responsible payment options,” said Brian Grassadonia, lead of Square’s Cash App business, in a news release announcing the acquisition.

Deal: Walmart’s Hazel acquired One Finance and Even

Announced: January 2022, expected to close in the first half of 2022

Amount: Not disclosed

Most neobanks do many of the same things: They prioritize a mobile experience, promise low or no fees, abolish overdraft penalties and deposit their customers’ earned wages two days early.

This is one sector of companies “still trying to figure out, if we want to become the market leader, how do we get there?” Le said.

Walmart’s startup Hazel is taking an unusual approach by drawing on the strengths of two companies, the challenger bank One Finance and the early wage access provider Even, to form a combined entity called One.

The original One is a challenger bank where users organize their spending and saving around “pockets,” a form of sub-accounts. Even lets employees access their earnings on demand, which raises the potential for point-of-sale financing based on paycheck information in the combined company. Finally, Walmart brings brand power and name recognition to the table. Hundreds of millions of customers visited Walmart in 2021.

“There's certainly a very long list of neobanks, and there is a growing list of earned-wage-access providers,” David Baga, the CEO of Even, acknowledged in a January interview. But he says that no existing competitor has combined digital banking with an app for employees that includes earned-wage access.

Deal: SoFi Technologies acquired Golden Pacific Bancorp

Announced: March 2021, closed February 2022

Amount: $22.3 million

Pursuing a national bank charter is an expensive and time-consuming process. A handful of fintechs have gone a different route: buying a bank instead.

Gaining a charter gives fintechs more control over their customer relationships and eliminates the need to partner with (and pay fees to) a licensed institution on the back end. It also opens the door to lower-cost funding and to offering other products customers would find at a traditional bank.

SoFi Technologies started down one path before taking the other.

In October 2020, it received preliminary conditional approval from the Office of the Comptroller of Currency on its de novo bank application. The following March SoFi announced its purchase of Golden Pacific Bancorp and its subsidiary, Golden Pacific Bank in Sacramento.

SoFi completed the acquisition in February, stating that it would soon roll out a more user-friendly interface, automated savings, and refreshed checking and savings accounts. SoFi said it plans to keep Golden Pacific’s community bank business and three branches under the renamed SoFi Bank, which will have $5.3 billion of assets and be a division of SoFi Technologies.

Concurrently, SoFi has pursued other deals in its goal to become a full-service bank. In 2020, SoFi purchased Galileo, a firm that helps challenger banks with payments and digital banking. Last month, it brought Technisys, a digital and core banking platform provider, into the fold.

Other examples of fintechs buying banks in recent years include LendingClub’s acquisition of Radius Bancorp, Jiko’s pursuit of Mid-Central Federal Savings Bank and BM Technologies’ purchase of First Sound Bank.