May 17, 2020 · 4 min read

Get in, we're going Fintech shopping - Alt lenders in trouble, WealthTech M&A

In last week’s letter we talked about how the appetite for investment was low in the fintech space but the ambition for expansion had remained un-dampened. Raising money is still possible but at what cost? Monzo, three weeks after having filed an application for a charge into the US market with a US banking license, successfully raised more money but with an almost 40% drop in valuation. Monzo’s last £113M Series F round put the company’s valuation at £2B in summer 2019. Monzo is now raising £70M~80M to get through the pandemic at around a lower £1.25B valuation.

However, economic downturns offer opportunities for bargain-hunters. Saudi Arabia's $320B sovereign wealth fund bought stakes in companies that were disrupted by the coronavirus crisis (e.g. entertainment, energy, travel) including BP, Boeing, Citi, Disney and Facebook. America’s ninth-largest bank PNC Financial sold its 22% stake in BlackRock. Some of the $17B sale will be spent on new acquisitions of companies impacted by the economic consequences of the pandemic. 

Although we are still discovering the true financial impact caused by COVID-19, all eyes will be on the agile opportunists shopping for a ‘down-round bargain’ and the resilient survivors staying alive by selling at a discount . 

Personal Loans

Since the COVID-19 pandemic, unemployment  has been rising at a staggering rate. In the USA for example, there have been more than 36 million jobless claims filed in the past two months compared to just(!) 8.6 million during the 2008-2009 financial crisis. With banks and alternative lenders in full risk-averse mode, loans are hard than ever to come by without government intervention and backing.

Personal loan markets have been growing steadily over the past decade. By the end of 2018, 38% of unsecured personal loan balances were provided by Fintech companies. This is an incredible eight-fold increase from just 5% in 2013.

However the COVID-19 catastrophe brings the sustainability of lending businesses into question and banks don't want to be left as the ‘bag-holder’.

We’ve mapped out major personal loans companies’ valuation, funding status and amount of loan extended. The sizes of the circles show the amount of loan extended.

Soon investors will be sniffing around to hunt out investments or M&A targets at a lower price tag. Which lenders will survive and which ones will be gobbled up?

Wealthtech M&A

This week, we also look at recent M&A in Wealthtech. The sizes of the circles indicate deal prices. 

2019 saw a record year in Wealth Management M&A deals . That makes for seven years of annual increase. It seems like 2020 has experienced no shortage of big headlines despite the coronavirus impact. Franklin Templeton has acquired a wealth management technology platform AdvisorEngine. The ‘AdvisorEngine’ brand will continue operating as a separate subsidiary and the leadership will remain. The acquisition will help AdvisorEngine fulfill its ambitious product roadmap. Brokerage giant Charles Schwab is absorbing Motif Investing’s technology and IP. Thematic investment platform Motif has raised $126.5M in total and its latest round was a $40M Series E back in 2015. The company has institutional backers including Goldman Sachs and JP Morgan. Founded in 2010, Motif’s business hadn’t been considered profitable enough. Motif’s client base was not included in the acquisition by Charles Schwab and is taken on by Folio Investing. Folio Investing was then acquired by Goldman Sachs. Last year Charles Schwab acquired TD Ameritrade for $26B as fees shrank and the market consolidation continued.

Incumbents buying their way into robo and commission-free features is challenging some fintechs’ claim to provide unique service offerings.

Are all of the wealthtech newbies ultimately destined to be scooped up by the incumbent big players as market consolidation and maturation takes its course or are the incumbents too big and too slow to keep up with the agile innovation of the smaller, agile providers?