More fintech consolidation predicted as tech brands circle
Hogan Lovells have predicted a new wave of consolidation in the UK’s fintech sector as big tech brands seek to enter new areas of financial services.
As part of the law firm’s quarterly update on fintechs and financial services, Jon Chertkow, financial services partner at Hogan Lovells said “there is money aplenty to be invested” in fintech funding rounds.
These funding rounds are crucial for fintechs to ensure regular capital injections for growth, he added.
“We have long anticipated consolidation between fintechs with similar business models, or acquisitions by incumbent players, and more recently big tech has also entered the field,” said Chertkow.
Read more: Consumer duty rules ‘present extra challenge’ for P2P lenders
“We’re starting to see deal activity, and we expect to see more of it in the coming months and years.
“The appetite for fintechs looks unlikely to wane in the near future. Whether its big tech looking for licences to operate in new areas of financial services, or incumbents bolting on fintechs with a focus on new services, improved user experience, or more streamlined AML and compliance; the appetite is there.”
Michael Thomas, financial services partner at Hogan Lovells, added that he was seeing a lot of interest in fintech businesses, particularly those providing trading or services in relation to crypto assets.
Read more: UK P2P sector more than doubles in size as new ‘big three’ emerges
“The traditional financial market infrastructures (FMIs) might see the need to modernise to ensure they are able to service the new types of digital assets being launched, or face the alternative where liquidity and deal flow could flow to newer platforms,” Thomas said.
“This could lead to increased competition in the field, or acquisitive activity from traditional FMIs to buy up or partner with those developing digital infrastructure.”
Both Thomas and Chertkow warned that fintechs are facing increasing regulatory hurdles – particularly those fintechs which operate in the crypto space.
“One of the biggest challenges for fintechs as they grow at pace is the need for increased regulatory compliance,” said Chertkow.
“Regulators and investors want to see rigorous compliance frameworks. Due to the quick timeframes in which these fintechs can grow, they need to ensure they have the right checks in place. Getting the right advisors in at the right stage of the journey is key to their success and to their future attractiveness.”
Read more: Hogan Lovells hires Bovill’s Frank Brown to lead regulatory consultancy