Almost one in three banks and asset managers plan to buy a fintech firm in the next 18 months as firms prepare for an increasingly technology-focused future, a new survey showed.
Some 31 per cent of financial services firms surveyed have plans to buy another firm, while almost half said they were collaborating or partnering with innovative firms, according to the survey by law firm Simmons and Simmons.
More than 40 per cent of firms had set up internal business units to create a specific fintech product, with more than half investing in building their own systems in-house.
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Banks and financial sector firms throughout their industries have woken up to the need to invest heavily in technology in front and back office operations.
Clients expect increasingly sophisticated digital offerings and services, while banks are making big bets on updating the underlying market infrastructure. JP Morgan revealed this week it spent $9.5bn (£7.6bn) on fintech during 2016.
However, hurdles to development remain. Regulatory risk stands as one of the main obstacles to absorbing a separate fintech firm, with 45 per cent citing it as one of the main concerns.
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Meanwhile, cybersecurity is the most prominent risk for 71 per cent of firms surveyed – and particularly when opening up and integrating financial data to new firms.
Khasruz Zaman, M&A partner at Simmons & Simmons says: “Major financial institutions are increasingly looking at making fintech acquisitions as a way of accelerating the adoption of new technology and innovation in their businesses. We expect this to result in a significant increase in investment and M&A activity in the fintech sector over the coming years”.
“With this focus on acquisitions and investments, it is essential to adopt a streamlined process for executing transactions and to ensure that regulatory and reputational considerations – which could have an impact on the viability of a proposed transaction – are dealt with upfront.”