The M&A market for Financial Technology saw a marked increase in activity in most sectors in the third quarter of 2023, despite a challenging macroeconomic environment.

From Data and Analytics to Blockchain Technology, and Generative Artificial Intelligence platforms, each subsector reveals compelling narratives of growth, convergence, and innovation. In this article, we provide a review of the latest Q3 FinTech industry trends driving M&A in the Financial Technology landscape.

Data and Analytics spark renewed interest compared to Q2

In the third quarter of 2023, the Data and Analytics sector experienced a surge of interest, marking a remarkable 225% increase compared to the preceding quarter. This surge can be attributed to the growing prevalence of generative AI and machine learning models within the FinTech Sector. It comes as no surprise that there has been a corresponding uptick in demand for advanced data and analytics software.

Companies that embrace these modern technologies, leveraging cognitive learning insights from a multitude of data points, are poised to create innovative products, optimise operational workflows, and offer personalized experiences to their customers. Such adaptability positions them as frontrunners in the evolving landscape of machine learning dominated FinTech.

Notable acquisitions during this period include MSCI’s acquisition of Burgiss, a company specialising in portfolio management software and data analytics tailored for investment optimization. Burgiss’s product portfolio encompasses a wide range of features, from portfolio monitoring and reporting to performance measurement, benchmarking, cash flow forecasting, document management, investor administration, and exposure analysis. This strategic move highlights the industry’s recognition of the indispensable role played by comprehensive data analytics in shaping the future of financial technology.

Investments in generative AI platforms continue to surge

Investments in generative AI platforms continue to surge, with Generative Artificial Intelligence and Machine Learning platforms playing a pivotal role in revolutionising human-digital interaction. This transformation is driving customer engagement, catalysing digital transformation initiatives, enhancing risk and compliance measures, and bolstering cybersecurity protocols. Throughout 2023, this domain remains a primary focus for both M&A activities and investment endeavours.

Key players in payments, banking, and insurance sectors are avidly exploring the potential of AI to reshape the financial services landscape. Stripe, for instance, is at the forefront of this movement, harnessing the power of GPT-4’s enterprise beta for a spectrum of operational tasks.

Acquisitions in this vertical include US-based CreditPoint Software, a leading developer of credit risk management software designed to provide commercial credit risk and collections management services, who were acquired by B2B credit risk management provider, Sidetrade. The company’s software manages counterparty risk and shorter cash conversion cycles to provide cash forecasting, and robust analytics reporting to reduce errors.

Blockchain technology meets increasing demand from both financial and strategic players

In the third quarter of 2023, Blockchain Technology witnessed a remarkable surge in deal volume, boasting an impressive 189% increase in transactions compared to the preceding quarter. This surge underscores the escalating interest and confidence in the potential of blockchain-based distributed ledger technology.

One of the most noteworthy trends shaping the blockchain landscape in 2023 is the emphasis on interoperability. This breakthrough facilitates the smooth transfer of data and assets across different platforms and protocols.

A striking illustration of this trend is exemplified by Binance Labs’ strategic acquisition of Pendle to amplify the accessibility of DeFi yield opportunities and disrupt the future of decentralised finance. Pendle operates as a versatile blockchain platform featuring an automated market maker. This distinctive feature empowers users to trade future revenue tokens while accommodating multiple protocols and assets within a unified platform. This move not only exemplifies the industry’s recognition of the importance of interoperability but also signifies a strategic step towards realising a more interconnected and efficient blockchain landscape.

Payments still a strong point of interest for the FinTech sector

The second quarter of 2023 has seen a sustained interest in financial technology payment platforms, with cross-border payments becoming increasingly important as the global economy becomes more interconnected. Fintech companies are developing new and innovative ways to make cross-border payments faster, cheaper, and more secure.

These companies are also focused on improving the customer experience, both for merchants and consumers. They are increasingly looking to expand into emerging markets, such as Africa and Latin America. Such markets are experiencing rapid growth in digital payments, and fintech companies see them as a major opportunity for growth.

An example displaying these trends in the payments sector is US-based Visa’s acquisition of Pismo, Brazil-based developer of a cloud-based payment processing platform. The company offers features including CRM, billing, acquiring network management, client acquisition, and credit analysis.

Chris Brooke, Financial Technology M&A Advisor, commenting on the latest trends says…

“The surge in M&A activity within the Payments sector this quarter underscores the sector’s robust growth and potential for innovation. With 45 acquisitions, constituting nearly a quarter of total reported deals, it’s clear that investors are recognising the value and disruptive potential in payment technologies. This trend aligns with the broader uptick in deal volumes across the Financial Technology landscape, with 190 transactions recorded in Q3, indicating a thriving market despite economic headwinds. The significant rise in average deal values, including several surpassing the billion-dollar mark, reflects a confidence in the sector’s long-term viability and ability to deliver substantial returns. While public company valuations held steady, the broader M&A market is sending a strong signal of confidence in the future of FinTech.”

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In this report, we look at the emerging trends and notable M&A transactions in Financial Technology during the third quarter of 2023. Download the full report here.