In addition to consolidation, the main themes for global banking M&A in 2022 are likely to be digitalization, sustainable finance, a quest for scale, desire to improve asset quality, competition among acquirers, and regulatory demands.
Though all themes may not be prevalent for all geographies, however, they may be potential topics of discussion in board rooms of many banks.
The following blog posts will address various global M&A themes, starting with the first topic “accelerating digitalization”.
The shift from branch-based to online banking was well under way, before COVID-19 accelerated the transition, as financial institutions strive to keep up with customer expectations and counter competition from start-ups, internet giants, fintech, neo banks, and new entrants from other sectors.
Fintech is becoming mainstream, providing instant digital lending to retail and SME customers, leapfrogging legacy banks’ slow and cumbersome loan processing with faster and easier services. With a digital-only presence, allied with innovative marketing techniques, these new players reduce the cost of operations and customer acquisition.
Additionally, technological advances such as mobile payments, merchant mobile apps, and cryptocurrencies, are disrupting traditional payment volumes and interchange revenue, hitting conventional banks’ revenue streams and forcing investment in digital transformation.
Further, deployment of technology can deliver cost savings, with automation taking over inefficient, manual middle and back office processes. AI chatbots, AI-MLenabled tools, and data analytics are already growing in use, offering personalized customer interaction, accelerated KYC and lending decisions and better fraud prevention and loan pricing.
The rise in online banking also gives banks the opportunity to further cut costs by reducing branch footprint. A combination of digital banking and consolidation saw US record a net closing of 2,9271 bank branches. UK, on the other hand, shut 7362 bank branches. In UK, the sector will note a continued focus on improving digital customer journeys and automating middle and back office processes.
Banking leaders recognize that digitalization is essential to improve the performance, with players launching their own digital banks (as a separate legal entity or brand), as well as accessing talent and digital capabilities through acquisitions and partnerships.
Fintech partnerships and acquisitions also provide more diversified revenue sources by expanding the range of products and services.
Italian bank (Intesa Sanpaolo) has recently announced plans to start a digital bank, ISY Bank, as it seeks to counter new fintech competitors, reduce costs, and grow its international retail market. Standard Chartered has invested in its digital banking solution in Hong Kong and has similar plans to roll this approach out regionally which is consistent to other digitally led banks in Singapore like DBS.
We can also expect some banks to set up their own corporate venture funds to invest in technology capabilities. Additionally, PE and VC have been active in the neo bank sector. Our recent Pulse of Fintech report observes increasing investor attention on large challenger banks — with large VC funding rounds raised by such entities.