Banks Buying Fintech: Desperation or Darwinism?
The Inevitable Fintech Feeding Frenzy
Okay, let's be real. Banks "innovating"? Give me a break. It's like watching your grandpa try to learn TikTok dances. Painful. Steve Cocheo over at The Financial Brand is pushing this narrative that banks should just hoover up fintech startups because they can't hack it themselves.
Nigel Morris, the Capital One co-founder, says banks are all about "protecting and defending, not on innovating and growing." No freakin' kidding! They're dinosaurs guarding their piles of gold. Morris thinks fintechs will hit 10% market penetration within a decade. Ten percent? That's cute. It'll be way more.
And here's the kicker: banks should "reframe" their M&A strategy. Stop asking if they should buy another boring bank and start thinking about how to make fintech acquisitions their "primary innovation engine." Primary innovation engine? That's rich. More like a desperate attempt to stay relevant.
Fintech M&A: Where Innovation Goes to Die?
The Same Old Song and Dance
This whole "acquire innovation" strategy is as old as time. Banks have been doing this for decades. Buy a promising startup, gut it, and then slowly integrate its tech into their legacy systems until it's a shadow of its former self. It's the circle of fintech life, and it's usually a death sentence for the acquired company's original vision.
Don't get me wrong, there's some logic to it. As that
2023: A Year for Fintech M&A article points out, incumbents have distribution, and startups have the tech. Makes sense... in theory.
But what happens when you shove a nimble, agile fintech into a bureaucratic, slow-moving behemoth? It gets crushed. The innovation gets diluted, the talent leaves, and the bank ends up with a slightly shinier version of the same old crap.
And who benefits? The shareholders, offcourse. Not the customers, not the employees of the acquired company, and certainly not innovation itself.
Fintech's Future: Swallowed by Banks or Something Worse?
The Telco Parallel: A Warning Sign
I'm reminded of the telco industry, as examined in that McKinsey report. They've been trying to "turn around their flagging fortunes" with agile methods and new tech, but it hasn't worked. Why? Because the fundamental problems are existential. The McKinsey folks think telcos can "reinvent" themselves, "delayer," or become "utility-like." Utility-like? Translation: admit defeat and become a regulated, low-growth entity.
Is that what we want for fintech? For them to be swallowed whole by the banks and turned into glorified utilities? I dont think so.
But wait, maybe I'm being too harsh. Maybe this time it'll be different. Maybe banks have learned their lesson. Maybe they'll actually let the fintechs they acquire continue to innovate and disrupt.
Nah. Who am I kidding?
So, What's the Real Story?
It's a desperate grab for relevance, plain and simple. Banks are scared, and they should be. They see the writing on the wall: fintech is eating their lunch. So, instead of actually changing, they're just going to buy their way into the future. It's a cynical move, and it probably won't work in the long run. But hey, at least it'll keep the shareholders happy for a little while longer.
