Large financial technology deals have been thin on the ground in recent months but banks, which have been conspicuously absent, are firmly back in the picture.

Among deals with publicly disclosed price-tags, only one with a valuation of more than $1 billion has been announced since mid-August, that being the sale of Kentucky-based Computer Services Inc. to private equity firms Bridgeport Partners LLC and Centerbridge Partners LP. However, banks that came through the pandemic with strong balance sheets are increasingly looking to M&A as a way to capture revenues in segments like payments, which could spur more activity.

Banks in the mix

European banks were involved in four deals during October.

Italy's Compass Banca SpA, the consumer credit arm of Mediobanca Banca di Credito Finanziario SpA, closed two deals in the buy-now, pay-later, or BNPL, space. One was the 100% acquisition of Soisy SpA, an Italian fintech providing point-of-sale financing for online purchases, with loans funded by marketplace lending. The other was a 19.5% stake in Heidi Pay Ag, a Swiss fintech that develops digital platforms to support BNPL for online retail.

France's BNP Paribas SA reached a definitive agreement to buy Kantox Ltd., a British fintech that automates foreign exchange risk management and with which it has had a strategic partnership since 2019, while Société Générale SA signed an agreement to buy a majority stake in British payments fintech PayXpert Ltd.

This is a rapid reversal of a recent trend of banks selling off fintech assets, particularly in the payments vertical. A significant number of banks off-loaded payments businesses in 2020 and 2021 after failing to achieve the necessary scale to compete with large specialist payments businesses. Greece's Piraeus Financial Holdings SA, Italy's Intesa Sanpaolo SpA and Spain's CaixaBank SA were among banks to off-load payments assets, which found homes with payments giants Euronet Worldwide Inc., Nexi SpA and Global Payments Inc., respectively.

"Banks are getting back into the fold. For many years, they were selling out, but now they are racing back and using M&A to get back in," Jordan McKee, director, fintech research & advisory group at 451 Research, an S&P Global Market Intelligence company, said in an interview.

Banks' revived appetite for fintech M&A may be motivated by worries about losing out on business in areas such as treasury management and banking-as-a-service to fintechs in the payments space, such as Stripe Inc., McKee said.

Stripe launched Stripe Treasury in December 2020, a business that provides embedded finance services.

Banks are likely to remain active buyers of fintechs, Stephen Whitehouse, head of payments at Oliver Wyman, said in an interview.

"We are of the view that banks will double down in the payments space. ... The banks with solid balance sheets will feel tempted to buy payment assets, particularly innovative fintechs at reduced valuations that can augment their core capabilities," Whitehouse said.

Payments business are likely to stay resilient even during an economic downturn and will provide a "key source of income for [the] short to medium term" for retail banks, Whitehouse said.

France-based payments giant Worldline SA carried out one deal in each of October and September, completing the acquisition of a 55% stake in Softpos SA, a Polish fintech that provides technology that turns mobile phones into payment terminals, and announcing an agreement to buy a 40% stake in Dutch payments provider Online Payment Platform BV. Worldline has been one of the most active consolidators in the European fintech market in recent years, with acquisitions including an 80% stake in the merchant acquiring business of Greek bank Eurobank Ergasias Services and Holdings SA in 2021 and the entirety of rival European payments firm Ingenico Group - GCS for $7.8 billion the previous year.

Mega-deals on pause

The market for fintech M&A overall has undoubtedly slowed, with both September and October both producing 22 deals each this year, compared to 37 and 30 for the same months in 2021, according to Market Intelligence data. The largest deal in the second half of 2022 was Global Payments Inc.'s $2.03 billion acquisition of EVO Payments Inc. in early August.

"Mega-deals are either being put on hold or not happening," said Radboud Vlaar, managing partner of Finch Capital, an investor in high-growth tech companies.

However, the number of deals, if not the total value, is likely to pick up, Vlaar said. This comes as fintechs that have struggled to achieve scale, or that are running out of funds and are now unable to raise more capital, become natural acquisition targets.

Merlin Piscitelli, chief revenue officer of Europe, the Middle Eat and Africa at Datasite, a company that provides software solutions for M&A and other transactions, also believes that the change in the funding environment could lead to more M&A.

"The technology industry, including its fundraising, has been hit hard this year," Piscitelli told Market Intelligence.

"This is equally true for fintechs, which will likely also see a level of consolidation, given that many of these companies were funding to scale but not to generate revenue with the expectations of more financing at higher valuations. With the turn in the markets and valuations, some companies will have to consolidate to survive or create powerhouses in the industry's subsectors."