Why are open banking companies being acquired?
Open banking has led to not just collaboration between fintechs and banks but also between fintechs themselves. Many companies have already been partners with open banking companies in order to access open banking data. The data access improves their services, expands their value proposition, and helps them stay competitive. Those with the available funds, have taken advantage in order to accelerate their progress by acquiring open banking companies. Afterall, why just buy the milk when you can buy the whole cow?
Visa x Tink
Visa is an American multinational digital payments company that provides transactions between financial institutions, consumers and merchants. In June 2021, Visa acquired European open banking platform Tink for $2.1 billion. This is the biggest open banking acquisition to date. The takeover came just months after Visa ditched a planned acquisition of Tink’s competitor Plaid. The merger of the two companies is expected to help accelerate the adoption of open banking in Europe by providing a platform for innovation.
Mastercard x Finicity
Mastercard is an American leader in global payments and a technology company that connects consumers, financial institutions and merchants around the world. Mastercard acquired Finicity, a leading North American provider of real-time access to financial data and insights in June of 2020. The acquisition cost $825 million.
Plaid x Quovo
Plaid is an American open banking platform and financial services company. In January 2019, Plaid acquired American competitor Quovo for $200 million. Quovo was a startup that aggregated investment data. The acquisition came the month following a major Series C funding round for Plaid that raised $250 million.
Envestnet x Yodlee
Envestnet is an American wealth management and advisory platform that integrates the services and software used by financial advisors. In August 2015, Envestnet acquired Yodlee, an account aggregation service, for $590 million. The acquisition led the company to become a leading data aggregation and data analytics platform.
Tink x FinTecSystems
Swedish open banking platform Tink acquired German equivalent FinTechSystems, in May of 2021. FinTechSystems specialises in data analytics, account aggregation and open banking payments. The merger furthered Tink’s expansion across Europe.
Tink x Eurobits
In November of 2020, open banking platform Tink acquired spanish account aggregation provider Eurobits for $18 million. Earlier the same year, Tink acquired Instantor, in July, and OpenWrks, in September, for undisclosed amounts. The acquisitions built on a €90 million investment secured by Tink in January 2020.
What are the different types of open banking acquirers?
Our research found that open banking acquisitions can be categorised by five acquirer types: open banking, credit bureau, technology/advisory, payments, and consumer lending.
The most common type of open banking acquirer is other open banking platforms and providers. Open banking companies depend on the amount of integrations they have and their reach. Open banking acquisitions by open banking companies are done to expand the company’s operations and existing market reach. Acquisitions of this nature help open banking companies remain competitive in the highly competitive environment of open banking. Notable open banking acquisitions by open banking companies include Tink acquiring FinTechSystems, Eurobits, OpenWrks and Instantor, and Plaid acquiring Quovo.
The second most common type of open banking acquirer is credit bureaus. With a global shift towards the use of open banking data, many credit bureaus already collaborate with open banking companies in order to incorporate other types of financial data to get a more holistic credit score rating for customers. Open banking also reduces administrative costs for credit bureaus and prevents fraud. By purchasing open banking companies, credit bureaus can bring their partner’s technology in-house and have more control over open banking deployment strategies and increase their credit analysis capabilities even further. Notable open banking acquisitions by credit bureaus include Equifax acquiring AccountScore and Experian acquiring Runpath.
Tied in third place for open banking acquirer type is payment companies. Payment companies already are using open banking in order to have a secure and seamless experience for customers. Open banking verifies users’ identities and bank account numbers before authorising a payment or withdrawal of funds without the need to send bank statements. Payment companies may choose to acquire open banking companies in order to broaden their open banking reach and diversify their revenues beyond credit card payments. Notable open banking acquisitions by payment companies are Mastercard acquiring Finicity and Visa acquiring Tink.
Technology / Advisory
Also tied in third place for open banking acquirer type is technology / advisory companies. Many advisory companies, like wealth management, already use open banking to offer a secure way for customers to transfer funds to and from their bank accounts and enable advisors to deliver personalised advice. By acquiring an open banking company, technology / advisory companies can take advantage of having their partner’s technology in-house. The acquisition can accelerate their progress in the open banking business, complement their consumer offerings and expand their value proposition. Notable open banking acquisitions by technology / advisory companies are Envestnet acquiring Yodlee and Minsait acquiring Afterbanks.
Consumer lending companies are acquiring open banking companies. Consumer lending is becoming increasingly digital. Open banking allows companies to build a process that increases conversion rates and approval rates for creditworthy customers. Open banking helps companies automatically acquire and analyse open banking data and helps increase the speed of loan application screening and approval. A consumer lending company may acquire an open banking company in order to get rich open banking data in real-time and be able to provide a better banking service and experience. A notable open banking acquisition by a consumer lending company is Kreditech acquiring Kontomatik.
Why is open banking so valuable?
Open banking has proved to be incredibly disruptive to several industries all at once. What started as the ability to access banking data using screen-scraping in the late 90s, has grown to be a meaningful alternative to traditional payments rails, credit bureaus and identity documents. The disruptive nature of the new technology track poses a competitive threat to market incumbents in line with how Clayton Christensen described in his research of disruptive innovation.
"The latest Visa acquisition of Tink is an example of how incumbents can overcome their own Innovator’s Dilemma, and I’m certain we will see more incumbents buy their way into open banking to not be replaced by the new technologies," says Rolands Mesters, CEO and cofounder of Nordigen.