Why fintechs are buying up legacy financial services companies

Oh, how the tables have turned.

It used to be that if you were a fintech startup or, for lack of a better term, a digitally native financial services business, you might be eyeing an acquisition from an incumbent in the industry.

It used to be that if you were a fintech startup or, for lack of a better term, a digitally native financial services business, you might be eyeing an acquisition from an incumbent in the industry.

But lately, fintech upstarts are the ones doing the acquiring. Over just the last year or so, we’ve seen:

• In February 2020, LendingClub announced plans to acquire Radius Bank in a cash-and-stock transaction valued at $185 million. The deal closed in February 2021, leading to a very quick and surprising second-quarter profit.
• In March of this year, SoFi agreed to acquire Golden Pacific Bancorp (GBP) for about $22.3 million in a deal that was designed to accelerate its acquisition of a national bank charter.
• Earlier this month, blockchain-based lender Figure Technologies agreed to merge with mortgage firm Homebridge Financial Services, which has 180 retail branches and funded more than $25 billion in home loans in 2020.
• And last fall, fintech startup and challenger bank Jiko acquired Wadena, Minnesota-based Mid-Central National Bank in a deal that took years of due diligence and whose sales price fell in the range of a Series A round, according to the founder.

So what’s going on here? Why are fintechs now acquiring legacy financial services businesses, instead of the other way around?

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