By Stefan Klestil.
BBVA’s acquisition of Holvi announced today, is remarkable in several ways.
1. To my knowledge, this is the first customer-facing FinTech acquisition by one of the big banks in Europe. There have been many investments into FinTechs by banks often via their in-house accelerators or VCs, there have been partnerships, there have been several tech acquisitions especially in the infrastructure domain but never before has a bank decided to directly take over a customer-facing FinTech brand in Europe.
2. BBVA is far ahead of most banks in executing their digital agenda as witnessed by its M&A and investment activities but also by its CEO and chairman embarking on a radical overhaul of the bank few years back. BBVA has a vision and a team that is attractive and inspiring even for top-notch FinTech founders – a key asset when it comes to actually closing a deal.
3. The deal confirms the attractiveness and growing importance of the prosumer/solopreneur/microenterprise segment. The digital entrepreneurs, or “makers and doers” as Holvi calls its customers are strongly growing across Europe and are in need of digital workbenches and payment and banking infrastructure to easily handle its business and money matters. Traditionally banks have not been able to service this segment profitably. In addition, Basel 3 and further regulation are pushing banks out of lending to this segment altogether. Propositions like Holvi allow access to this segment at low CACs and service costs and with high cross-selling potential especially in lending and FX.
4. The deal in my view marks the starting point of banks using M&A to buy themselves into segment-specific FinTech brands in Europe. FinTechs such as Transferwise, Funding Circle, Number26, Holvi, Nutmeg, Raise, Wikifolio, Revolut, Curve, FinanceFox and Loot are building pan-European or even global brands in specific customer segments and verticals. They are able to acquire and serve customers at a fraction of the cost of financial institutions, enable frictionless onboarding and cross-selling and offer a beautiful smartphone-only experience that millennials have come to expect. And most importantly, they are offering services that cater to the needs of specific segments such as young professionals, expats, millennial entrepreneurs, students and small merchants. As FinTechs grow to dominate these segments banks will have no choice but to acquire these FinTech brands if they don’t want to completely lose access and relevance.
5. FinTechs can survive compliance due diligence of a big bank! The bank exit channel is fundamentally more complex due to heavy regulation in Anti-Money Laundering (AML), Know-Your Customer Procedures (KYC), operating licenses and approval procedures by the regulator. This puts additional heavy burden on the FinTechs to set procedures up in the right way and thoroughly prepare DD towards exit. Unsurprisingly, exit processes take generally a lot longer than in other industries.
Disclosure: Speedinvest has been lead investor into Holvi, and is invested in Wikifolio, Curve and FinanceFox. Stefan Klestil is advisory board member of Number26.