German savings and deposits marketplace Raisin GmbH appeared to flip the script of banks buying up financial technology firms by acquiring its service bank, MHB-Bank AG, earlier in March. But such deals are more common than often supposed, and could become more so as fintechs come of age and look to expand their business offerings, industry experts say.
Raisin, which counts PayPal Holdings Inc. as one its backers, was founded in 2013 and allows customers to compare and access savings and deposit accounts provided by around 70 different European banks.
The deal means that Raisin would automatically acquire MHB's banking license, which saves it having to apply for one of its own, a spokesperson for the fintech firm said in an interview. MHB is responsible for account management, customer identification and financial transactions, which require a license.
Raisin will now be able to expand and achieve scale more easily, and the onboarding of new customers will likely be quicker and easier, she said.
The fintech firm, which also plans to strengthen MHB's position as a service bank for other fintechs, said it is "taking the road less traveled" by buying up its long-term service bank.
But Raisin is not the only fintech to buy up a bank.
Shaul David, associate at U.K.-based strategic adviser META Finance, said similar moves have been made before. One example is British challenger bank Tandem Group plc, which bought Harrods Bank, the banking arm of U.K. luxury retailer Harrods, in 2017, he said.
There have been a handful of other examples in Europe and North America in recent years.
Latvian fintech Transact Pro, which provides card acquiring and processing services and payments, bought U.S. regional bank Colorado National Bancorp in 2018 after the lender filed for bankruptcy, injecting $2 million to bolster its capital position.
The bank, which had only one remaining branch in Denver County, Colo., had $53.6 million in assets as of June 30, 2018. Transact Pro have said little about their motives for the deal, other than they hope to transform CNB into "a modern bank for the 21st century."
In an example from the U.S. insurance industry, Metromile Inc., an insurtech that offers pay-per-mile insurance, bought Mosaic Insurance Co. from a U.S. subsidiary of Axa in 2016 for $22 million.
Owning more of the value chain
"Fintechs are starting to feel the need to hold more of the value chain, and actually own the infrastructure," META Finance's David said.
The main motivation for a fintech to buy a bank would be to acquire the target's banking license or other infrastructure, rather than an attempt to gain more clients, he added.
Nina Mohanty, an independent fintech adviser and former head of business development at British fintech Bud, said Raisin's acquisition of MHB was unexpected but not surprising.
It shows that the fintech industry is reaching a maturity mark where the next step for many is to explore banking functionality, if not a full banking license, she said in an email.
On the surface, deals like Raisin's can seem counter-intuitive, but they can signal credibility to investors and to the market more broadly, she said.
Louise Beaumont, co-chair of the open banking and payments working group at techUK, an industry body, said she expects more fintechs, as well as software companies, to start doing unusual M&A transactions in order to shore up their position in the financial services market.
One example, she said, is that of Canadian financial software company Wave buying Every, a fintech that provides debit cards and business accounts to small businesses.
"This is simply expansion of the business offering — and we'll see more of it as early movers look to consolidate their advantage, whether it's fintechs buying banks, as in [the case of Raisin], or companies which offer online business accounts and a debit card being bought by accounting, invoicing, payroll and billing companies, as in the Wave/Every acquisition in Canada," she said in an email.