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Author: Don Obrien

Financial institutions M&A: Consumer Finance | White & Case LLP


Financial institutions M&A sector trends: consumer finance — H1 2021 and outlook for H2 2021

Hyper-specialisation of the European consumer finance market continues, with POS, entrepreneur, freelancer, migrant and payroll finance businesses securing growth capital in H1 2021.

Overview

CURRENT MARKET

  • Moderate increase in M&A activity

WE ARE SEEING

  • Established lenders consolidate amidst disruption by niche competitors (e.g., Crédit Agricole’s acquisition of remaining 49% of SoYou)
  • Consumer lenders embrace digital currencies (e.g., Uphold’s acquisition of Optimus Cards UK)
  • UK payday lending casualties increase during the COVID-19 pandemic—Uncle Buck, MyJar, Peachy and Sunny Payday collapse into administration

KEY DRIVERS/CHALLENGES

  • Hyper-specialisation of European consumer finance market—niche conquerors attract investment in H1 2021:
    • POS (e.g., Divido’s US$30 million Series B fundraising)
    • Entrepreneurs (e.g., Uncapped’s US$80 million Venture fundraising and Memo’s €13 million Venture fundraising)
    • Freelancers (e.g., Lili’s US$55 million Series B fundraising)
    • Payroll (e.g., Check’s US$35 million Series B fundraising)
    • Micro-business (e.g., Albert’s US$100 million Series C fundraising)
    • Mass affluent (e.g., Monument’s £28 million Series A fundraising)
    • Migrants (e.g., Rewire’s US$20 million fundraising)
  • Prominence of e-commerce drives BNPL growth:
    • Inorganic growth (e.g., Affirm’s acquisition of Returnly)
    • Organic growth (e.g., Klarna’s launch of UK instalment loan shopping app in New Zealand)
    • Successful fundraisings (e.g., Resolve and Butter both successfully raised growth capital)

TRENDS TO WATCH

  • European regulators turn their gaze to ‘Treating Customers Fairly’ imperatives:
    • Europe: European Central Bank’s castigation of European banks over instant payment fees
    • UK: Payment Systems Regulator’s accusation of Mastercard, allpay, APS, PFS and Sulion of operating pre-paid card cartel

OUR M&A FORECAST

Hyper-specialisation of European consumer finance market to continue—customer demand for products tailored to their specific needs to escalate. Payday lending to further fade from memory (at least in the UK).

Consumer Finance—Publicly reported deals & situations

Healthy buyer/ investor appetite

  • Crédit Agricole (Consumer credit): Acquisition of SoYou (June 2021)
  • Financial Services Capital Partners (Consumer credit): Acquisition of JZ Lending (May 2021)
  • Brocc (Credit and savings): Acquisition of GCC Capital (May 2021)
  • Uphold (Crypto-enabled cards): Acquisition of Optimus Cards UK (February 2021)

Smaller lenders grow pipeline

  • Royal London (Equity release): Acquisition of 30% of Responsible Group (March 2021)
  • Cashplus (Bank accounts): Acquisition of icount’s current account portfolio (January 2021)

BNPL takes centre stage

BNPL schemes are expected to account for 10% of all UK e-commerce sales by 2024, and are predicted to be worth £264 billion, a 37% increase on 2020. Finextra (February 2021)

The UK FCA is to introduce new rules for BNPL firms amid mounting fears of a growing debt burden for cash-strapped shoppers. Finextra (February 2021)

Inorganic growth:

  • Affirm (BNPL): Acquisition of Returnly (April 2021)

Fundraisings:

  • Resolve (BNPL): Successful US$60 million funding round (May 2021)
  • Butter (BNPL): Successful £15.8 million funding round, led by Blenheim Chalcot (March 2021)

New offerings:

  • Klarna (BNPL): Launch UK shopping app which enables users to pay in three instalments (June 2021)
  • Klarna (BNPL): Launch in New Zealand (April 2021)
  • Barclays (BNPL): Launch of US white label BNPL service (April 2021)
  • Tinkoff (BNPL): Launch of Dolyame.ru service (April 2021)
  • Zilch (BNPL): Launch of ‘tap and pay-over-time’ feature (April 2021)
  • Affirm (BNPL): Launch of debit card (February 2021)

Growth in partnership model

  • General Motors, Goldman Sachs and Mastercard (Consumer credit): Co-branded rewards-based credit card JV (January 2021)

Smaller consumer lenders stockpile lending firepower

  • Divido (POS finance): Successful US$30 million Series B funding round, led by HSBC and ING (June 2021)
  • Uncapped (Entrepreneur finance): Successful US$80 million funding round, led by Lakestar (May 2021)
  • Lili (Freelancers banking): Successful US$55 million Series B funding round, led by Group 11 (May 2021)
  • Ramp (Corporate credit cards): Successful US$115 million Series B funding round, led by D1 Capital Partners and Stripe (April 2021)
  • TomoCredit (Consumer credit): Successful US$7 million Seed funding round, led by Barclays (February 2021)
  • X1 (Consumer credit): Successful US$12 million Series A funding round, led by Spark Capital (January 2021)
  • Check (Payroll finance): Successful US$35 million Series B funding round, led by Stripe and Thrive (January 2021)
  • Albert (Mobile banking): Successful US$100 million Series C funding round, led by General Atlantic (January 2021)

Regulator TCF imperative

  • European Central Bank: Castigation of European banks over instant payment fees (May 2021)
  • UK Payment Systems Regulator: Accusation of Mastercard, allpay, APS, PFS and Sulion of operating pre-paid card cartel (April 2021)

Click here to download ‘Financial services M&A reaches dizzying heights as COVID-19 lockdowns and travel bans come to an end’ PDF

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