The legal firm said banks, in particular, face a high bar for acquisitions, wary of potential pitfalls in an uncertain market.
In a statement, its head of corporate M&A, Andre Gan, said fintech companies reshaped the financial landscape post-2008, while traditional banks found themselves facing the challenge of integration.
“Despite their initial hesitance, many banks ventured into direct investment, setting up accelerators and venture arms.
“However, fintech M&A involving banks has remained modest, prompting a closer look at the reasons behind this cautious approach,” it said.
Wong & Partners said compliance weaknesses and regulatory uncertainties have rightfully made banks cautious about fintech M&A.
“As fintech companies professionalise their operations, there is potential for a thaw, but alignment and careful evaluation remain crucial,” he said.
Gan viewed compliance risks, underscored by recent fines imposed by Malaysian regulators on Asian fintechs, as a significant factor deterring banks from venturing into this area.
He said these concerns have led banks to evaluate potential fintech acquisitions carefully.
However, Gan pointed out that cautious of risks and integration challenges, banks find partnering with fintech companies a more appealing option whereby joint ventures have emerged as a successful strategy, combining banks’ customer data with fintechs’ digital strengths to introduce innovative services.
Despite current caution, he said experts foresee a potential thaw in the coming year.
“Improved market conditions, settling start-up valuations, and a renewed interest in acquiring capabilities in areas like lending and treasury management may drive increased bank involvement in fintech M&A,” he shared.
While optimism abounds, he said uncertainties around artificial intelligence (AI) and emerging fintech-based models like banking-as-a-service could influence banks’ decision-making of which the regulatory landscape, especially in Asia, may provide early signals for global fintech M&A dynamics.
Gan said that while the road to fintech M&A for banks is laden with challenges, industry experts remain cautiously optimistic about a shift in the landscape in the upcoming year.
“As fintech companies mature in their operations and regulatory frameworks evolve, banks may find a more welcoming environment for strategic acquisitions,” he added.
Wong & Partners is a Malaysian law firm and Baker McKenzie International member firm that provides legal services in various areas, including financial services, M&A, capital markets and more.