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Why no bank is going to acquire your fintech startup

Banks and fintech startups across Africa are increasingly collaborating, working together to roll out innovative solutions to existing bank customers and trying to give more people access to financial services.

Banks are running startup accelerators, and in some cases investing in fintech startups. In some cases, there have even been acquisitions, most notably in the cases of 22seven, SnapScan and TYME.

But will acquisitions become the norm as the space develops and bank-fintech collaboration becomes more entrenched? The answer is “no”, according to various stakeholders in the space, for a variety of reasons.

Camilla Swart is ecosystem manager at Rise, the startup space launched by Barclays – now rebranded as Absa – in Cape Town in 2015, from where the bank runs its Techstars-powered accelerator programmes. She says though the bank could do an acquisition, that doesn’t mean it will.

“Absa has the capability to do acquisition, but what seems to be working well – a win-win – is the contractor-supplier relationship. We can partner while it makes sense and this gives the startup the autonomy in some situations to diversify the client group,” she said.

Stuart van der Veen, disruption lead in the corporate and investment banking team at South Africa’s Nedbank, believes banks acquiring startups would destroy all the advantages they currently gain through working with nimble, uniquely talented and highly focused teams.

“Fintechs will succeed where banks can’t because they are incredibly adaptable and creative, attributes that traditionally have not survived in the banking sector,” he said.

George Wakaria, vice president of cash management for Citibank in Kenya, highlights the recent Global Fintech Report released by PwC, which found 50 per cent of financial services firms were planning to acquire fintech startups over the next three to five years. Just because the intention is there, however, doesn’t mean acquisitions will actually take place.

“Banks still prefer to interact with fintech startups as vendors, as it is quite difficult to come by a company that can fit in completely to their existing business models and provide returns,” Wakaria said.

This is a view shared by Paul Mitchell, fintech and blockchain lead at PwC South Africa, who said it was hard to make acquisitions work because a bank’s cultures and metrics are different to those of a startup.

“A business that is set up to run an existing model – for example a corporate – is very different from a startup. The metrics are set up for efficiency, failure is failure, there are dress codes, piles of admin…”

Zachariah George, co-founder and chief investment officer of Startupbootcamp Africa, which works with a variety of financial institutions, even believes the level of M&A activity may actually decrease down the line.

“Big banks have wisened up to the fact that they cannot run fintech companies with the mindset of a large organisation with its long compliance, legal and infrastructure checklists,” George said.

“Instead, they are rather partnering commercially with fintechs through accelerator programmes like Startupbootcamp Africa, whereby they do not necessarily own the IP that was created by the particular fintech venture, but rather commercially benefit through revenue sharing, white labelled solutions, transaction-driven revenues and joint ventures.”

So, running a fintech startup in Africa with the grand plan of being acquired by a bank or other major financial institution? The evidence suggests it is possible, but don’t hold your breath, as the obstacles are numerous and sizeable.

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Disrupt Africa
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