M&A Insights – The disruption of technology in traditional sectors

June 1, 2017

FinTech. EdTech. InsurTech. PropTech. Big data. We’ve seen these esoteric labels thrown around continuously as the technology sector and traditional industries blend into one another. Banking is increasingly using machine learning to assess the credit-worthiness of borrowers. Property sales are simplifying through proprietary platforms that quickly link buyers and sellers to conveyancing specialists. Education is exploring new ways of bringing World War 2 into the classroom through virtual reality headsets. While this all sounds very exciting, and remarkably complicated, technology is creating new value in traditional sectors.

Although Brexit has created unbelievable turmoil in London’s financial sector, technology is pushing both banking and insurance to capture market share and meet consumer demands. Take Aire Labs as an example. Driven by Mixpanel Mobile Analytics, they use non-traditional data sources to help the underbanked obtain a credit score and gain access to financial products. In doing so, Aire, and those like it, are having two critical effects on the banking sector: (1) it is using big data supplied by Mixpanel to add prospective borrowers to the lending market and (2) challenging the traditional bricks and mortar approach of the high-street banks in evaluating the creditworthiness of retail customers. It also isn’t the only source of challenge facing the Big Five UK banks – digital only platforms such as Monzo Bank, Atom Bank, and Starling Bank are pushing forward to take down the expensive branch network in favour of app-based chats to deal with everyday banking needs.

With these significant pressures to evolve and maintain or create shareholder value, traditional institutions will be faced with decisions to either develop internally (seen increasingly through innovation labs), or turn to M&A. In a report published by FT Partners, 43% of traditional insurers are planning to acquire, or have acquired, innovative startups to help expand their digital capabilities. Allianz, the world’s largest insurance company, made a strategic investment in US-based Lemonade, a digital insurance platform that has be lauded for its business model innovation and user experience. In order to strengthen its online payments authentication offering, Visa bought Ohio-based CardinalCommerce to help merchants both ensure digital transactions completed quickly and with a reduced incidence of fraud.

The sustained and continued growth of legacy firms is contingent on their acceptance and investment in disruptive technology. As history has proven, the inability to embrace change will leave companies behind (just ask Kodak). Whether it’s through investment in innovation (JP Morgan reportedly spent $600 million on emerging fintech solutions in 2016) or M&A, this acceptance remains vital to meet the increasing demands of consumers and pressure from competitors.

 

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