Few banks seem interested in purchasing financial technology firms. Just five such deals were announced this year as of July 14, based on a list of acquisitions compiled by Piper Sandler & Co. for Bank Director, using data from S&P Global Market Intelligence. Six of these deals were announced in 2020. Bank Director’s 2021 Bank M&A Survey found that a paltry 11% of respondents — primarily representing banks above $1 billion in assets — said their bank was likely to purchase a technology company in 2021.
Piper Sandler Managing Director Chris Donat believes banks are more interested in the tools and the solutions — more easily obtained through vendor relationships and collaborations — than in owning these companies outright.
Our list of recent fintech acquisitions by banks finds that as a group, big banks are the most active acquirers. But one small bank has been exceptionally active in this space: $2.7 billion MVB Financial Corp., based in Fairmont, West Virginia. Working with fintechs has become a core element of the bank’s strategy.
MVB’s strategic shift dates back to 2016, when CEO Larry Mazza and CFO Don Robinson were trying to come up with a strategy to generate deposits to fuel the bank’s loan growth. They were inspired, says Robinson, by companies outside the banking sector that were housing deposits in loyalty programs and digital apps.
Examples include Starbucks Corp. and DraftKings, a sports betting app that reported $288 million in “cash reserved for users” — essentially deposits — in its 2020 annual report. Meanwhile, Starbucks recorded $1.6 billion in “stored value card liability” as of June 27; these funds are tied to the coffee purveyor’s prepaid cards, which customers can purchase and replenish online or in stores. Neither of these companies aim to be a bank, but they do draw dollars that their customers can use to buy coffee or gamble online — money that isn’t going to their primary bank account.
To better understand this evolving landscape, Robinson and Mazza reallocated marketing dollars to invest in fintech companies, viewing it as research and development. They took an active role in their investments, sitting on their boards. “We had a day-to-day involvement, kind of front row seat to their interactions,” says Robinson.
Today, the bank provides banking-as-a-service (BaaS) to fintech clients such as the personal finance company Credit Karma, which was itself acquired by Intuit last year. (Other BaaS banks include Coastal Financial Corp., NBKC Bank and Celtic Bank Corp.) The business has led to a huge increase in deposits. Fintech deposits totaled $533 million at the end of 2020, an increase of $382 million (255%) over the previous year — accounting for more than a quarter of MVB’s $1.98 billion in total deposits. Most of the fintech deposits ($358 million) come from the gaming industry. MVB’s return on average equity has more than doubled in the last two years, to 16.7% in 2020. Its return on average assets was 1.7%, up from 0.7% in 2018.
MVB has specific requirements for investing in fintech companies. There needs to be a market for the solution, which must solve problems faced by the industry or the bank’s clients. The management team should have a proven track record and resources for growing and scaling the company. And MVB wants to see what it can bring to the table. “We’re looking at that strategic partnership,” says Robinson. “How can we work with this [company]?”
The approach has resulted in a diverse array of acquisitions and investments, including Invest Forward, which offers a digital savings account; Paladin, focused on fraud prevention; and Trabian Technology, a software developer.
In a release explaining the rationale behind the Trabian acquisition, Mazza noted that the company adds “a new revenue stream and profit center and technological expertise that will benefit MVB and all of our stakeholders.”
Acquisitions that extend MVB further into areas like software development and fraud protection help the bank turn cost centers into profit centers, explains Robinson. “Trabian does work for, not only MVB, but it also does work for third parties,” he says. “As we look at the fintech world, one of the key pieces for us was looking at, how do you bring that expertise in house?”
The bank launched MVB Edge Ventures in June to oversee its technology investments and tackle two challenges that would vex any bank considering putting its capital into a fintech: valuation and culture.
To address valuations, MVB does its homework. “These are not public companies, right? So there’s a lot of diligence we have to do to make sure we understand the overall market,” says Robinson. “[We] try to stay away from pre-revenue companies, and we don’t invest in concepts.”
And the new venture arm addresses the cultural piece, along with regular communication with Robinson and Mazza.
“We have a team [that] work[s] together on a regular basis [to] integrate the companies and provide that platform,” says Robinson. He and Mazza regularly communicate with their portfolio fintechs, and Robinson says they have a lot to learn from one another. “They’re sharing the challenges and pitfalls they’re seeing,” he says, “and also the opportunities.”
Of course, MVB is not the only bank looking to fintech acquisitions to fuel growth. Earlier this month, Fifth Third Bancorp closed its acquisition of Provide. The digital platform offers deposit accounts, insurance coverage and financing to healthcare providers, originating $300 million in loans in the first half of 2021, according to Fifth Third’s July 21 earnings call.
“Our focus is on nonbank transactions that enhance our product and service capabilities,” Fifth Third CEO Greg Carmichael said on the call. “Provide would be a great example of that.” Fifth Third started investing in the company in 2018, and began funding loans through the platform around two years later. Provide will continue to operate as a subsidiary of the Cincinnati-based regional bank, which expects the platform to generate around $400 million in originations in the second half of 2021 and $1 billion in 2022.
2020-2021 (YTD) Fintech Acquisitions by Banks
|Acquiring Bank Name
||Deal Value ($M)
|Fifth Third Bancorp
||E*TRADE Advisor Services
|MVB Financial Corp.
|Bank of America Corp.
|PNC Financial Services Group
|Alliance Data Systems Corp. (Comenity Bank)
|CRB Group (Cross River Bank)
||Synthetic P2P Holdings Corp. (d/b/a PeerIQ)
|American Express Co.
|MVB Financial Corp.
|MVB Financial Corp.
|Bank of Montreal
Source: Piper Sandler & Co. using data from S&P Global Market Intelligence.