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Consolidation – Financial Institutions buying Fintech 
Transforming the Banking Sector: Synergies between Banks and FinTechs 

Integrated finance is transforming the way banks offer their services, enabling the incorporation of payments, lending and insurance within non-financial platforms.

Introduction

The financial industry has undergone significant changes in the past years, driven by a rise in fintech innovation, regulations, and embedded finance changes. Embedded finance, which refers to the seamless integration of digital banking along with other financial products and services into nonfinancial companies’ platforms or applications , is reshaping customer experiences as well as streamlining operations, all of which open new growth and development opportunities for financial institutions. Banks are no longer just standalone entities; they are integrating with fintech firms to create seamless, customer-centric ecosystems. As financial institutions look to converge with fintech companies, investors and growth-stage companies must understand the dynamics at play. This report explores two critical aspects of this trend: the convergence of banks and customer platforms through embedded finance and the strategic synergies arising from acquiring fintech firms by traditional financial institutions.

Embedded Finance: Reshaping Financial Services Delivery

1. Integration of Financial Services into Digital Ecosystems

 

Embedded finance enables the seamless incorporation of financial services into non-financial platforms or applications. This integration lets users access payment, lending, or insurance services directly within their preferred platforms. Banks have been leveraging this trend to extend their reach and remain relevant in a digital-first world.

In 2024, sponsor banks reported that 52.3% of their revenue and 51.4% of their deposit income came from embedded finance partnerships , highlighting the significant role these integrations play in today's banking industry. These findings align with the strategic importance recognised by APG Capital Markets, underscoring how embedded finance partnerships are reshaping revenue streams for financial institutions.

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Alloy and McAlpin, K. (2024)

2. Banks Partnering with Fintech to Bridge Gaps

Traditional banks are increasingly partnering with fintech companies to bridge the gap between legacy systems and modern customer expectations. These collaborations often focus on embedded finance products including deposits, payments, issuing and lending to distributors such as retailers, marketplaces and platforms, telecommunication companies and OEMs, where fintech excels in delivering efficient, user-friendly solutions.

The embedded finance sector has experienced rapid growth, with the global market size expected to increase from $81.4 billion in 2023 to $1.16 trillion by 2033 at a compound annual growth rate of 30.43% (Spherical Insights, 2024). This rapid expansion demonstrates the transformative potential of partnerships between banks and fintechs, a perspective shared by APG Capital Markets, particularly regarding opportunities for growth-stage companies to leverage these advancements.
 

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Spherical Insights (2024)

3. Transforming Customer Experiences

The integration with fintechs allows banks to deliver personalised, real-time financial services. This transformation goes beyond convenience, offering predictive analytics and tailored financial products that anticipate customer needs, thereby enhancing satisfaction and loyalty. Notably, in a survey involving 3007 European consumers by Vodeno/Aion Bank, 52% of individuals aged 25-34 showed a preference for using financial products via their favourite brands or apps compared to conventional banking methods due to convenience (Vodeno, 2023). Additionally, 51% of respondents said brands offer financial products more tailored to their needs than traditional institutions, and 50% expressed loyalty to brands offering financial benefits such as Buy Now Pay Later (BNPL) or cashback. These trends highlight the importance of integrated financial solutions in driving customer satisfaction, a viewpoint strongly supported by APG Capital Markets..

Strategic Synergies: The Power of Bank-Fintech Collaboration

1. Harnessing Bank Scale and Stability

 

Large financial institutions bring significant advantages, including vast customer bases, regulatory expertise, and robust infrastructure. These attributes complement fintech’s innovation, enabling banks to scale digital offerings efficiently while maintaining trust and compliance.
 
In 2024, 41% of financial institutions had implemented embedded finance solutions, and 48% had expanded their Banking-as-a-Service (BaaS) capabilities . Such trends illustrate the growing emphasis on leveraging synergies between banks and fintechs. For growth-stage companies, these collaborations provide access to scalable infrastructure and a broader customer base, unlocking the potential for accelerated growth.

 

2. Accelerating Innovation Through Fintech Acquisitions

Banks are increasingly acquiring fintech firms to integrate cutting-edge technologies and capabilities into their operations. These acquisitions provide a fast track to innovation, allowing banks to offer advanced solutions like AI-driven credit assessments, blockchain-based payments, and real-time analytics. Driven by the digitalisation and globalisation of the finance ecosystem, Fintech M&A volume has risen 4.4% year on year to 859 deals from 2023 to 2024 (Capstone Partners, 2024).
 

Globally, Fintech M&A volumes in the last couple of years, despite falling short of their 2021 peaking, have shown modest signs of growth and recovery as M&A become a key strategic option for mature fintech providers to expand and gain market share (Capstone Partners, 2024). Furthermore, a positive macroeconomic environment, characterised by lower interest rates and market stability, creates an ideal scenario for mergers and acquisitions, which will accelerate the rate of innovation through the acquisitions of fintech. Such developments resonate with APG Capital Markets' focus on how acquisitions can fast-track innovation, benefiting not only banks but also scale-ups aiming to adopt cutting-edge solutions.

3. Creating Competitive Advantages

 

The combination of bank stability and fintech agility results in unique competitive advantages. Combining resources fosters the development of innovative financial products that address unmet market needs, such as microloans for underserved markets or integrated payment solutions for global businesses.


The embedded finance market presents a significant opportunity, with a total addressable market of $185 billion, from which only $32 billion has been captured so far, leaving 83% of the market untapped . This untapped potential underscores the immense opportunities for financial institutions and growth-stage companies to innovate and capture market share. APG Capital Markets recognises these dynamics as pivotal for companies aiming to differentiate themselves and achieve sustainable growth.

Conclusion

The consolidation of financial institutions and fintech companies represents a pivotal shift in the financial landscape. Embedded finance is not just a trend but a strategic imperative, enabling banks to integrate seamlessly into customers’ digital lives. Simultaneously, the acquisition of fintech firms is driving innovation and creating synergies that benefit all stakeholders. For economic and financial professionals, these developments signal value-creating opportunities—from investment prospects in hybrid entities to new avenues for growth-stage companies. As banks and fintech continue to converge, the financial services industry is poised to deliver unprecedented value and innovation, offering growth-stage companies a pathway to scale and succeed in an increasingly digital world.

Banks are acquiring fintechs to accelerate innovation, incorporating advanced technologies such as artificial intelligence into credit assessments and blockchain-based payments.

 GDP Growth - Outlook 2025

References: 

Alloy and McAlpin, K. (2024) Embedded Finance for banks in 2024.
https://www.alloy.com/blog/11-embedded-finance-stats-for-banks-2024?utm  

Capstone Partners (2024) FinTech M&A Update.
https://www.capstonepartners.com/insights/report-fintech-ma-update/#:~:text=Global%20merger%20and%20acquisition%20(M%26A,YOY)%20to%20859%20deals%20YTD.

 
Dresner, A. et al. (2022) Embedded finance: Who will lead the next payments revolution?

https://www.mckinsey.com/industries/financial-services/our-insights/embedded-finance-who-will-lead-the-next-payments-revolution

Fintech News Switzerland (2024) Embedded Finance Market Surges to US$185B with Vast Untapped Potential. https://fintechnews.ch/payments/embedded-finance-market-surges-to-us185b-with-vast-untapped-potential/73106/?utm 

Price Waterhouse Coopers (2024) What does embedded finance mean for business https://www.pwc.com/gx/en/issues/technology/tech-translated-embedded-finance.html#:~:text=Embedded%20finance%20is%20the%20seamless,nonfinancial%20companies%27%20platforms%20or%20applications  

Pymnts (2024) 41% of banks offer embedded finance solutions, have FinTechs to thank. https://www.pymnts.com/news/digital-banking/2024/41-of-banks-offer-embedded-finance-solutions-have-fintechs-to-thank/. 

Research and Markets (2024) 'Global Embedded Finance Business Report,' GlobeNewswire News Room, 26 September. https://www.globenewswire.com/news-release/2024/09/26/2953632/28124/en/Global-Embedded-Finance-Business-Report-2024-2029-Product-Launches-and-Innovations-Strategic-Partnerships-Regulatory-Changes-Mergers-and-Acquisitions.html?utm_source=chatgpt.com.

Spherical Insights (2024) Analysis and future outlook to embedded finance market. https://www.sphericalinsights.com/reports/embedded-finance-market. 

Vodeno (2023) Millennial and Gen Z consumers turn from banks to brands for financial products. https://vodeno.com/millennial-and-gen-z-consumers-turn-from-banks-to-brands-for-financial-products/. 

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