The financial services industry, with its intrinsic technological components, has played a significant role in economies worldwide. This is evidenced by the presence of payment processing mechanisms such as ATMs, online payment platforms, and more. However, a distinct industry has emerged, exclusively dedicated to developing cutting-edge technologies for the financial services sector – the fintech industry. In essence, while the financial services industry creates products for consumers, the fintech industry develops the technology that facilitates the widespread use of these products, leveraging the global adoption of smartphones and ubiquitous internet connectivity.

ROLE OF MERGER AND ACQUISITION IN FINANCIAL SERVICES

Recently, there has been a notable uptick in Merger and Acquisition (“M&A”) activities between players in the financial services and fintech sectors. M&A provides fintech companies with opportunities to enhance their capabilities and expand their reach. Moreover, the fintech industry’s characteristics, including high growth and recurring revenue, make it an attractive investment destination for private equity and venture capitalists.

Given this growth trajectory, fintech M&A is transitioning from being perceived as “too small to care” to “too big to ignore.” Consequently, it has garnered the interest of multiple stakeholders. With this heightened attention, it is natural that antitrust regulators have begun scrutinizing these transactions more closely. Cases like Visa/Plaid and Mastercard/Nets serve as noteworthy examples. This article delves into the approaches of various competition authorities worldwide as they evaluate significant fintech M&A deals and anticipates the future course of fintech M&A.

THE INDIAN ANTITRUST APPROACH TO FINTECH M&A

The Competition Commission of India (“CCI”) had the opportunity to review a fintech M&A transaction when it received notice of Visa’s acquisition of a 13% stake in India Ideas. During its assessment, CCI took note of Visa’s affiliations with various Indian banks for the issuance of credit cards and debit cards. Additionally, it recognized that India Ideas offered a wide range of services, including payment services, voucher distribution, biller networks, authentication services, and more, to various businesses.

While acknowledging the multiple methods of making digital payments and the various steps involved in this process, the regulator assessed the impact of the deal on the digital payments market as a whole. Consequently, the regulator defined the relevant product market broadly. However, the delineation of a narrower market in its decision could have set a precedent for the future scrutiny of fintech M&A deals in India, especially considering that such deals are still relatively nascent in the country.

CONCLUDING REMARKS

Indian regulators did not have the opportunity to review some fintech deals as they did not meet the thresholds set by the Competition Act, of 2002. Notably, the Certified Management Accountant (“CMA”) reviews more fintech deals than its counterparts due to its “share of supply” jurisdictional test (25%), which serves as a flexible “gateway” for reviewing transactions involving target entities with limited turnover. In contrast, most other jurisdictions, including India, have competence limited by statutory minimum target revenue thresholds that many startup fintech entities typically do not meet.

Furthermore, the “fin” aspect of fintech M&A sets these transactions apart from those involving traditional tech companies. This distinction becomes more pronounced as the financial dimension of fintech transactions can involve the participation of sectoral regulators, such as the Reserve Bank of India, in the Indian context. Given that sectoral regulators possess a deeper understanding of competition within the financial segment, it can be argued that they are better suited to assess these transactions. Moreover, if sectoral regulators introduce policies regarding fintech M&A, antitrust reviews will become more intricate.