Oct 1, 2024

To embed, copy and paste the code into your website or blog: <iframe frameborder="1" height="620" scrolling="auto" src="//www.jdsupra.com/post/contentViewerEmbed.aspx?fid=e3534322-e2e3-4576-9507-e93d75aa7ced" style="border: 2px solid #ccc; overflow-x:hidden !important; overflow:hidden;" width="100%"></iframe> UK & European Financial Services M&A: Sector Trends H2 2023 | H1 2024 — Consumer Finance Inflexion point arrives for UK & European consumer lending. The strong will survive as BNPL and POS finance become the norm for e-commerce. Current market: We are seeing: Significant consolidation activity: Larger lenders swallow competitors (e.g., Credit Agricole Consumer Finance's acquisition of Pledg) Consumer finance providers diversify through partnerships (e.g., Scalapay's BNPL partnership with Marqeta) Buy-now, pay-later reaches an inflexion point: Some well-known brands successfully fundraise despite "difficult" private capital conditions (e.g., Billink, Tabby, Tamara and Zilch all successfully raised capital in the last 12 months) Small number of well-known brands expand organically (e.g., Mondu's launches in UK, Netherlands and Austria) Other well-known brands withdraw from markets (e.g., Block's withdrawal of Clearpay in Spain, France and Italy) or withdraw altogether (e.g., Divido's and Laybuy's high-profile collapses) Insolvency contagion spreads beyond buy-now, pay-later: POS (e.g., collapse of ZestMoney) Consumer PropFinance (e.g., collapse of Fronted) Key drivers / challenges: Consolidation M&A activity centred around payroll finance, as lenders strive for scale (e.g., ViviBanca, Banco Desio e Brianza and Wagestream all inked deals in the last 12 months) Market conditions force consumer lenders to re-think strategies for access to capital—European fintech lending start-ups racked up over €11 billion in debt facilities in 2023: Payroll finance (e.g., Payflow's €20 million debt funding round led by BBVA Spark) BNPL (e.g., Tabby's US$700 million debt funding round led by JP Morgan) Consumer lenders re-calibrate balance sheets: Off-loading of NPLs to industrial scale debt servicers (e.g., BNP Paribas Personal Finance's sale of €120 million of consumer NPLs to KRUK / InvestCapital) Forward flow arrangements (e.g., Jefferies' and Santander's participation in £272 million funding round in Updraft, by way of £250 million forward flow) "Interesting" universe of potential buyers / investors: UHNW (e.g., Tom Hunter's participation in £800 million debt and equity funding round in Abound) Non-bank FIs (e.g., Royal London's acquisition of Responsible Lending) Non-FIs (e.g., Etisalat's acquisition of 63.3% of Beehive) Trends to watch: Exponential BNPL take-up is met by political and regulatory scrutiny—the UK a hotbed of controversy: Regulator: UK Financial Conduct Authority's use of powers under UK Consumer Rights Act 2015 to secure changes to potentially unfair / unclear contract terms in BNPL sector Government: UK Treasury's proposed regulation of low-cost credit contracts, including Treasury Laws Amendment Bill 2024: Buy Now, Pay Later Political: UK Labour Party's accusations of UK Government dragging its feet on regulation of BNPL sector Our M&A forecast Consolidation M&A to continue in the short / medium term, on account of regulatory and cost of funding pressures materially increasing operating costs. The strong will survive as BNPL and POS finance become “the norm” for e-commerce. Consumer Finance – Publicly reported deals & situations Healthy buyer / investor appetite Market commentary: Strategics: Citigroup: Consumer credit, Debt participation in £800 million debt and equity funding round in Abound (May 2024) Varengold Bank: BNPL, Participation in €29.5 million funding round in Billink (January 2024) Param: BNPL Acquisition of Twisto (August 2023) Banks: J.P. Morgan: BNPL, Participation in US$700 million debt funding round in Tabby (December 2023) Jefferies Financial and Santander CIB: Consumer credit, Participation in £272 million funding round in Updraft, by way of £250 million forward flow (December 2023) BBVA Spark: Payroll finance, Participation in €20 million debt funding round in Payflow (September 2023) UHNW: Tom Hunter: Consumer credit, Debt participation in £800 million debt and equity funding round in Abound (May 2024) Creditas / Pavel Hubacek: Consumer credit, Acquisition of Ney (September 2023) Non-bank FI: Non-FI: PE / VC: GSR Ventures and Hambro Perks: Consumer credit, Equity participation in £800 million debt and equity funding round in Abound (May 2024) EDC Investments, Vistara Growth, White Owl Group and Epic Ventures: Credit-card-as-a-service, Participation in US$85 million Series C funding round in Brim Financial (April 2024) Investcorp: Payroll paymentsolutions, Acquisition of majority stake in VEDA (January 2024) Hassana Investment: BNPL, Participation in US$250 million Series D+ funding round in Tabby (December 2023) Quilam Capital: Consumer credit, Participation in US$272 million funding round in Updraft (December 2023) Wellington Management: BNPL, Participation in US$200 million Series D funding round in Tabby (November 2023) eBay Ventures: BNPL, Participation in equity funding round in Zilch (October 2023) Silverstripe Investment Management: Mortgage lending, Participation in US$52 million funding round in Perenna (September 2023) Susquehanna Private Equity: Pre-paid debit card app for kids, Participation in US$24 million Series A funding round in HyperJar (September 2023) TA Associates and Warburg Pincus: HR mobile payments, Consortium acquisition of Epassi Group (August 2023) Market: Smaller lenders consolidate market share Wagestream: Payroll finance / consumer credit, Acquisition of Keebo (October 2023) Eleving Group: Consumer credit, Acquisition of ExpressCredit (July 2023) Larger lenders consolidate market share ViViBanca: Payroll finance, Acquisition of Ifiver (April 2024) Banco Desio e Brianza: Payroll finance, Acquisition of Dynamica Retail (January 2024) Credit Agricole Consumer Finance: POS lending, Acquisition of Pledg (February 2024) Banca Sistema: Pawnbroking, Acquisition of Banco Invest’s pawn loans business (November 2023) Smaller lenders stockpile lending firepower Market commentary: By 2027, digital wallets are expected to comprise half of all UK e-commerce spend, worth £203.5 billion. Projections also estimate that digital wallet usage will more than double at UK point-of-sale, rising from 14% to 29%. (Finextra– March 2024) By 2028, the BNPL userbase will increase by 107%, from 380 million users in 2024. (Finextra–March 2024) Brim Financial: Credit-card-as-a-service, Successful US$85 million Series C funding round led by EDC Investments (April 2024) Billink: BNPL, Successful €29.5 million funding round led by Varengold Bank (January 2024) Tabby: BNPL, Successful US$700 million debt funding round led by JP Morgan (December 2023) Tabby: BNPLSuccessful US$50 million Series D+ funding round led by Hassana Investment (December 2023) Updraft: Consumer credit, Successful £22 million equity and debt funding round led by Quilam Capital (December 2023) Tamara: BNPL, Successful US$340 million Series C funding round led by Sanabil Investments and SNB Capital (December 2023) Tabby: BNPL, Successful US$200 million Series D funding round led by Wellington Management (November 2023) Zilch: BNPL, Successful equity funding round led by eBay Ventures (October 2023) Perenna: Mortgage lending, Successful US$52 million funding round led by Silverstripe Investment Management (September 2023) Payflow: Payroll finance, Successful €20 million debt funding round led by BBVA Spark (September 2023) HyperJar: Pre-paid debit card app for kids, Successful US$24 million Series A funding round led by Susquehanna Private Equity (September 2023) Partnership model Scalapay: Payments, BNPL JV with Marqeta (October 2023) Ray of hope Consumer finance providers tap industrial-scale debt servicing Sellers: Acquirers: Falling dominos of BNPL Market commentary: European fintech lending startups have racked up over €11 billion in debt facilities in 2023, but many are running unviable models and will never become profitable. (Juniper Research–April 2024) Divido: BNPL, Collapse / wind-down (June 2024) Laybuy: BNPL, Collapse / wind-down (June 2024) ZestMoney: Consumer finance, Collapse into administration (December 2023) Fronted: Consumer PropFinance, Collapse / wind-down (December 2023) Block: BNPL, Shutting down of Clearpay in Spain, France and Italy (August 2023) External intervention Regulators: UK Financial Conduct Authority: Used powers under UK Consumer Rights Act 2015 to secure changes to potentially unfair and unclear contract terms in BNPL sector (October 2023) Governments: UK Treasury: Proposed regulation of low-cost credit contracts, including Treasury Laws Amendment Bill 2024: Buy Now, Pay Later (March 2024) UK Labour Party: Accusations against UK Government dragging their feet in regulating booming BNPL sector (August 2023)