The landscape of international banking is witnessing significant shifts as UK FinTech firms seek entry into the US market by acquiring American banks. This strategy aims to circumvent lengthy regulatory processes and provide instant access to technological infrastructure and customer bases. Firms such as Revolut and Starling are at the forefront of these acquisitions, focusing on expanding their services and lending abilities across the US. Current conditions under US financial regulations, perceived as more merger-friendly, act as a catalyst for these strategic maneuvers. This article delves into the potential impacts and future of such acquisitions on the transatlantic financial landscape.
The intent to acquire US banks by UK firms like Revolut and Starling is not an isolated move but rather a continuation of attempts by European FinTechs to penetrate the American market. In earlier instances, UK firms faced challenges with US regulations, often hindering their rapid market entry. Now, with regulatory bodies showing a more lenient approach, these firms see a timely opportunity to accomplish their long-standing expansion goals. The historical reluctance of US regulators contrasts sharply with the current, more accommodating regulatory environment.
Why are FinTechs Eyeing Acquisitions?
UK FinTechs are pursuing acquisitions to gain US banking licenses, which allow them to offer loans and other financial services nationwide without establishing a brand new operational setup. This not only fast-tracks their entry but also provides an existing customer base and technical infrastructure in the competitive US market. Acquiring existing banks offers these firms a shortcut compared to applying for fresh banking licenses, a process that is often prolonged and complex.
What Changed in US Regulatory Approach?
US regulators, including the Federal Reserve, FDIC, and OCC, have indicated their willingness to streamline merger processes and support bank-friendly policies. This shift is crucial to UK FinTechs’ strategies, offering an unprecedented opening. Michelle Bowman’s advocacy for quicker merger approvals exemplifies this new regulatory landscape. UK FinTechs are seizing the moment, aiming to maximize operational efficiency and presence in the US.
Revolut, Europe’s largest FinTech firm, has already started consulting with advisors about purchasing a US bank. Declan Ferguson from Starling underscores the preference for acquisition as the swiftest path to enter the American market, noting that “We’re considering both paths, although we are probably more inclined towards acquisition.” Such moves highlight the practical benefits of acquiring an already established entity over the prolonged process of organic growth.
David Portilla, a partner at the law firm Davis Polk, stressed the urgency for interested parties to act now, given the temporary nature of this favorable environment. He stated, “
The window is open and it may not stay open, so it would be best to move now.
” The urgency points to the cyclical nature of regulatory climates and the necessity for timely strategic action.
Earlier this year, UK-based OakNorth acquired Michigan’s Community Unity Bank, emphasizing the speed and infrastructure benefits of such takeovers. Mark Steele, its chief risk officer, highlighted the advantage of acquiring an established setup:
“Speed was part of the rationale…but it was more that you have a technology, a workforce and a frame to build from, rather than building from the ground up.”
This reveals insights into how strategic acquisitions can provide a solid foundation for further growth.
As these acquisitions unfold, the implications extend beyond market entry, potentially altering the nature of cross-border financial services. Greater collaboration between traditional banks and FinTechs, fueled by the acquisitions, could enhance cross-border payment systems, offering consumers more robust and integrated financial services. As UK FinTechs embed themselves within the US financial landscape, partnerships with local banks may offer new opportunities for innovation and growth.
