The acquisition of Fidor Bank by Groupe BPCE in July 2016 is a defensive strategy for both players. Although they face different challenges, both providers have decided that acquisition is the best insurance policy against future uncertainty.
In July 2016, Groupe BPCE of France announced it was to acquire Fidor Bank, the German digital pioneer, with the takeover set to be completed by Q4 2016. Groupe BPCE claimed the deal would allow it to accelerate its speed of digital transformation and improve its digital banking proposition. For its part, Fidor Bank emphasized the importance of being part of a strong bank in an increasingly volatile environment.
For both banks, this move has been motivated more by a desire to protect themselves against negative consequences than any other factor. As an incumbent, Groupe BPCE is acutely aware of the threat posed by new entrants that possess a more innovative mindset. Taking ownership of Fidor Bank gives it a shortcut to attaining technological knowhow, particularly in the area of open API banking, where the German challenger has amassed considerable experience.
For Fidor Bank’s part, although it has been much lauded since its 2009 launch for building an engaged online community and creating an open platform, it has only amassed around 100,000 customers. Given the challenges it has faced in growing sufficiently large to ensure its long-term viability as an independent entity, acquisition offers a quick route to financial security and funds for future development.
This acquisition is the latest in a series of takeovers of new entrants by established banks. In 2014, Spain’s BBVA bought Simple, a US-based challenger, for $117m, and it followed this with the 2015 purchase of a 30% stake in the UK’s Atom Bank, one of a new generation of mobile-based banks. In both cases, BBVA was motivated by a desire to increase its access to digital banking innovations.
Over the next 12 months or so, the UK market in particular is set to be flooded with new entrants. Mondo, Secco, Starling Bank, and Tandem are just some of the challengers that either already have banking licenses or are on the verge of gaining authorization. Given the high levels of customer inertia in the current account market, it will be difficult for most of these brands to gain more than a negligible share of the market.
The suspicion has to be that many of these entrants have an exit strategy that involves being acquired by a larger bank. Therefore, over the next few years we can expect to see many more takeovers as both entrants and incumbents seek to optimize their positions.
By Daoud Fakhri, Prinicipal Retail Banking Analyst