On February 7th, Fiserv—a publicly traded company and one of the largest financial service technology providers—announced that it is acquiring the remaining ownership of Finxact, a software developer of cloud-based banking solutions that was founded in 2016.
This move signals a new form of competition between banks and fintech vendors. The deal has garnered significant media attention, not only due to the high price tag (the acquisition was for roughly US$650 million), but also because the acquisition speaks to broader trends in the financial services market. With this acquisition, Fiserv looks to offer clients a streamlined path to start a digital brand; modernize its core infrastructure; and provide new products, services, and digital solutions to its customers.
The transaction complements Fiserv’s digital financial solutions portfolio with Finxact’s API-first capabilities. Fiserv can now expand its client base with API-based solutions that enhance access to banks’ data. While on the surface Fiserv is simply complementing its existing services, a deeper look suggests this acquisition reconfigures existing competition between large banks and fintech vendors.
Large Banks and Fintech Vendors
Until recently, banks have tried to partner with fintech vendors to harmonize their offerings in the open banking space. In general, this collaboration was forced by circumstances and was a patch to banks’ lack of clarity on their open banking strategy.
For too long, financial institutions have wondered what comes after APIs and if there was any business potential in open banking. The current answer is that there is indeed business potential, and as a result banks (especially the global ones) want to regain control of the “tech” part of the “fintech” equation.
Evidence of banks regaining control of technology is confirmed by recent moves of global FIs to create their own digital innovation units, including JP Morgan, Standard Chartered, and TD. The “tech” aspect is centered on developing applications that will be consumed by clients and partners.
Recent Aite-Novarica Group research, Creating Customer Value Through APIs: Research Study Results, indicates that APIs are becoming a competitive differentiator for banks as a delivery channel to corporate clients. This shift brings to the forefront a strong market requirement to save scarce developer resources and reduce time to market by optimizing the developer experience and simplifying coding.
What Comes Next?
Aite-Novarica anticipates that global banks will win over fintech vendors if they are able to engage with the developer as a separate persona, for example, through having a dedicated product team. They can then actively run a developer community to test new APIs and receive valuable feedback, as well as focus on low-code development, such as through code samples, low-code tools, and abstracting entire experiences into APIs.
Large global banks will compete directly against fintech vendors by creating their own app development platforms to attract API developers. These FIs prefer to build in-house since, presumably, they can achieve a competitive advantage and deliver more value to customers. Smaller banks that do not have sufficient budget for such a demanding approach will rely on fintech partners to deliver API-based digital solutions to their customers.
Fiserv is addressing this need with its new Developer Studio and the upcoming launch of its revamped AppMarket. The planned acquisition of Finxact is an indicator of the market, and Fiserv is positioning itself to better enable clients in a new competitive environment going forward. If you have thoughts on this acquisition, I’d love to hear them! Please reach out to me at [email protected].