As the apex predators of finance, banks are increasingly turning their attention from snapping up investment firms and smaller banks to shelling out for fintechs. Products, developers, competencies . . . no matter what or who it is, if it’s associated with fintech, it just might put a bank in the mood for an acquisition.

“If you can’t beat ‘em, buy ‘em” is likely the mantra fueling many of these acquisitions, as my colleague Yan Telles tells it: Traditional banks are threatened by “disrupter” fintechs that appeal to increasingly tech-literate customers who prefer innovative digital products and financial services over the same old, same old. Snatching up the new kids on the block breathes new life into aging brands and business models — and keeps them in check.

It's a trend that's gained explosive momentum over the last couple of years in the wake of the pandemic — and it shows no signs of slowing down.

The fintech model

Getting acquired by a bank can be a big win for fintech companies, reflecting as it does the success of the fintech promise: analytics-driven enhancements to existing financial services, trading, and the democratization of wealth management.

But acquisitions of fintechs also demonstrate just how vulnerable banks know they are. If they don’t act, they risk losing market share to successful fintechs, as happened with NuBank and other major banking disruptors, and to banks that develop and release similar fintech products before they do. This vulnerability has spurred the glut of acquisitions we’ve seen already; banks are willing to pay top dollar, commit for the long haul, and build out their own tech-driven financial services and products.

The banks’ change, of course, didn’t happen overnight. For years, fintechs have been eating away at the traditional banking model, offering clients and customers faster, more convenient ways to manage their finances. Meanwhile, because consumers are growing more tech-literate, banks with the most technically advanced services and products are going to have still more appeal.

Major banks, major buys

Here are three examples of notable banks that have committed substantial resources to fintech acquisition.

Goldman Sachs

In March 2022, Goldman Sachs finalized its $2.2 billion acquisition of the massive BNPL online loan platform Greensky. In the press release announcing the acquisition, Goldman CEO David Solomon articulated the value of the deal: “We have been clear in our aspiration to become the consumer banking platform of the future, and the acquisition of GreenSky advances this goal.” Goldman has made substantial strides to build its online presence, offering an array of financial products from ETF portfolio management and high-yield savings accounts to fixed-rate personal loans, all available entirely digitally.

Lloyds Banking Group

UK-based banking giant Lloyds Banking Group PLG purchased two fintechs recently: wealth management platform Embark and digital insurance and asset protection agency Cavendish Online. These acquisitions represent a consolidation of major financial services under the wider umbrella of Lloyds’ massive customer base, which already provides banking for over 19 million people. Explaining the thinking behind Lloyds’ strategic fintech objectives, CEO Charlie Nunn said the move allowed for the utilization of resources only a major bank can field combined with the innovation of a startup.

Capital One

With 15 fintech acquisitions under its belt, Capital One has become the juggernaut among banks aiming to dominate in the fintech space. Its latest purchase of TripleTree LLC, an investment banking platform and strategic advisory with a major focus on healthcare investments, highlights the utility of specific acquisitions that increase product offerings while also expanding a bank’s involvement in a specific industry. Put another way, the acquisition makes it easier for Capital One to move in the healthcare investment space — even if its primary objective is to get its hands on digital product innovations for optimized trading.

How acquisitions will affect fintech

Besides some very big checks for some fintech startups, what will these acquisitions mean for the industry? Or for customers?

Improved performance and accessibility

In the short term, we’re already seeing the expansion and enhanced accessibility of tech-powered financial services like online banking and wealth management platforms. But in the long term, it could mean bigger, more foundational changes. As banks amass more fintech expertise under their own roofs and therefore get better at developing and deploying cutting-edge financial technology, we can expect to see greater access to financial products for consumers. Product-side, the enterprise-level resources major financial institutions bring will allow for higher return rates achieved through analytics-backed solutions.

Greater adoption, higher demand, greater profit

As consumers become more tech-literate — and aware of just what’s possible with fintech — they’re going to demand ever more advanced digital products and services. Meeting that demand, obviously, is going to mean more profit, and still more investment will likely be channeled into bank-fintech fusions: non-hybrid financial enterprises just might not be able to compete.

The fintechs strike back

We would be missing out on the most portentous result of this movement if we left it at strictly “bank-fintech” operations, though. It’s not just banks that are acquiring fintechs — it’s also fintechs that are acquiring banks. In early 2022 for instance, using $750 million in financial backing, fintech titan SoFi acquired Golden Pacific Bancorp along with its subsidiary, Golden Pacific Bank. The reason? Fintechs like SoFi seek national bank charters and see scooping up established banks as an optimal path to acquiring a charter.

That means the future of finance isn’t locked into a paradigm of banks asserting their dominance through fintech acquisitions. Rather, new battle lines are being drawn that will determine the financial service landscape of tomorrow: one where fintech companies wielding the institutional knowledge of banks compete with banks that leverage the ingenuity of fintechs.

Competitive markets

Fintech acquisitions are a necessary evolution for banks as they adjust to new fintech-driven demand for online products and connected services. But without the counterbalance of fintechs establishing themselves as financial players in their own right — such as companies like Stripe and Plaid — competition in the industry risks stagnation.

The acquisition of fintechs by larger financial firms drives positive change in the industry. But equally important are fintechs seeking to acquire other companies, challenging established players, and innovating new products and services for consumers. Competition is healthy in any industry, and in financial services, we’re looking at the start of some new — and strong — competition indeed.