Fintech & real estate M&A tsunami rising into Fall 2019

Here’s what’s Just Ahead as the fintech and real estate M&A tsunami rises into the Fall and Winter.

– When August began, I asked if the tsunami started when the Fox News empire bought Credible, validating the marriage of media and consumer finance.

– Fox paid $265 million for a 67% stake in Credible, a consumer finance advice and comparison site.

– So now Credible is a lending customer acquisition machine inside a media juggernaut. They have a Zillow-like conversion machine in Realtor.com, which is powered by another Fox/News Corp 2018 acquisition called OpCity. And all Fox media platforms continually drive credibility for Credible.

– The circle is complete. And that’s just one deal. Countless others are exploring options.

IF WINTER IS COMING, DO DEALS NOW?

The tsunami has a few key implications.

– It means big banking, media, and software incumbents will buy or invest in startups.

– The maturing, best-funded startups will buy or invest in smaller startups.

– The lines between financial services, software, and media will all blur in the race to make consumers actually enjoy banking and real estate.

– The current fintech and real estate innovation cycles are maturing. And so is the economic cycle.

2020 recession watch has begun, and this will impact funding for smaller companies.

– Meanwhile fintech super funds will encourage super scale.

– This is when big dogs and proven startups make fintech M&A moves.

– It’s also when smaller startups who’ve been at it for awhile must consider whether a smart deal beats fundraising.

– Below I run down a few key themes where I’m seeing lots of deal exploration.

– But first Let’s review just how fast everything is evolving.

FINTECH & REAL ESTATE CONVERGENCE SINCE 2018

– Here’s what I said in January 2018:

This all sets up 2018 to be the year that real estate services converge. Real estate brokers will offer loans. Lenders will connect you with real estate services. And tech firms will be coming for it all, unless certain lenders and/or real estate brokers can offer it all first.

– Here are a few things that have happened since then:

– The 4 categories of Big Tech, banking/lending, real estate, and media started converging March 2018.

– Opendoor made their one-click home sales vision official in March 2018.

– Credit Karma valuation catapulted to $4 billion in March 2018, enabling financial services options.

– Zillow started buying homes directly from consumers in April 2018.

– Goldman Sachs proved big banks can play the scale fintech startup game by buying challenger bank Clarity Money in April 2018. Clarity became the UI/UX of Goldman’s digital consumer bank Marcus, which started in 2016.

– Zillow and Credit Karma got into different facets of mortgage business in August 2018.

– Zillow makes one-stop real estate shop official in February 2019, and we coin them The Netflix of Homes.

Apple entered credit card business in March 2019 and T Mobile entered banking business in April 2019.

– Just today, Opendoor entered the mortgage business.

– Many U.S. and non-U.S. digital challenger banks — from current crop including Varo, Chime, Acorns, MoneyLion, Monzo, Revolut, N26, Betterment, Robinhood, etc. — become unicorns (meaning private companies worth $1 billion or more) in 2018 and 2019.

– The challenger banks are quietly winning the customer acquisition war against incumbent banks and lenders.

– But a few niche bank players are like NBKC and Lincoln Savings Bank are making smart deals with the challenger banks.

CHALLENGER BANKS ADDING SERVICES

– Each challenger bank started with 1 of 4 main banking services: budgeting, saving, borrowing, investing.

– The vision is win customers with easy bank-on-your-phone experience.

– Then add services organically or by partnering.

– Fintech M&A deals here may include certain challenger banks combining. For example, a giant challenger bank who’s great in the investing category might choose to combine with one who specializes in borrowing.

– One challenge here is they all have pretty lofty valuations.

– Another challenge is a hot feature du jour like ‘get paid 2 days early’ is a commodity the incumbents will figure out.

– A third challenge is they’re all offering high-yield savings right now, which can only be subsidized for so long.

– Therefore other deals here will include incumbents buying these firms like Goldman/Marcus bought Clarity Money.

– This is a win/win because challenger banks get remaining banking services they don’t have. And incumbents get modern customer experience.

MARRIAGE OF MEDIA & FINANCIAL SERVICES

– On customer acquisition, a core theme is the marriage of media and financial services.

– Fox buying Credible is the latest in this approach.

– Another good example is the partnership between Acorns and CNBC.

– Same drill: CNBC is a no-brainer marketing and customer acquisition machine for Acorns.

– A social era marketing adage is that all companies must be media companies now.

– Finance and real estate is the perfect place for media to lead.

– Finance requires a ton of education, so finance companies can/will pay media companies to push out their education to attract customers.

– Or they can buy or partner with media companies.

– Or vice versa.

– Look for more deals coming in this area.

– Also in this category look for more media companies to transition into finance and real estate services providers themselves like Zillow did.

– If they’re already the customer acquisition masters, why not just offer the services instead of selling access to the services?

– This is incredibly difficult, and the market will watch Zillow’s progress closely before making similar moves.

FINTECH M&A WILL POWER ONE-STOP SHOP HOUSING

– Customers hate the fact that they have to shop for a home and a loan separately.

– So they shop for a home and then figure out the loan later.

– This includes people who already have a home loan with their existing bank and need a new home.

– So even if they a big bank has millions of mortgage customers, these folks bleed off when they buy new homes.

– Because who thinks of their loan servicer when it comes time to think about a new home?

– And even if they do, the banks currently lose to Zillow and Realtor.com on home search.

– But the fintechs that power banks to offer Zillow-level home search and realtor connections will win big in the end.

– And so will the incumbent banks. It’ll protect their market share, and let them keep those loan customers and sell them other banking products over the customer’s financial life.

– This is a theme I’ve been on for a few years, and it’s all converging now.

– It’s not something each bank can build for itself because there are too many regulatory hurdles.

– Right now, this space is served by a handful of big and small software startups.

– But it’s evolving extremely fast, and there will be M&A within the software that leads to a couple big winners.

WINNERS & LOSERS IN FINTECH M&A

– Consumers win the most in all of this. The quest for deals and scale is all about serving them.

– The only losers in a dealmaking era are companies who ignore options and cling too tight to control.

– Companies must be more nimble than ever as this plays out.

– I’m sure you want me to mention more fintech M&A companies and deals.

– I will do that as we progress into the Fall, and cover it from the software, finance, real estate, and media perspectives.

– This is just the set up for what’s coming.

– And if you’re a company exploring any of these themes, let me know.

– The Basis Point can help you find your place in all of this.