Smart Merger Strategies: Balancing Fintech Growth & Competition

Fintech companies worldwide operate within ecosystems comprised not only of buyers of fintech products but also other companies with complementary offerings and digital platforms that connect these various players. These ecosystems and platforms create both an opportunity for scaling fintech and a barrier that inhibits new startups seeking to enter the space. Within platform-driven fintech, mergers and acquisitions (M&A) are a popular means to scale rapidly. However, M&A can have negative consequences – not only for the companies involved but also for the overall platform. For instance, rapid M&A could result in market concentration by a few players, which could stifle competition, innovation, and overall growth. Hence, for the CXOs of fintech companies as well as policymakers, we develop a set of best practices by combining insights from two research articles. The first research article by Yongzhi Wang, Lori Qingyuan Yue, Nandini Rajagopalan, and Brian Wu points out that certain types of mergers among complementary companies can strengthen the competitive position of fintech firms.1 The second research by Shiva Agarwal, Cameron D. Miller, and Martin Ganco suggests ways to balance growth among fintech companies with the risk of market dominance by a few.2 We combine these insights and apply them to the context of the Indian fintech industry – the world's third largest by funding.3