JP Morgan has moved against the trend of falling fintech acquisitions by buying startup Renovite. The deal comes as the investment bank is fighting back a backlash over the $12bn it plans to spend on technology over the next year.
JP Morgan hopes Renovite can empower it to roll out new offerings to merchants, CNBC reported. Merchant acquirers are the middle-men operators who enable merchants to connect with payment processing providers and other financial service firms.
As an added bonus, JP Morgan acquiring Renovite would enable it to fight back against the growing competition from rivals like Stripe and Jack Dorsey’s Block.
Smaller fintech companies like those have shot through the stratosphere in the past few years, thanks to droves of customers migrating to online shopping platforms and them expecting more offerings from traditional retailers.
The same same factors are behind the skyrocketing growth of buy-now-pay-later startups like Klarna and other embeddeded finance ventures.
However, the fintech sector has been slammed by a number of setbacks lately, including tumbling market valuations, falling investments and even business closures.
At the same time, the value of fintech acquisitions has dropped in recent years. New data from research and analytics firm GlobalData reveals that the value of completed fintech acquisitions peaked in 2017. Over 256 deals worth $301.8bn were completed across the industry that year.
Those figures have dropped since then. While there were 631 acquisitions completed in 2021 across the fintech industry, they were only worth $89.6bn in total. As of September 12, 363 acquisitions worth just over $72bn have been completed in 2022.
JP Morgan buying Renovite in its latest deal
It is against this background that JP Morgan has now decided to acquire Renovite. The payment giant has been on an acquisition spree of late.
It agreed to acquire Irish equinity compensation firm Global Shares in March this year. In January, JP Morgan said it would buy a 49% share of Greece-headquartered cloud-based payments platform Viva Payments. Last year it snapped up UK-based digital wealth manager Nutmeg in a £700m deal.
So why did JP Morgan decide to buy Renovite? Part of the reason is that even thought the behemoth business processes more than $9tn across different businesses on a daily basis, its merchant acquiring revenue slumped last year.
CNCB suggested that this is partly due to it having fallen behind other ecommerce providers. The Renovite deal could enable it to catch up to its rivals.
This makes more sense, considering that JP Morgan’s CEO and occasional bitcoin basher Jamie Dimon has singled out fintech startups as “enormous competitive threats” to incumbent banks.
It is also against this background that JP Morgan announced that it would spend $12bn on technology this year. A significant chunk of that money will go to just keeping its current digital infrastructure up and running.
JP Morgan has not been immune to the market slump: its stock has fallen by roughly 25% this year. Some detractors have argued that the bank should hold off on investing in new technology.
Dimon has defended the expenses and, given the Renovite deal, it seems like JP Morgan is committed to keep splurging to gain further advantages.
GlobalData is the parent company of RBI and its sister publications.