The US Fintech Market: Is Now the Time to Make a Strategic Acquisition or Investment?

There are currently close to 11,000 US-based fintech companies, ranging from early-stage startups to the world's largest and most successful unicorns. However, they all seem to have one thing in common right now: a slowdown in opportunity.

After almost a decade of growing access to venture capital, skyrocketing valuations, explosive hiring, and ambitious expansion, many US and other countries' fintech companies must now navigate a new world. Fintechs are faced with crashing valuations, limited or restricted access to growth capital, and limitations on how to operate their businesses. Even the most optimistic leaders might say we are at a crisis moment.

Opportunities and Crises

For successful Chinese and Asian fintech companies with global ambitions, now could be the moment to take advantage of the slowdown in the US fintech market through acquisition or a strategic investment. Here are five reasons why:

1. Lower Valuations: Nearly half a trillion dollars have been wiped off the valuation of fintech firms in 2022 compared to their peak valuation, according to US market research firm CB Insights. For more mature companies with demonstrated revenue, a fintech might anticipate 15-20x revenue multiples. We now know revenue multiples are significantly lower. This development means that attractive fintech assets could be available at valuations ideal for a 5-10 year horizon.

2. Need for Capitalization: Not only are valuations down, but a potential acquirer or strategic investor is in a very strong position to negotiate. Fintech firms, by their very nature, need capital for growth, new product development, and customer acquisition. The funding slowdown was especially severe in the second half of the year, with Q4'22 funding clocking in at $10.7bn — the lowest quarterly level since 2018. According to more data from research firm CB Insights, total fintech funding reached $75.2bn in 2022 — marking a 46% drop from 2021.

3. More Normal Labor Market: In 2022, an estimated 150,000 tech workers were laid off. Since the start of 2023, an additional 95,000 tech workers have been furloughed. A historically tight labor market due to the COVID-19 pandemic and the high valuation/high capital infusion phase of the last ten years meant skilled fintech workers could command ever-increasing salaries, pick and choose jobs, and quit companies as they felt like doing so. Going forward, we're going to see more normal labor markets; this means US tech workers will be more aggressive in pursuing new opportunities and more likely to remain with solid, stable employers.

4. US as a Base for Global Expansion: A US presence can be an ideal base for global objectives; the world's largest payment processors, the largest and most diverse eCommerce environment exists in the US and, in comparison to other markets such as the EU, Asia, or the Middle East or Africa, is relatively easy to achieve scale. It is also a very liquid market for raising capital, acquiring new assets or divesting of others. Its proximity and special relationships with Canada, Mexico, and many Latin American countries provide a platform for expansion. Recently, OPN, a Japanese Singaporean fintech, acquired a US-based merchant processor (which had previously been owned by Brazilian Private Equity.

5. Bring Expertise to the US Market for Growth: Chinese and Asian companies can bring expertise to US market segments. QR code payments, remittances, Account to Account (a2a) payments, and the use of Artificial Intelligence (AI) for fintech are all areas where China and other Asian-based companies have, in many instances, raced far ahead of the US market. A well-executed acquisition strategy could mean access to an established customer portfolio where new fintech offerings can accelerate.

Conclusion

Many Chinese companies view the US with concern or misunderstanding. Though emotional headlines dominate the news, the reality is that, from a legal and compliance standpoint, the US is relatively straightforward to understand. Laws and regulations are clear, and there is an incredible availability of expertise for non-US companies in legal, international accounting, and other professional specialties.

Half a century ago, Japanese automobile manufacturers entered the US market and began selling their products. Today, Toyota is the largest of 10 foreign car makers in the United States, and foreign companies manufacture products in 21 US factories. Like the automobile industry, the fintech industry is both a regional and global ecosystem. Investing in the US market, establishing operations, and having expert resources is essential for any company with global customers and ambitions. It can be a win for all stakeholders, as in the case for foreign automobile manufacturers, US workers, and US consumers.