In February, Fintech Saw $28B+ of M&A Deals. How Can You Support It?

<strong>The Signal:&nbsp;</strong>Fintech-related M&amp;A activity exploded in February, with 5 notable deals totaling more than $28B:

• February 24: Intuit Buys Credit Karma for $7.1B
  • Keys to deal
    • Intuit acquired Credit Karma’s 90m users (half of which are millennials), who have consented to receiving emails regarding their credit scores.
    • The associated data Intuit collects in the deal will be crucial moving forward as it upsells this user base existing financial products (tax prep, budgeting) and any future offerings.
      
• February 21: Lending Club Buys Radius Bank for $185mn
  • Keys to deal
    • Lending Club is expanding its business model from a peer-to-peer lending company into a larger provider of financial services.
    • Radius Bank, which has a bank charter, has existing relationships with fintech startups and a suite of financial products via its APIs. Lending Club is acquiring all of this.
    • Per Fintech Today’s Ian Karr (whose Substack we dig): "By acting as an intermediary between fintech startups and their existing customer base, Lending Club has an outside shot of becoming the Amazon for fintech."
      
• February 20: Morgan Stanley Buys E*Trade for $13B
  • Keys to deal
    • Charles Schwab’s acquisition of TD Ameritrade last year consolidated the brokerage industry and almost guaranteed that E*Trade would be acquired.
    • Morgan Stanley, which has done well in wealth management over the past decade, gets a well-known brokerage to build out its digital presence as well as ~$60B in customer deposits (which reduces the firm’s cost of funding).
      
• February 19: Ally Bank Buys Cardworks for $2.7B
  • Keys to deal
    • Ally Financial -- originally General Motors Acceptance Corp (GMAC) -- was founded in 1919 to provide consumer financing for automobiles.
    • Renamed after the financial crisis, Ally today offers a suite of financial products (mortgages, digital banking, insurance).
    • Cardworks is a leading non-prime credit card and consumer finance lender.
    • Ally cited a number of reasons for the acquisition including: 1) adding a core banking product (e.g., credit card); and 2) acquiring a low-cost deposit base (~$3B worth).
      
• February 3: Visa Buys Plaid for $5.3B
  • Keys to deal
    • Visa is America’s largest card network, doing ~$4T in debit and prepaid card transactions last year.
    • Visa’s traditional partners are banks that issue credit and prepaid debit cards.
    • Plaid’s platform connects fintech apps with customer accounts.
    • As more people shift to non-card payment methods (e.g., fintech apps), Visa’s acquisition of Plaid is a big move into new digital payment options.

These deals come on the heels of Charles Schwab’s aforementioned $26B acquisition of TD Ameritrade as well as Paypal’s $4B acquisition of Honey, both in November 2019. While the nature of these acquisitions are different, there’s no doubt the fintech space is as hot as ever.

The Opportunity: A recent CB Insights report on the fintech sector highlights some interesting industry trends that are still in the early stages.

Acquire Millennial Customers for Insurance Companies

Nearly 80% of millennials do not have life insurance, creating a huge opportunity for entrepreneurs to help insurance providers acquire customers.

Two insure-tech startups funded in Q4 2019 are looking to do just that:

• Sproutt ($12m Series A): The firm’s supposed secret sauce is its Quality of Life Index (QL Index) which uses AI to crunch data in 5 categories (movement, sleep, nutrition, health, balance). Based on this QL Index, Sproutt offers up a number of insurance plans from its partners. Sproutt is not an insurance firm itself; it is a broker and earns commission if a customer purchases a policy.
  
• Avibra ($3.2m unattributed): Avibra is an app that offers free term life insurance, with coverage growing as users record their healthy habits. Due to the nature of insurance on offer (term life insurance), the app is restricted to 18- to 38-year-olds in the US. What’s the catch? To earn coverage you need to consume the firm’s content (which includes quizzes, videos, and guided meditations), and there is also a paid option ($3.99/month) which gives you access to financial and health coaches as well as life-management tools. And, of course, Avibra will be collecting data about you, which insurance companies can use to price policies.

There are opportunities to aggregate demand for insurance companies by producing quizzes, calculators, comparison tools, and blogs related to life insurance and financial planning that are targeted at millenials. (For reference, here is Sproutt’s blog.)

Insurance-related queries are some of the most expensive on Google. The search term "do I need life insurance" (7.5k searches/month) has a high difficulty per Ahrefs, with top-ranked search results from some of the most established personal finance digital properties (e.g., NerdWallet and Policy Genius).

To establish a foothold in the category, you can create content around related and less competitive search terms (easy/medium difficulty):

• "Standard life insurance" (1.9k searches/month)
• "Max life insurance" (450 searches/month)
• "How much life insurance do I really need" (200 searches/month)
• "Importance of life insurance" (200 searches/month)

Speaking to the value of gathering customer demand for insurers, SelectQuote -- an insurance policy comparison tool -- recently filed for an IPO, priced in the $2B range.

Cash Flow Management for Small Businesses

A recent Trends article highlighted how optimizing cash management (e.g., inventory, receivables, and payables) can be a key competitive advantage. Fintech funding in Q4 2019 echoes this sentiment, with 3 notable early-stage investments looking to optimize cash management for small-and-medium sized businesses:

• Fairmarkit ($11.9m Series A): Fairmarkit helps firms manage their tail spend, which are business purchases (such as software or professional services) that fall outside of the typical ongoing and large purchases an organization makes. Via its platform, the company helps to reduce any non-strategic spend.
  
  
• Pepper Financial ($5.6m Seed): Pepper is a financial analytics platform that monitors cash flow and burn rate for DTC and app-based businesses. The goal is to give businesses insight into CAC and budgets and to prepare fundraising.

Modern Treasury ($10m Series A): This service automates and manages the full cycle of money movement -- from payment and approvals to reconciliation and accounting -- all from one app and API.

Tax Planning For Crypto

Consulting and educational content around crypto tax best practices is a big opportunity with the search terms "crypto tax" (1.4k searches/month) and "crypto tax software" (1.1k searches/month) seeing notable activity.

With the tax deadline soon approaching and the IRS on the lookout for crypto tax cheats, a number of crypto tax and accounting apps have been funded in recent months to help crypto investors on this front.

• Verady (Undisclosed Series A): Verady provides cryptocurrency asset verification, accounting, audit technology, and tax products through its "Ledgible" suite.
  
• Zenledger ($3.4m Seed): Zenledger provides tax software for crypto investors, who can manage their portfolio, create profit/loss statements, file taxes, and avoid audits by using the platform.
  
• Taxbit ($5m Seed): A platform that provides real-time tax impact on crypto transactions.