Blockchain M&A To Accelerate, With Payments A Key Sectorbr>
The global blockchain market has seen unprecedented growth in recent years. Analysis published this month has indicated the market will grow at an impressive CAGR of 80% between 2018 and 2025. This super-charged expansion has prompted a sizeable uptick in M&A activity in the sector with a 200% increase year-on year in deal flow in 2018. The M&A surge is driven by blockchain companies with deep pockets making acquisitions as well as well-funded start-ups that are able to buy smaller companies to increase their market share and expand their businesses. The spread of blockchain technology into the payments arena is also a key driver behind increased deal flow and is likely to be a key driver of M&A for 2019.
The ability of blockchain technology to deliver fast, flexible and secure record keeping is being embraced, for clear commercial reasons. Two sectors are likely to to take the lead in its future growth: tech and financial services. Google, Apple, Amazon and Facebook have invested in almost every disruptive technology there is: AI, cloud storing, big data, Internet of Things, character recognition, but are yet to make any sizable moves in the blockchain space. This has likely been the case as privacy and anonymity are main pillars of these technologies, whilst these companies’ commercial propositions relate to selling ads, thus blockchain opposes the centralised nature of their business models.
However, this is changing. Amazon now trumpets that Amazon Web Services (“AWS”) provides the simplest way to build scalable blockchain networks, while earlier this month Google announced the launch of a new raft of crypto and blockchain analytical tools. In the financial sector, blockchain has the potential to increase transaction speeds and cut transfer costs, potentially saving banks an estimated $20 billion a year by 2022.
There were a number of high-profile blockchain M&A deals last year. In the tech and digital currency market, Coinbase completed the $100 million acquisition of Earn.com and a separate purchase of Cipher Browser. Acquisitions in the space are set to continue as Coinbase entered 2019 with the acquisition of Blockspring in January. Concurrently, the blockchain start-up Tron acquired BitTorrent, the data sharing giant, for roughly $126 million and Binance, a leading crypto-currency exchange completed its first acquisition in July with the purchase of Trust Wallet.
One of the more significant deals in 2018 was Goldman Sachs-backed Circle acquiring Poloniex for $400 million. M&A among exchanges and alternative trading platforms has been particularly active this year, as they push to become fully-regulated crypto exchanges under the FINRA and the SEC.
Deal making in the global payments industry has been one of the most active areas of financial services M&A and reached record heights, with 2018 the biggest year ever in terms of M&A activity within the sector. In the first six months alone, there were 102 transactions worth a total of $45 billion, according to data from Dealogic – surpassing 2017’s full-year figure of $32.9 billion. 2019 kicked off in notable fashion with Fiserv’s acquisition of payments processor First Data in an all-stock deal for $22 billion.
M&A activity has been driven by a transformation in how consumers pay for products, including the shift to online and electronic payments; the rise of e-commerce, where complex cross-border payments demands have fuelled the need for providers with a range of capabilities; the need for viable payment solutions catered to unbanked populations; and increased interest in fintech investments from private equity investors.
All this is the result of the payments sector’s rapid evolution. Changing consumer habits and an exceptional rise in e-commerce have been major factors behind the industry’s growth, causing a strain within traditional channels and driving an increase in the popularity of new fintech solutions which include blockchain technology. Whilst consumers become increasingly more comfortable with non-traditional banking partners, innovative disruptors are rapidly gaining market share.
New technologies, such as contactless payments, have driven innovation further but some analysts expect blockchain to have a big impact this year on developments in the sector as well as driving M&A. Given that blockchain can improve the security, speed and cost of each payment, more companies are looking for ways to innovate through the addition of this technology. Cross-border payments using blockchain are a good example of new payments innovations. Companies such as Ripple are working with numerous Japanese banks to create efficient cash transfers through the application of blockchain technology. Additionally, other businesses are examining ways to incorporate blockchain into payment processes such as accounts payable and receivables to speed up transactions.
Big global players are already making moves. MasterCard claim that $1.7 trillion is lost to fraud and counterfeiting globally each year but blockchain has the capacity to record transactions instantaneously and log them in an unchangeable ledger, where customers and merchants can be easily identified, helping to eliminate fraudulent transactions. It is unsurprising then, that MasterCard has built its own technology and is competing with Visa to acquire Ripple partner UK payment business Earthport Plc to aid its own blockchain network, Visa B2B connect. It is not likely to be the last bidding war over blockchain and payment-related assets in 2019.