UK & European Financial Services M&A: Sector Trends H2 2023 | H1 2024 — Consumer Finance
Inflexion point arrives for UK & European consumer lending. The strong will survive as BNPL and POS finance become the norm for e-commerce.
Current market:
Inflexion point for UK & European consumer lending
We are seeing:
Significant consolidation activity:
- First-movers attempt to conquer their niches (e.g., Wagestream's and Eleving's respective acquisitions of Keebo and ExpressCredit)
- Larger lenders swallow competitors (e.g., Credit Agricole Consumer Finance's acquisition of Pledg)
Consumer finance providers diversify through partnerships (e.g., Scalapay's BNPL partnership with Marqeta)
Buy-now, pay-later reaches an inflexion point:
- Some well-known brands successfully fundraise despite "difficult" private capital conditions (e.g., Billink, Tabby, Tamara and Zilch all successfully raised capital in the last 12 months)
- Small number of well-known brands expand organically (e.g., Mondu's launches in UK, Netherlands and Austria)
- Other well-known brands withdraw from markets (e.g., Block's withdrawal of Clearpay in Spain, France and Italy) or withdraw altogether (e.g., Divido's and Laybuy's high-profile collapses)
Insolvency contagion spreads beyond buy-now, pay-later:
- POS (e.g., collapse of ZestMoney)
- Consumer PropFinance (e.g., collapse of Fronted)
Key drivers / challenges:
Consolidation M&A activity centred around payroll finance, as lenders strive for scale (e.g., ViviBanca, Banco Desio e Brianza and Wagestream all inked deals in the last 12 months)
Market conditions force consumer lenders to re-think strategies for access to capital—European fintech lending start-ups racked up over €11 billion in debt facilities in 2023:
- Payroll finance (e.g., Payflow's €20 million debt funding round led by BBVA Spark)
- BNPL (e.g., Tabby's US$700 million debt funding round led by JP Morgan)
Consumer lenders re-calibrate balance sheets:
- Off-loading of NPLs to industrial scale debt servicers (e.g., BNP Paribas Personal Finance's sale of €120 million of consumer NPLs to KRUK / InvestCapital)
- Forward flow arrangements (e.g., Jefferies' and Santander's participation in £272 million funding round in Updraft, by way of £250 million forward flow)
"Interesting" universe of potential buyers / investors:
- UHNW (e.g., Tom Hunter's participation in £800 million debt and equity funding round in Abound)
- Non-bank FIs (e.g., Royal London's acquisition of Responsible Lending)
- Non-FIs (e.g., Etisalat's acquisition of 63.3% of Beehive)
Trends to watch:
Exponential BNPL take-up is met by political and regulatory scrutiny—the UK a hotbed of controversy:
- Regulator: UK Financial Conduct Authority's use of powers under UK Consumer Rights Act 2015 to secure changes to potentially unfair / unclear contract terms in BNPL sector
- Government: UK Treasury's proposed regulation of low-cost credit contracts, including Treasury Laws Amendment Bill 2024: Buy Now, Pay Later
- Political: UK Labour Party's accusations of UK Government dragging its feet on regulation of BNPL sector
Our M&A forecast
Consolidation M&A to continue in the short / medium term, on account of regulatory and cost of funding pressures materially increasing operating costs.
The strong will survive as BNPL and POS finance become “the norm” for e-commerce.
Consumer Finance – Publicly reported deals & situations
Healthy buyer / investor appetite
Market commentary:
34% of UK 18–24-year-olds use BNPL schemes at least once a month. (Finextra–September 2023)
Strategics:
- Citigroup: Consumer credit, Debt participation in £800 million debt and equity funding round in Abound (May 2024)
- Varengold Bank: BNPL, Participation in €29.5 million funding round in Billink (January 2024)
- Param: BNPL Acquisition of Twisto (August 2023)
Banks:
- Zions Bank: Credit-card-as-a-service, Participation in US$85 million Series C funding round in Brim Financial (April 2024)
- J.P. Morgan: BNPL, Participation in US$700 million debt funding round in Tabby (December 2023)
- Jefferies Financial and Santander CIB: Consumer credit, Participation in £272 million funding round in Updraft, by way of £250 million forward flow (December 2023)
- BBVA Spark: Payroll finance, Participation in €20 million debt funding round in Payflow (September 2023)
UHNW:
- Tom Hunter: Consumer credit, Debt participation in £800 million debt and equity funding round in Abound (May 2024)
- Creditas / Pavel Hubacek: Consumer credit, Acquisition of Ney (September 2023)
Non-bank FI:
- Royal London: Mortgage lending, Acquisition of Responsible Lending (December 2023)
Non-FI:
- Etisalat: P-2-P lending, Acquisition of 63.3% of Beehive (August 2023)
PE / VC:
- GSR Ventures and Hambro Perks: Consumer credit, Equity participation in £800 million debt and equity funding round in Abound (May 2024)
- EDC Investments, Vistara Growth, White Owl Group and Epic Ventures: Credit-card-as-a-service, Participation in US$85 million Series C funding round in Brim Financial (April 2024)
- Investcorp: Payroll paymentsolutions, Acquisition of majority stake in VEDA (January 2024)
- Hassana Investment: BNPL, Participation in US$250 million Series D+ funding round in Tabby (December 2023)
- Quilam Capital: Consumer credit, Participation in US$272 million funding round in Updraft (December 2023)
- Wellington Management: BNPL, Participation in US$200 million Series D funding round in Tabby (November 2023)
- eBay Ventures: BNPL, Participation in equity funding round in Zilch (October 2023)
- Silverstripe Investment Management: Mortgage lending, Participation in US$52 million funding round in Perenna (September 2023)
- Susquehanna Private Equity: Pre-paid debit card app for kids, Participation in US$24 million Series A funding round in HyperJar (September 2023)
- TA Associates and Warburg Pincus: HR mobile payments, Consortium acquisition of Epassi Group (August 2023)
Market:
- Tasheel Finance: Islamic consumer finance, Tadawul IPO (July 2024)
Smaller lenders consolidate market share
- Wagestream: Payroll finance / consumer credit, Acquisition of Keebo (October 2023)
- Eleving Group: Consumer credit, Acquisition of ExpressCredit (July 2023)
Larger lenders consolidate market share
- ViViBanca: Payroll finance, Acquisition of Ifiver (April 2024)
- Banco Desio e Brianza: Payroll finance, Acquisition of Dynamica Retail (January 2024)
- Credit Agricole Consumer Finance: POS lending, Acquisition of Pledg (February 2024)
- Banca Sistema: Pawnbroking, Acquisition of Banco Invest’s pawn loans business (November 2023)
Smaller lenders stockpile lending firepower
Market commentary:
By 2027, digital wallets are expected to comprise half of all UK e-commerce spend, worth £203.5 billion. Projections also estimate that digital wallet usage will more than double at UK point-of-sale, rising from 14% to 29%. (Finextra– March 2024)
By 2028, the BNPL userbase will increase by 107%, from 380 million users in 2024. (Finextra–March 2024)
- Brim Financial: Credit-card-as-a-service, Successful US$85 million Series C funding round led by EDC Investments (April 2024)
- Billink: BNPL, Successful €29.5 million funding round led by Varengold Bank (January 2024)
- Tabby: BNPL, Successful US$700 million debt funding round led by JP Morgan (December 2023)
- Tabby: BNPLSuccessful US$50 million Series D+ funding round led by Hassana Investment (December 2023)
- Updraft: Consumer credit, Successful £22 million equity and debt funding round led by Quilam Capital (December 2023)
- Tamara: BNPL, Successful US$340 million Series C funding round led by Sanabil Investments and SNB Capital (December 2023)
- Tabby: BNPL, Successful US$200 million Series D funding round led by Wellington Management (November 2023)
- Zilch: BNPL, Successful equity funding round led by eBay Ventures (October 2023)
- Perenna: Mortgage lending, Successful US$52 million funding round led by Silverstripe Investment Management (September 2023)
- Payflow: Payroll finance, Successful €20 million debt funding round led by BBVA Spark (September 2023)
- HyperJar: Pre-paid debit card app for kids, Successful US$24 million Series A funding round led by Susquehanna Private Equity (September 2023)
Partnership model
- Hakbah: Open banking, Open banking JV with Tarabut (December 2023)
- Scalapay: Payments, BNPL JV with Marqeta (October 2023)
Ray of hope
- Mondu: BNPL, Launch in UK, Netherlands and Austria (October 2023)
Consumer finance providers tap industrial-scale debt servicing
Sellers:
- BNP Paribas Personal Finance: France, Disposal of €120 million of NPLs to KRUK / InvestCapital (December 2023)
Acquirers:
- KRUK / InvestCapital: France, Acquisition of €120 million of NPLs from BNP Paribas Personal Finance (December 2023)
Falling dominos of BNPL
Market commentary:
European fintech lending startups have racked up over €11 billion in debt facilities in 2023, but many are running unviable models and will never become profitable. (Juniper Research–April 2024)
- Divido: BNPL, Collapse / wind-down (June 2024)
- Laybuy: BNPL, Collapse / wind-down (June 2024)
- ZestMoney: Consumer finance, Collapse into administration (December 2023)
- Fronted: Consumer PropFinance, Collapse / wind-down (December 2023)
- Block: BNPL, Shutting down of Clearpay in Spain, France and Italy (August 2023)
External intervention
Regulators:
- UK Financial Conduct Authority: Used powers under UK Consumer Rights Act 2015 to secure changes to potentially unfair and unclear contract terms in BNPL sector (October 2023)
Governments:
- UK Treasury: Proposed regulation of low-cost credit contracts, including Treasury Laws Amendment Bill 2024: Buy Now, Pay Later (March 2024)
- UK Labour Party: Accusations against UK Government dragging their feet in regulating booming BNPL sector (August 2023)
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