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The FinTech Challenge: Scale or Independence?

in Media, Videos

The FinTech Challenge: Scale or Independence?

There comes a point for most successful fintech startups when they face a decision: either join part of a larger organisation in order to scale up their business or continue to remain independent.

There are trade-offs on each side of this decision, as Mike Harris, president of Campbell & Company, noted at Forex Network Chicago. Speaking from a client perspective, Harris said that he could see benefits from either side, but added that when senior figures at a fintech leave post-acquisition it is normally a warning sign.

“One of the things that we watch are the people, not just the founders, but the core people that you’re working with - the relationship managers, the technologists - if they start to depart, either because they’re asked to leave or because it’s not what they signed up for, that’s usually kind of the writing on the wall,” explained Harris.

He added that one downside to a fintech partner getting acquired is that sometimes clients lose access to the founders of those firms. Harris said that one of the great things about working with a startup is that he gets to brainstorm on product ideas with senior figures at the firm and, if there happens to be an issue, can call them directly for help. However, he said that post-acquisition there is the risk of what Harris terms as “liquidity events”, where the senior figures at the startup get a big payout and leave once their mandatory period is up following the deal.

“Probably our biggest concern when one of these deals happens is that our fees are going to go up,” Harris continued. “Because any time that a company is acquired there’s a multiple you’re spending and at some point you’re looking to monetise that acquisition.”

He said that working with early stage fintechs, Campbell & Company might help them with business ideas and testing protocols or even recommend that fintech to other industry figures to help them get off the ground and, as a result, might pay reduced fees to that provider. But Harris highlighted that if core staff leave the fintech post-acquisition, then he might be left facing a relationship manager who doesn’t understand the value that a firm like Campbell & Company has already provided to the fintech and subsequently could be inclined to significantly raise those fees.

“So the next thing I know I get a bill and it’s four times what it used to be and it’s a relationship risk,” he concluded.

However, Simon Wilson-Taylor, who became head of EBS institutional following the acquiral of his fintech venture, Molten Markets, offered a contrasting perspective on this issue of fees.

“When you’re a startup, and particularly when you’re in the process of trying to get the company ready for sale, you want your income to be as high as possible, so we pushed, particularly the liquidity providers, to the higher end of the scale. We were still less than the competition, but we were at the high end of the scale. After the acquisition the acquirer - NEX - was taking a much more long-term, strategic view and immediately cut the fees to a much lower level. So it can work the other way because the incentives are different in that there’s a much longer-term view from the acquirer than there is form a startup,” he said.