“The markets will remain healthy and conducive to fintech companies looking to raise capital or seek exits for the near-to medium-term”: Freeman & Co. Executive Director Tony Seto interview

Tony Seto has recently joined Freeman & Co., a U.S investment bank specialising in M&A and capital raising advisory services for the financial services industry, to lead its Payments and Banking fintech operations.  In an exclusive interview with bobsguide, Tony gives his perspective on the state of the fintech M&A market in the U.S, and …

by | March 21, 2017 | bobsguide

Tony Seto has recently joined Freeman & Co., a U.S investment bank specialising in M&A and capital raising advisory services for the financial services industry, to lead its Payments and Banking fintech operations. 

In an exclusive interview with bobsguide, Tony gives his perspective on the state of the fintech M&A market in the U.S, and looks ahead at where the payments industry can expect growth in the future.

What is Freeman & Co.’s position in the investment banking space, and what is your role at Freeman & Co?

F&Co. is a leading advisor to companies in the financial services space. Our transactions range from as low as $50m to over a $1bn, so we have the flexibility to service companies across the size spectrum. The firm provides mergers & acquisitions (both buy side and sell side) and private capital raising advisory services (traditional VC, PE, and debt financings for companies and capital placement services for funds); it has a strong heritage, successfully completing over 100 deals in its history.

Traditionally, F&Co. has focused on providers of financial services such as asset managers, broker dealers, insurance, and specialty finance companies. However, as digital technology has developed and is now an increasingly important facet of the industry, fintech has also become an increasingly important area of focus for F&Co, where Gagan Sawhney and Chris Pedone have led numerous transactions in securities processing tech, asset/wealth tech, capital markets/trading tech, and other areas of “Wall Street Tech”.

I joined F&Co. as an executive director and will lead our efforts with companies in the Payments and Banking fintech/Data sectors. Gagan and Chris will continue to focus on advising companies in the “Wall Street Tech” sectors.

Talk us through some of the recent fintech deals that you have been involved in advising on.

A couple of recent transactions that stand out are engagements with Kount and Transaction Wireless, both of which resulted in marquee announcements in their respective spaces that represented important trends in the evolving payments market.

The Kount deal resulted in an $80 m recapitalization by CVC Growth Equity. CVC is one of the largest private equity firms in the world and Kount was one of the first investments made out of the CVC’s new Growth Equity Fund.

CVC recognised Kount as a leader in the card-not-present (CNP) payment fraud prevention space, which is where the motivation to make the deal came from on their side. Gartner recently concluded in a report that companies will begin to incorporate more data-driven detection and response solutions to combat cyber criminals in addition to prevention-only software. This trend will drive growth in the market for years to come.

As consumers and businesses continue to accelerate their level of commerce via digital channels, criminals are similarly leveraging these channels to commit fraud, meaning that improved security technology has to be implemented at the same rate as omni-channel payments technology is rolled out.

Transaction Wireless, a leading provider of digital gift card solutions, was a client I advised during its sale to First Data. This represented a key deal for First Data’s strategy of adding more innovative digital technology solutions. It was the largest acquisition by First Data since the KKR buyout.

Transaction Wireless has since become an important platform within the First Data organisation, leveraging First Data’s leadership position in gift card processing.

How has investment in the fintech industry evolved over the past five years?

In general, the investment appetite for fintech has grown considerably. Payments have historically been a less sexy sector of technology, because the focus has been on providing the “plumbing” of commerce, which is often invisible to consumers and seen as a commodity. Despite this, the market is still an attractive investment area supported by strong macro trends (e.g. migration from paper to digital forms of payment, increasing demand of real-time and frictionless transactions by both businesses and consumers, and regulatory changes (like in lending) that force the market to adopt new solutions to enhance existing methods). The recurring nature of payments and relatively high incremental gross margins makes for business models that are both relatively predictable and potentially very profitable, at scale.

Major drivers of fintech’s recent momentum include changes in consumer preferences and technological advancements. New consumer-facing fintech companies are having a profound impact on the way people manage their finances and payments. This is attracting new investors who historically have been more focused on more consumer-oriented sectors. There is also an increasing need for financial services to collaborate or acquire FinTech companies to stay competitive; making these companies valuable investment opportunities.

The specific factors that we have seen driving the innovation in payments that has sparked investor interest are:

Consumer technology behaviour

Consumers have increasingly gravitated towards remote methods of commerce in replacement of human interaction in all aspects of their lives (transportation – Uber, food industry – Seamless, travel – Expedia, ticketing – stubhub, commerce – Amazon).

Proliferation of personal devices such as smartphones and tablets have fuelled this growth and enabled on-demand commerce; consumers can bank or buy anything, at any time, from anywhere, thanks to the hardware they keep in their possession at all times.

Because consumer habits and available hardware dictate that payments technology is required to fulfil a market need, fintech has responded to the market forces, developing major advancements in enabling safer, more efficient, and more cost-effective commerce environments across digital channels, for both businesses and consumers.

In the banking sector, whilst the death of the retail branch has been greatly exaggerated, innovations such as multi-function ATMs and stand-alone kiosks have become necessary to make the in-store banking experience more appealing to today’s consumers. Another example is in the lending space where online platforms have revolutionized the borrowing experience for the consumer. While the industry certainly has gone through its share of growing pains, there are tremendous opportunities to digitize the entire lending process which will benefit both consumers and lenders.

Data analytics and processing power

Consumers’ digital footprints are more extensive than ever, and growing at an accelerating rate. The expansion of data sources for analysts to record and measure activity creates an opportunity for a better consumer experience and more efficient systems. Data analytics are also becoming more advanced to address applications such as marketing, loyalty and fraud prevention.

The flipside of increased data collection, however, is that the valuable data provides an opportunity for criminals as well. Fintech solutions are needed to protect against activities such as fraud and ID theft.


A changing legislation landscape has always been, and will continue to be, a driving force of innovation in financial services, and with such a proliferation of regulatory changes or uncertainty on the horizon, the market is ideal for fintech to thrive.

Past administrations have greatly expanded the power of regulatory institutions through legislation such as Dodd Frank, with the aim of adding more stringent oversight to the financial sector. Tech has been called upon to monitor and report in this area. The Trump administration certainly seems to be taking softer stance on regulation, with a rolling back of Dodd Frank certainly not out of the question, but time will tell what kinds of changes we will actually see and how long it will take to make an impact.

Other key regulations such as the OCC’s push for national FinTech charters in the United States and the PSD2 in Europe promises to support even more innovation in fintech.   

Are we entering a new phase in fintech investment in 2017?

There will be continued growth and acceleration, we have already seen the ramping up of investment for several years, but I wouldn’t say that we are entering a defined “new phase” in fintech investment. What we are seeing is a strengthening of the existing trend.

What will also continue to occur in fintech is the entrance of new investors in the market who have not historically been interested in payments before, which will increase competitiveness and innovations in the market.

There are also key subsectors of fintech, such as alternative lending, which have seen an investment pause/slowdown (down as much as 75% in 2016 by some accounts) due to negative industry events. We believe this sector will see a resurgence, but the market will set the bar higher for maturity of investment opportunities.

Breaking down fintech into more specific areas, are there any fintech verticals that you believe will or should be of particular attention to investors?

Alternative lending is a key focus of ours right now. We believe that although there has certainly been a bit of a shock to the system in 2016, a tremendous opportunity remains for those who can pinpoint the right investment.

That is because the consumer demand for these offerings remains robust, and traditional banks are continuing to underservice this segment, whether by choice or simply because they are handicapped by their infrastructure. Additionally, the market will see increasing investment by asset allocators and other investors who are hungry for yield in the current low rate environment. We have already seen recent, significant commitments by high quality investors such as Fortress, Soros, Guggenheim, among others, supporting the funding needs in the alternative lending market.

Fraud and risk management is another key area of focus for us. Whether it is securing the front end of transactions with innovative data-based solutions, software or hardware-based security; working with financial institutions to mitigate the costs and process of dealing with fraud on the back end; or preventing and addressing the theft of personal information (ID theft) so that stolen credentials never make it into the financial systems in the first place, there will be continued investment in trying to secure transactions against criminal activity as this is an essential area of fintech growth in payments.

The expansion of the cross-border commerce market also creates tremendous opportunity, but also introduces a myriad of other considerations that need addressing (e.g. FX transactions, payments logistics, global fraud prevention, and the harnessing of local payment methods). This encompasses C2C payments as well as B2B and C2B.

Historically, there has been significant consolidation in the consumer to consumer remittance market, with many payment processors and investors looking to add capabilities that compete with the traditional Western Union business.

Corporations are also facing issues with payments as their businesses are increasingly global in nature. In order for businesses to truly maximize their global presence, international payments must do a better job of addressing the speed, transparency, ease, and reliability of international payments. Employees, agents, business partners and other stakeholders of businesses now reside all over the globe and the speed of commerce has outgrown the legacy solutions of wire transfers and correspondent banking networks.

Additionally, in this environment where counter-parties are further and further away from each other, risk management systems must be that much more sophisticated to prevent fraud and comply with local regulations, like AML and KYC.

Retailers are also starting to realise the “promise of the internet” which is to truly sell goods and services to anyone, anywhere in the world. However, to facilitate these transactions, local forms of consumer payments must be compatible with a retailer’s system and potential fraud must be contained so there is much room for fintech growth in e-commerce.

Geographically, do you think we’ll see a shift in where money is going to be invested in fintech moving forward?

Different regions will see different investment focuses, given each region’s specific market needs.

Mobile payments will continue to garner a lot of attention in the U.S but given the entrenched systems of card-based payments, physical POS technologies such as NFC will face a tough consumer adoption test. Mobile payments in terms of in-app purchases or e-commerce transactions initiated from a mobile tablet smartphone, however, will continue to see strong growth.

Europe and Asia, where infrastructure and consumer behaviours are different, will experience other trends. For example, in Japan, using NFC payments for in-store purchases is a commonly accepted practice.

In areas where the financial services infrastructure is relatively underdeveloped (e.g. emerging markets such as Africa, India etc.) the smartphone becomes the only means for financial inclusion for a vast majority of the population and you will see investments in technologies that address this dynamic.

What are the trends do you think we’ll see fintech market M&A in 2017?

M&A markets have been robust for a number of years since the credit crisis. This has been driven by strong fundamental performance, a strong capital markets environment, low interest rates and strong trends within fintech themes.

We believe that the markets will remain healthy and conducive to fintech companies looking to raise capital or seek exits for the near-to-medium term.

Recent PE and VC fund raising efforts have been buoyed by the persistent low rate environment which have pushed some asset allocators to increase their exposure to the private equity asset class that have demonstrated superior returns. According to Prequin, at the end of 2016 private equity firms had $860 billion of capital to deploy.

A low rate environment also supports increased M&A activity as investors/buyers are able to finance transactions with less equity. While the United States Federal Reserve and the European Central Bank have both increased their hawkish rhetoric of late, we believe any increases will be gradual and modest in the near-to-medium term.  

Strategic buyers will also be actively looking to grow via acquisition supported by strong cash balances and stocks prices near all-time highs. We therefore anticipate deal flow from quality companies to remain healthy in the near-to-medium term.

That said, with rates rising, new US Administration starting to enact controversial policies, and the undercurrent of global geopolitical uncertainty, longer term risks certainly remain in the US and global economy. 



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