Community banks and credit unions increasingly see financial technology — or fintech — firms as their partners. But what happens when the fintech is acquired?
Financial institutions have used fintechs in recent years to keep up with digital trends, grow their revenue and stay efficient. The interest in these partnerships comes even as some fintech firms seek buyers, often to capitalize on the company’s value.
Fintech capital raises and M&A across the globe hit $239 billion in deal value in 2024 — the highest amount in the last three years. M&A made up $184 billion of that activity, according to a year-end analysis by fintech investment bank FT Partners. It expects even more fintech M&A in 2025, due to a looser antitrust environment, increased interest in cross-border M&A and venture capital and private equity funds seeking exits. That’s especially true for investments made five or more years ago.
When it comes to M&A, community financial institutions may be accustomed to their role as buyers, sellers or facilitators, so becoming the impacted customer can be a shift. The role carries “tons of uncertainty,” says Tyler Seydel, chief fintech officer at Saint Paul, Minnesota-based Sunrise Banks, the bank unit of University Financial Corp.
More than half of all financial institutions have more than 300 vendors, including fintechs, according to a 2025 third-party risk management survey from Ncontracts, which makes risk management and compliance software for financial firms. Among institutions in the $1 billion to $10 billion asset range, 34% report having between 101 and 300 vendors; 29% have 301 to 500 vendors. It’s unclear how many of those vendors are fintechs.
“You cannot operate a bank below a certain size without a certain number of these partnerships,” says Mary Ann Scully, a director at Rockville, Maryland-based Capital Bancorp, which has $3.2 billion in assets. Scully was the CEO of Baltimore City, Maryland-based Howard Bank until its sale in 2022. “It’s important to remember how important these partnerships are to banks of a certain size.”
Due diligence is a perfect time for executives to ask a potential vendor about their intentions. David Ness, senior vice president of innovation, fintech partnerships and investments at U.S. Bancorp, asks firm executives and investors about their outlook for the firm’s tech, as well as long-term plans and intentions. He considers why a founder is building a product in the first place and says building for an exit is “a red flag.” He also looks for signals of longevity, like a fintech’s funding level and “burn rate,” or the rate at which a company is using up its cash reserves before it generates positive cash flow.
Seydel says the $1.2 billion Sunrise Banks has focused on tightening its service-level agreements, including shortening its contract timelines, and is familiar with terms in case the contract is unenforceable and needs to be renegotiated. A deal may mean Sunrise has to migrate or convert from the seller’s product or platform to the buyer’s. Sunrise calls these migrations “wind overs,” since it’s not winding down or winding up the relationship but moving it over.
“It’s a lot of time and money and potentially things that can go wrong — and the benefit there is usually only one-sided,” he says.
More broadly, Seydel watches out for changes in company culture or staff. Sometimes, layoffs can impact back-office areas important to the bank, like risk or compliance, he says.
Institutions impacted by their vendor’s acquisition should begin to pay extra attention to the actions and technology road map of their new partner, says Sam Kilmer, who leads fintech advisory as a managing director at Cornerstone Advisors. Look for planned enhancements and upgrades to their product or service — or their absence — as indicators of the buyer’s commitment to the product’s end users.
Kilmer recommends that executives stay curious about different potential fintech vendors and partners, in case they need to select an alternative provider following a vendor’s acquisition. He says this “portfolio mindset” can help banks stay flexible, responsive and opportunistic in a changing technology landscape.
Seydel knows he can’t insert a clause in the bank’s contracts with fintechs that prohibits a sale, and the bank sees fintech partnerships as an important part of its strategy. The bank has decided to try to benefit from its partners’ successes by taking out warrants in certain companies the bank can execute if the fintech sells. This allows Sunrise to financially benefit from a fintech’s sale, recapturing some of the value the bank created through the partnership.
“Now it’s a situation of ‘We love to do business with you, but we also love to watch you leave,’” he says. “It’s not a situation where we’re left at the altar.”
And while acquisitions of a fintech vendor can be disruptive, there can be other upsides. Ness recalls one fintech acquisition that was severely disruptive because the buyer was going to take that product off the market.
“We wanted that capability, so we went out and said, ‘Who else is now playing in this space?’” he says. “We ended up bringing somebody else in for a lower cost who had better benefits for us, so it was a net positive.”
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