As part of our commitment to value contribution to our clients’ international businesses, we’d like to share an interesting article posted by Peña Mancero Abogados, proud member of Alliott Global Alliance in Colombia. They made a survey on the Fintech sector’s potential and on the legal risks and opportunities involved. We made a brief interview with the partners of this prestigious law firm: Gabriela Mancero and Daniel Peña. Anyway, the original article is available in the above link.
Diego Nunes: What are your recommendations for the Fintech companies aiming to expand globally?
Gabriela: To manage risks efficiently through solid practices of risk management, compliance programs, cybersecurity mechanisms and a strategic planning. These issues are essential to succeed in a fast-evolution competitive landscape.
Daniel: To benefit from the opportunities offered by alliances to consolidate market position, access talent and innovation, diversify the supply of goods and services and navigate complex regulatory frameworks. Mergers and Acquisitions (M&A) play a key role in the expansion and growth of this increasingly competitive industry.
From your experience, what are the main opportunities offered by an alliance such as Alliott upon rendering global services to fintech companies?
Gabriela: The M&A sector has highly benefited from alliances. To consolidate market position through the acquisition of competitors or complementary businesses is easier when you are able to work with local law and accounting firms in the company’ country of origin and in the target country or countries where you intend to run your activity. This allows to achieve economies of scale, to expand customer base and to increase market share.
Daniel: Exactly. M&As can be ideal to close strategic associations between fintech companies and traditional financial institutions. For example, a fintech startup running payment processing could be acquired by a strong bank aiming to modernize digital banking services.
What other benefits can be offered by these alliances?
Gabriela: Fintechs usually acquire other companies to access expert talent and cutting-edge technology. This mechanism allows to speed up development cycles and improves innovation capacity.
Daniel: Besides, alliances are also helpful in diversifying the supply of goods, products and services. By acquiring companies in ancillary markets, fintech companies can expand their scope to new markets and offer a wider range of financial products.
What are the challenges faced by fintech companies when they expand globally?
Gabriela: Compliance with regulatory rules is a major challenge, specially when a fintech company decides to expand their operations to new markets or to offer new financial services. To acquire a company with high expertise in navigating regulatory frameworks can speed up compliance mechanisms and mitigate legal risks.
Daniel: Obviously. Besides, fintech companies have to deal with operation risks such as system faults, IT outages and technical problems likely to drive to financial losses and reputation damage.
What type of legal structures are used in M&A transactions in the fintech market?
Gabriela: The main structures are:
– Stock Purchase Agreement (SPA) to provide the buyer with ownership and control of the target company’s entire business.
– Merger Agreement to consolidate two or more companies into a single entity.
– Joint ventures to cooperate with product development, market share expansion or technology exchange.
Daniel: Other structures used are:
– Franchising or licensing agreements to trade software, patents, trademarks and other sort of technological assets.
– Subscription agreements for equity financing in investment rounds
– Service agreements that govern the provision of services such as software development, payment processing or regulatory compliance.
Both Gabriela and Daniel remain at the disposal of our clients and readers for any legal advice required in Colombia and we will be delighted to assist you in contacting them. We thank them for sharing their valuable experience and point of view. Also, we’d like to highlight the Global Solutions service format inspired by Alliott Global Alliance. This format offers clients the opportunity to have a single point of contact and dashboard for all legal and accounting services required throughout the different jurisdictions globally, facilitating case tracking and the value provided to clients as well.
