Something is happening in the financial services industry. As disruptive upstarts offer more traditional financial services, and legacy financial companies invest more in technology, the industry is experiencing unprecedented consolidation, with partnerships, deals, and acquisitions being made at a near-dizzying pace. Just since the beginning of 2019, three of the eight largest fintech deals of all time have been announced, according to S&P Global Market Intelligence -- including the biggest ever.

With so much happening, it can be hard to keep up, so let's briefly review, in order, the five largest fintech deals of the past two years before taking a step back to see if we can determine why this activity is so prevalent in the industry today.

The Five Largest Fintech Deals Of The Past Two Years

  1. Just this past March, Fidelity National Information Services, Inc. (NYSE:FIS) , commonly referred to as FIS, agreed to acquire Worldpay Inc (NYSE:WP) for $33.5 billion, in what will be the largest fintech deal ever. Upon completion of the deal, FIS shareholders will own about 57% of the company, with Worldpay investors receiving the remaining 43%. Management believes the transaction will result in about $400 million in cost savings and $500 million in new revenue opportunities for the new company, which will continue to operate under the FIS name. The deal combines one of the largest issuer processors, FIS, with one of the largest merchant processors, Worldpay. An issuer processor settles and authorizes credit and debit card transactions for the financial institution that issues the card. A merchant processor facilitates the same transactions for the seller. Thus, the new company will have data from both sides of the transaction. The deal also gives Worldpay an opportunity to quickly expand into large markets, such as Brazil and India, where FIS already has a presence.
  2. This past January, Fiserv Inc (NASDAQ:FISV) agreed to acquire First Data Corp (NYSE:FDC) for approximately $22 billion. Management believes the new entity, after realizing significant revenue and cost synergies, will generate $4 billion in free cash flow by 2022. Like the FIS acquisition of Worldpay, this new company will feature a huge market share in issuer processing, with First Data also having a large presence in merchant processing, especially with its popular Clover platform.
  3. In January 2018, Thomson Reuters Corp (NYSE:TRI) sold a majority stake in its financial and risk segment to investors led by Blackstone Group LP (NYSE:BX) for $17.3 billion. The business, rebranded as Refinitiv after the conclusion of the deal, competes with the infamous Bloomberg terminals by providing financial data on an open platform to its customers. Most of the cash was used by Reuters to pay down debt and authorize a large share buyback program.
  4. For the third time on this short list, we have another deal from 2019, when Ultimate Software Group, Inc. (NASDAQ:ULTI) was acquired by private investors for almost $11 billion. Ultimate Software provides a cloud-based, software-as-a-service (SaaS) suite of human capital management solutions. Before going private, Ultimate Software's revenue, most of it recurring, increased 21% to $304.8 million. Ultimate Software has more than 5,600 customers and manages more than 48 billion employee records in its cloud. The company expects to reach $2 billion in total revenue by 2021.
  5. In August 2017, Cincinnati-based Vantiv Inc acquired London-based Worldpay Group for $9.8 billion. The new entity quickly assumed the Worldpay Inc name. The revenue and cost synergies in the FIS deal (see above) are in addition to the cross-selling opportunities and cost savings still being recognized from this deal. The transaction combined Vantiv's large payment processing presence in the U.S. with Worldpay Group's e-commerce and international payment footprint, making for a potent combination.
Fintech
Startups meeting the judges at the Accenture Fintech Innovation Lab

Why Are All These Deals Happening?

Not only have all five of these deals taken place recently, they also make up five of the eight largest fintech deals ever. The list doesn't even take into account the dozens of smaller deals being made by the industry's larger players, such as PayPal's big spending spree in 2018 or Mastercard's consistent use of acquisitions to bolster its services-based revenue.

While not all these mergers and acquisitions can be painted with broad strokes, it does appear many are defensive moves, specifically taken as a reaction to the disruption that technology is bringing to the financial services industry. For instance, in the conference call following the announcement of the Fiserv and First Data merger, Fiserv CEO Jeffery Yabuki specifically called out Square Inc (NYSE:SQ) for causing fear within the banking industry, serving as a catalyst for the deal.

I mean, a lot of banks, especially in the community spaces, are worried about companies like Square.

FIS CEO Gary Norcross, while not calling out a specific company, also noted the intense competition the industry is facing from fresh innovators on the call announcing his company's acquisition:

[T]here's a lot of innovation going on. There's a lot of modernization going on. Our clients need to continue to look to compete in this very aggressive market. You've got disruptors coming in.

I am certainly no soothsayer, and would never invest in a company solely based on hopes that it would be acquired, but Global Payments, Jack Henry & Associates, and Total System Services would seem to be prime candidates to be a part of a future deal. Global Payments, the largest of these companies, sports a market cap of under $22 billion and has recently been successfully executing a smart strategy of acquiring software vertical stacks serving niche industries.

I wouldn't expect to see this consolidation in the industry to slow down anytime soon. Newer players, such as PayPal and Square, are much more digitally savvy than the industry's legacy participants, and continue to introduce innovative solutions that disrupt the old way of doing business. To fight back, companies are joining forces. With disruption showing no signs of abating, don't expect the industry's consolidation to cease, either.

This article originally appeared in the Motley Fool.

Matthew Cochrane owns shares of Global Payments, Mastercard, PayPal Holdings, and Square. The Motley Fool owns shares of and recommends Mastercard, PayPal Holdings, and Square. The Motley Fool recommends Ultimate Software Group. The Motley Fool has a disclosure policy.