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Scope Ratings notes Santander has strengthened its hand in digital arms race

Banco Santander’s £350m investment in Ebury, the UK-based FX and payments fintech, is a natural fit given the Spanish group’s strong focus on the mid-market segment, according to a report from Scope Ratings.

Santander’s financial muscle will be backing the technology and management team that Ebury is bringing to the table, according to the report. Ebury will continue to operate as an independent unit. The bank noted that the investment fits its digital strategy of accelerating growth through new ventures and will strengthen its Global Trade Services offering. Santander has more than four million SME clients, 200,000 of which trade internationally.

With £64.3m in revenues in its latest fiscal year ended 30 April 2019, Ebury is hardly a start-up, the report notes. It has an established track record, operating in 19 countries across 140 currencies. In 2018, the company processed £16.7bn in payments for 43,000 clients. Santander said Ebury had generated consistent average annual revenue growth of 40% in the last three years. That includes through its own acquisitions: in October 2019, Ebury acquired UK-based FX and payments company Frontierpay.

“Santander and Ebury make an interesting combination and a blueprint for future combinations,” said Marco Troiano, deputy head of the financial institutions team at Scope Ratings. “The Ebury deal demonstrates that the bank has the willingness and the firepower go out and buy successful fintechs with a view to scaling them up.” 

Santander has earmarked €20bn for IT investments in its four-year plan. The €5bn per year includes EUR 2bn for investments in digitalisation.

Ebury will join Santander’s payments ecosystem, which includes Getnet, the Brazilian payment company. The bank had previously invested in Getnet and acquired it in several stages over the past decade. With its 50.1% stake in Ebury (£70m in the form of new primary equity to support the company’s plans to enter Latin America and Asia), Santander is targeting a return on invested capital of more than 25% in 2024.

“This transaction shows that larger banks can position themselves well in the digital arms race," Troiano said. "Smaller banks may struggle to put together the investments needed to effectively compete in this type of scenario.”

But at the same time Troiano sounds a note of caution around Santander’s ability to replicate with Ebury the success story it has had Getnet. “Execution risk with this type of transaction is usually elevated as being part of a larger group can dilute the innovative drive of the fintech,” he noted. “On the plus side, Getnet has created a blueprint for Santander to follow, which somewhat reduces such risk.”

It is not by chance that while the company will continue to be managed by Ebury’s top management, Santander’s appointee as chairman is Sergio Rial, CEO of Santander Brasil, who has direct knowledge of and involvement in Getnet’s growth story. Rial also doubles as executive sponsor of Santander’s Global Trade Services business.

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