Brazil’s digital banking industry is now into full-blown consolidation mode.
Make no mistake about the driver of this deal: it brings zero new functionality to XP and breaks no new ground in terms of products or services. It brings no innovative technology – the platforms will be run largely independently for the foreseeable future – or much-needed management or workforce expertise.
XP points to Modal’s leadership in mini-futures as added capability, but – even generously assuming this is true – such additionally would take a couple of weeks of organic development. It doesn’t warrant a R$3 billion acquisition.
Defensive
No, XP’s strategy is purely defensive. It’s anticipating a potential source of competition and, with depressed share prices in Brazil’s digital banking sector – Modal’s share price had fallen from its R$20 at IPO to R$8.50 just before the acquisition was announced – XP struck.
The price of Modal’s stock may have driven the timing of the deal, but not its logic. XP has already been feeling the heat of being the market leader. The response from competitors has turned the tables on it.
