As analysts, we are often asked to predict the future. It’s a fun part of the job, and leads to some interesting conversations. Whilst we rarely are retrospectively scored on our accuracy, I suspect most analysts, myself included, keep a mental tally. The acquisition of Fundtech by D+H for $1.25bn is something of a tick for me, as we’d predicted both a number of large acquisitions, and also the drivers that will drive those acquisitions. Payments is hot right now, for a number of reasons, but not least because of the changes in technology and customer expectations. Real-time payments is being widely discussed, with a number of countries, including the US, heading towards adoption. Real-time also means single message and always on, something that most banks existing payment systems simply can’t handle. That’s why the Australian real-time system has been delayed – the banks need to do their internal upgrades before they can participate. Fundtech ticks a number of significant boxes for D+H. D+H had no real payments capability, other than check. This fills a significant hole, particularly given that payments account for a significant proportion of a banks IT spend. It also leapfrogs straight to a payments hub, at a time where there is likely to be a significant growth in the market for hubs. In the conversations we’re having with US banks, the majority believe that they will need to invest to be able to process real-time payments – and virtually all believe a hub is the only viable solution. The acquisition also brings a number of other interesting assets to D+H, including the products aimed at transaction banking, again broadening the footprint of D+H, and to significant pockets of spend they previously didn’t address. There are questions though, but fairly obvious ones, and that come with any acquisition: • Fundtech is a big company – will D+H get “indigestion”? The recent acquisition of Harland Financial Services for a similar price tag suggests that D+H feel its doable • Fundtech is an international company, serving an international client base – will D+H be able to adopt the appropriate shift in culture? • There is (we believe) very little overlap in client base – can the combined entity maximise the cross-sell opportunity? For me the latter question is an interesting one. A recent conversation with a US FI who is a typical D+H target client (they may or may not be actual clients) stated to me with certainty that there are no live payment hubs in the US, and that hubs were a solely European issue. The bank in question may not be representative of course, but does suggest that at the very least a concerted customer outreach with a clear message about what it means to them is required. Again, the same as in any acquisition, but given the lack of overlap, even more important than in other cases.