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29 April 2015Gareth Lodge
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.
Industry or Business Focus
Asia-Pacific, EMEA, LATAM, North America