Dive Brief:

• Banc of California has acquired Deepstack Technologies for $24 million, a cash and stock deal that will expand the bank’s business into payment processing, the firm announced this month.
• Through Deepstack, the Santa Ana, California-based bank said it will market payment processing services to integrated software vendors (ISVs), e-commerce marketplaces, fintechs and other merchants looking to embed payments into their software and websites.
• As part of the transaction, which consisted of 70% cash and 30% stock, Banc of California acquired Deepstack’s assets, including the firm’s intellectual property and certain clients, according to a press release.

Dive Insight:

The acquisition gives the bank access to predictable fee income and enables the bank to capture a larger share of revenue per transaction, Banc of California said.

“There is a clear opportunity for a bank with the right technology to become a one-stop shop to simplify and streamline payments for businesses while providing faster access to funds and enhanced reporting capability,” Jared Wolff, the bank’s president and CEO, told analysts on a call discussing the deal. “With the acquisition of the technology and payments platform of Deepstack Technologies, we believe that Banc of California will be able to fill this void and offer a full suite of payment solutions for our target business market that is unmatched by any of our regional bank competitors.”

Banc of California said it expects to complete the integration of Deepstack’s technology into its internal platform during the fourth quarter of this year.

The deal will position the bank closer to existing and potential customers, said Wolff, who compared the venture to Banking-as-a-Service (BaaS), a business model growing in popularity among community banks.

“We could have rented our charter to some fintechs to drive fee income, but would have no contact or opportunity with the end user who was likely a consumer,” he said. “Rather what makes this transaction so special is that we are investing in a solution that is very attractive to our existing clients, but also brings perhaps an even greater opportunity with new clients that are the same target business clients we would want.”

Banc of California will also have access to clients’ payment insight, which the bank hopes to use for credit purposes, Wolff said.

“Processing payments provide deep insight into the needs of their businesses, which will give us an advantage in developing customized credit lines for these clients, while our ability to provide them with same-day visibility into payments provides them the advantage in developing deposit relationships,” Wolff said.

Deepstack is currently processing transactions through other banks, but will migrate those transactions to Banc of California once the bank turns on its platform, Wolff said. 

That migration won’t happen for several months, Wolff said, adding the bank will first conduct technology and compliance testing of the platform. 

All of Deepstack’s employees have joined Banc of California and its three executives have entered into three-year employment agreements with the bank, according to the financial institution.

“We are excited to join Banc of California and provide a full stack payment solution to clients that very few banks and payment processors are able to offer,” Deepstack President Jayme Amirie said in a statement. “ISVs and tech-enabled businesses are tired of piecemeal embedded payments and finance solutions and limited interactions with the underlying bank. By combining with Banc of California, we can offer clients cutting-edge payments technology solutions to enable them to seamlessly integrate and monetize their platforms, while giving clients faster access to funds from credit card receivables, same-day account visibility, and better reporting and account reconciliation.”

Payments-as-a-Service

Payments fintechs are particularly relevant in the financial services space as demand for Payments-as-a-Service (PaaS) increases, said Daniela Hawkins, a managing principal at consulting firm Capco. 

“Financial services firms have grappled for years with the option of build vs. buy for emerging technologies, but with the rate of change accelerating across the payments space, many FIs are looking at the option to acquire,” she said in an email. “Identifying a fintech with the right technology capabilities, brand and vision will allow FIs to tap into new revenue streams.”

JPMorgan Chase, the world’s biggest provider of merchant services by transaction volume, according to the Nilson Report, recently announced its own bid for a payments-related firm. 

The bank plans to purchase payments startup Renovite in an effort to update the services it offers merchants for acquiring their card payments, the bank announced this month.

JPMorgan, which is investing heavily in its payment processing capabilities amid a growing threat from nonbank competitors such as Stripe and Block, is also experimenting with a new “pay-by-bank” offering, which would enable merchants to take payment directly from a customer’s bank account, according to the Financial Times. 

The bank plans to launch the offering next year and is in talks with at least one fintech firm over a partnership to provide infrastructure support, according to the Financial Times, which cited people with knowledge of the matter.