UPDATE: Feb. 8, 2022: Fiserv CEO Frank Bisignano touted the Finxact acquisition during Tuesday’s fourth-quarter earnings call, saying the move accelerates Fiserv’s momentum and will enable "clients to quickly deploy modular banking services including deposits, loans, cards, as well as launch new banking solutions including a digital bank, bank-as-a-service and embedded finance."

Fiserv CFO Bob Hau said the company’s cloud native online banking solution "will continue to expand in the marketplace." It "will be a focus of ours" once the Finxact transaction closes later this year and Fiserv builds out that capability, he added.

After an analyst asked about capital allocation and commented on the company’s recent pace of acquisitions, Bisignano expressed confidence in their ability to deploy capital to add to Fiserv’s growth.

"We think we’re darn good at integrating these properties," he said. Prior to an acquisition, Fiserv invests in companies early and nurtures them, Bisignano said. From there, Fiserv purchases these founder-led companies "and then utilize them across our scale," as the company did with Ondot in 2021.

"These things are all strategically thought about ahead of time," he said.

Hau added Fiserv is moving at a faster pace to integrate new acquisitions — as it did with Ondot — than it traditionally has. Bisignano noted they’ve worked closely with Finxact and look forward to welcoming "the entire Finxact organization," including Sanchez and his leadership team, when the deal closes later this year.

Fiserv said Tuesday fourth-quarter revenue rose 11% year-over-year to $4.26 billion, and 2021 revenue increased 9% to $16.23 billion over 2020. Fiserv's net income for the fourth-quarter rose 11% to $333 million over the year-earlier quarter, and 2021 net income climbed 39% to $1.33 billion in 2020.

Dive Brief:

• Global payments processor Fiserv said Monday in a news release that it has agreed to pay $650 million to acquire the ownership stake of core banking software firm Finxact that it doesn't already own. A spokesperson for Fiserv declined to comment on the size of the existing Fiserv stake and a Finxact spokesperson deferred to Fiserv on that question.
• Brookfield, Wisconsin-based Fiserv said the transaction is subject to regulatory approvals and other closing conditions, but is expected to be completed later in the year.
• Jacksonville, Florida-based Finxact's 140 employees and the company's CEO, Frank Sanchez, will join Fiserv, a Fiserv spokesperson said, without specifying Sanchez's new role. Sanchez founded Finxact with his brother Michael Sanchez in 2016, according to the company's website. 

Dive Insight:

The current ownership stake that Fiserv owns in Finxact is probably "small," less than 20%, estimated Baird Equity Research analysts in a report today regarding the acquisition. 

Finxact has "reportedly" raised $42 million in venture capital from investors including LiveOak Bank, Truist and Accenture, per Baird. First Data, which was acquired by Fiserv in 2019, was also an investor in Finxact that same year, according to a 2019 report from American Banker.

"Our initial investment in Finxact was as First Data as part of a funding round in January 2019," a Fiserv spokesperson said by email. "Fiserv made an additional investment in Finxact in 2021."

The plan to purchase Finxact is the latest acquisition in a series of deals over the past couple years in which Fiserv is seeking to sharpen its services by swallowing smaller financial technology companies.

The Finxact purchase marks Fiserv's first this year. Last fall, Fiserv acquired New York-based BentoBox, a digital marketing and commerce firm that helps restaurants connect with diners online; terms of that deal were not disclosed. In addition, Fiserv also completed purchases of Pineapple Payments and Ondot Systems last year.

None of those recent deals was as large as Fiserv's $22 billion acquisition of First Data in 2019.

With the acquisition, Fiserv expects to accelerate its digital banking strategy and expand its account processing and payments offerings. Amid the digital shift in financial services, Finxact’s cloud-native banking system will allow Fiserv to offer clients more modern and personalized digital banking, the payments giant said.

The acquisition expands and streamlines Fiserv’s digital offerings "by bringing together Finxact’s highly flexible and scalable API-first capabilities with the comprehensive digital financial solutions portfolio and expertise of Fiserv," Fiserv CEO Frank Bisignano said in the news release.

For his part, Finxact's CEO said: "We will be better positioned to serve a far greater number of institutions, of all sizes, when combined with the breadth and depth of Fiserv capabilities" at a time "when banking is undergoing transformative changes."

Adding up to $25 million in annual revenue

The Baird analysts, who rate Fiserv as "outperform," said Finxact could add $20 million to $25 million in annual revenue for Fiserv.

Sanchez's track record indicates he's familiar with handling acquisition interest from bigger names. Prior to Finxact, Sanchez was a cofounder and chief technology officer at digital bank ZenBanx, which was acquired by SoFi in 2017, according to Finxact's website.

He and his brother also founded bank software company Sanchez Computer Associates, which was purchased in 2004 by Fiserv competitor Fidelity National Financial, now known as Fidelity Information Services, or FIS. Frank Sanchez worked for FIS from 2004 to 2011, serving in roles that included global director of research and development as well as president of enterprise banking and retail solutions, per the Finxact website.