The digital banking software market is as hot as summer in Atlanta as witnessed by NCR’s acquisition of D3 Technology last week. Privately held D3 was owned primarily by several of its larger mid-size bank customers the likes of First Tennessee, Arvest, TCF and recently signed Zions Bank. Terms of the deal were not disclosed, but our sources tell us it had 100% D3 shareholder approval. While vendor mergers tend to go wrong more often than they go right, the Cornerstone team sees little fallout risk with this deal and actually believes it’s indicative of some renewed energy and competitive spirit at NCR under new leadership.
D3 is a highly tailorable, common-codebase banking technology that offers digital banking services. It has online banking and mobile banking as well as account opening and some campaign management. Designed as a single tenant solution, D3 has an on-premise and dedicated-hosted cloud option that has been focused on the $15 billion asset and above bank market. NCR’s Digital Insight is an outsource-only, multi-tenant cloud solution that scales above $20 billion but is deployed primarily by financial institutions such as community banks and credit unions well below $10 billion.
Although NCR asserts there is “virtually no market overlap” between its now two solutions, there are a few DI customers (not to mention prospects) above $10-15 billion that one could consider a least a little bit of overlap. The key difference here isn’t the bank’s size but the bank’s desire for an on-prem or at least dedicated-hosted option like D3 for some purpose that calls for significant tailoring beyond what could presumably be achieved with an outsourced, multi-tenant solution like DI.
According to Cornerstone’s digital/mobile banking guru Tim Daley, “D3 wins points for getting some historically conservative banks to sign up for a surprisingly aggressive big bet purchase with a small startup type of company with few clients.”
While NCR points to Digital Insight’s scalability and more recent resurgence of new DI signings, the recent wins appear to be against core-provided solutions or competitive wins against other best-of-breed solutions at core-provided-solution replacements. They have not (yet) been competitive replacements of standalone digital providers like Alkami, Q2 and Kony. The other standalone providers have been taking away DI clients for years. But NCR has had the recent benefit of an internally rebuilt Digital Insight integrated business banking solution (after selling its prior business banking solution to Bottomline). NCR reports well over a hundred banks using the new business banking offering. Along with some other stability, let’s call it a bit of an early comeback after a rough ride.
However, with the FIS Digital One (Zenmonics) investment and partnership; Fiserv’s acquisition of Architect, Commercial Center (nee OBS) and First Data; and Jack Henry’s acquisition of Banno (and more recently BOLTS and Geezeo), among other developments, there is a lot more digital tire kicking under way in the market, and we expect that to rise. The clearer point is that NCR is way better off than it was a year or two ago when it was still mainly losing clients, losing deals and losing a fair share of some high-profile employees to competitors. NCR’s de-emphasis of DI’s Westlake California HQ and focus on a new Georgia Tech bordering HQ in Atlanta was rocky at first for its talent. It’s interesting now to see NCR with a largely new management team in a new HQ with product organization that includes, among others, some former Q2 and Alkami employees.
While the D3 mashup with DI might add a little complexity to a very small sliver of the mid-size bank market, it largely helps NCR. (Author’s note: First minor complexity is that D3 and DI are confusingly similar as I’m writing this. See also, Monty Python “Bruces” sketch. Mind if we just call you both Dee Dee to keep it simple?)
In all seriousness, what’s going on here that makes us think the D3 acquisition helps?
As we pointed out before, NCR struggled with digital banking technology from the moment it acquired Digital Insight from Thoma Bravo’s ever-so-brief hold after DI’s Intuit era. And at a time where the word “transformation” is bandied about lightly as a buzzword, the change at NCR over the past year that could lay the groundwork for this acquisition has been big. Really BIG. For starters, after over a decade led by Chairman and CEO Bill Nuti, NCR brought in a couple of highly recognizable former FIS names in Chairman Frank Martire and CEO Mike Hayford. Hayford set about with a nearly top-to-bottom overhaul of the management team with FIS pedigrees, including other proven known former FIS/Metavante names like COO Owen Sullivan, banking leader Frank D’Angelo, digital leader Doug Brown and payments leader Chris Petersen. Prior to Petersen joining, NCR acquired payments provider JetPay. Hayford was surprisingly candid about NCR’s weaknesses and where it needed focus in his most recent client conference speech. Rarely do we see fintech CEOs being that extemporaneously open with customers about shortcomings. That kind of brutal truth honesty was a VERY good sign of things to come.
NCR reports that there will be no imminent migrations expected of any clients from DI to D3 or vice versa and that this is an “and” not an “or” acquisition where both solutions will be supported to different market needs with R&D rising on both solutions.
Keep an eye on how NCR ties together its larger mid-size, regional and global bank ATM/PTM branch automation clients with the likes of D3.
All in, this reads like a really good addition for NCR. Another fintech deal to watch.