The pandemic continues to grow demand for digital self-service capabilities. The banking competitive landscape has intensified with digital challenger banks like Chime and Varo picking up market share in a digital-first environment already favoring megabanks like Chase and BofA. GonzoBanker mothership Cornerstone Advisors’ recent What’s Going On In Banking 2021 research points to digital account opening being the top bank tech replacement priority in mid-size banks for the third year in a row. There is no going back.
Digital banking providers answered the demand with digital account opening solutions. Very few built origination solutions organically, and most of the solutions were acquired. Enter NCR’s acquisition of Terafina.
The financial terms of Atlanta-based NCR’s deal for Bay area-based Terafina (founded in 2014) were not disclosed. But, the Terafina system has shown well in both bank demos and high-profile industry events like Finovate. Add to that polish a list of named bank and credit union clients that take it past venture stage and we’re assuming Terafina founder Meheriar Hasan was rewarded well on the purchase.
Terafina’s platform includes deposit account origination (including digital), with features such as fraud/risk, know your customer (KYC), funding, and core integration with major providers. Additionally, the platform can be extended to include point of sale (POS) modules for consumer lending (credit card, loans and mortgages) and small business/commercial lending offerings. The account origination and lending POS solutions are made available through the digital, branch and contact center channels. All of these capabilities made Terafina attractive to financial institutions ranging from $1 billion credit unions to $80 billion banks. Two bank brands that jump out in that mix are Zions and Wintrust, publicized clients of both Terafina and NCR’s larger bank D3 platform.
The deal makes a whole lot of sense for NCR. NCR was one of the few remaining digital banking providers that didn’t have its own answer for digital account opening. As we observed during the company’s 2019 acquisition of D3, D3’s native account opening capability was potentially modular to Digital Insight and other digital banking platforms. But, as far as we could tell, there’d been no prioritized effort to make that happen prior to NCR CEO Michael Hayford pointing to Terafina as a partner.
It’s amazing what a couple of years and some key leadership changes can do for a company. NCR’s changes began in 2018 with Hayford arriving with a team of seasoned former FIS execs including straight-talk digital banking exec Doug Brown. The combination of deliberate listening, real Digital Insight product progress and a D3 acquisition (followed by some key wins like Wintrust) has gone a long way. It certainly slowed down the loss of DI clients that had been flocking to standalone digital providers like Alkami, Q2, Temenos and others. The acquisition of Terafina could add to that progress.
NCR’s broader message has been to shift to more of a digital systems and related services business, but the company hasn’t exactly exited the hardware business either. The recent $2.5B acquisition of ATM solutions provider Cardtronics is emblematic of how much ATMs, ITMs and POS hardware solutions are part of the company’s story. What’s a few billion among friends, GonzoBankers? Well, it definitely speaks with the wallet about what’s important. How all that hardware ties in with the digital banking business (without it being a long-term anchor) isn’t always crystal clear, especially as a pandemic has de-emphasized physical locations and kiosk traffic. Meanwhile, some digital-only focused tech and fintech companies have been on a market cap rocket ride.
NCR’s digital banking (and now origination) competition intensifies. The mature companies in the space continue to build out capabilities while new entrepreneurial startups are announced every quarter.
NCR reports that it will still integrate to its current partners like Bottomline Technologies, MeridianLink, or core provided offerings, but the focus and investments will understandably be on the Terafina platform.
Beyond a software business, what NCR has acquired in Terafina is quite a bit of integration expertise. Terafina’s integration expertise crosses the core, LOS, funding and CRM systems that institutions need to weld together customer processes. NCR has its own professional services with quite a bit of experience integrating. Still, NCR has a prime opportunity to leverage services to integrate into its DI and D3 solutions to expand on capabilities. Terafina’s work around the growing SalesForce CRM platform, in particular, will now give NCR access and energy in a bit of a new world that has been served by the likes of nCino, Q2 Cloud Lending and others. And, this is at a time when banks are laser-focused on their ability to grow revenue digitally. Part of that is origination and part of that is the process to drive more pipeline to originate.
Beyond Terafina’s toolkit approach to deployments, an area to watch is its culture, which is client-specific, build-to-suit and more aligned with NCR’s D3 than the product approach of Digital Insight. We’d expect a more natural fit with large D3 clients like Zions and Wintrust. The big question is how Terafina is managed and deployed with a $500 million community bank or credit union. Somewhere between the larger bank and smallest bank extremes lies a major opportunity for NCR and mid-size banks and credit unions looking to better compete digitally with megabanks and challengers. Beyond the tech, it’s a massive talent challenge for this industry. The way that NCR ramps up affordable professional services to meet this challenge will be important not only for NCR, but for the future of hundreds of financial institutions.
Finally, it’s hard not to look at a hot deal like this and not feel a sense of caution. Our industry’s tech history is littered with entrepreneurial high-energy companies getting subsumed, slowing down and fading away inside larger companies. Recent acquisitions of digital origination platforms by larger core and digital providers seem to be going spotty at best. Digital origination is too important to the future of GonzoBankers for this to be a loss versus a scaling net gain for the industry. Fingers crossed.
All in, this reads like a good add for NCR. Fintech deals are still happening, and this is another good one to watch.