- Key insight: Finastra will no longer be a bank core provider upon approval of its sale of Universal Banking to Pollen Street Capital.
- Expert quote: "It decided what it wants to be, and core banking isn't it. It just took nine years for them to get here." - CCG Catalyst's Paul Schaus
- Forward look: Universal Banking will operate as an independent business under Pollen Street with its existing management team.
Bank tech provider Finastra is selling its global core banking business.
The U.K.-based company announced on Friday that Universal Banking, its international bank core portfolio, will be acquired by private capital asset manager Pollen Street Capital for an undisclosed sum.
Finastra is planning to concentrate fully on payments and lending upon completion of the sale and is fully divesting its core banking operations, according to a company spokesperson.
"Finastra remains focused on helping financial institutions modernize and grow across both lending and payments," a Finastra spokesperson told American Banker. "We see significant opportunities for growth in both markets."
The transaction remains subject to customary regulatory approvals. Upon final approval, Universal Banking will operate as an independent business led by its existing management team.
"Universal Banking is a strong business with talented people, proven products and deep customer relationships," said Finastra CEO
Paul Schaus, managing partner of bank consulting firm CCG Catalyst, told American Banker that a payments and lending-focused strategy makes sense for Finastra.
"Finastra has global scale, and a focused, debt-light company is far better positioned to invest there than one trying to be everything to everyone," he said. "The caveat [is that] payments is brutally competitive with real-time rails, fraud, AI, et cetera. Focus doesn't mean easy but it's the right call, and one they should have made years ago."
Arcady Lapiro, a venture partner at the fintech-focused VC fund BlackFin Capital Partners, told American Banker that he anticipates Finastra might sell its payments and lending divisions in the future should their valuations increase. Vista Equity Partners, the firm that owns Finastra,
"Lending is the most profitable piece of Finastra in the U.S.," he said. "They're looking to increase the market share, and at the end of the day they're going to sell it at a higher valuation." The U.S. market is "super competitive," he said, especially in payments and lending.
Universal Banking includes the open banking platform Essence, bank software Midas and core system Equation and supports around 150 bank customers worldwide, according to the company. The acquisition does not include Phoenix, a core system
Pollen Street also plans to invest in generative AI and data capabilities for Universal Banking, according to a company statement.
"The business is well positioned for future growth in the next phase of core banking evolution," said Pollen Street partner Anastasia Kovaleva. "We are excited to partner with the management team to support the next phase of the company's development, invest in AI-led innovation and help customers accelerate their modernization journeys."
Schaus said that the sale is the final step of a multi-year strategy from Finastra that included both the recent Phoenix core sale and a divestiture of the company's treasury and capital markets division
"Finastra has now exited core banking entirely and is a focused payments and lending company," he said. "It decided what it wants to be, and core banking isn't it. It just took nine years for them to get here."
He said that with a U.S. core banking market dominated by the likes of Fiserv, FIS and Jack Henry, the opportunity for Finastra was not large enough to recover Vista's investment.
Schaus noted that core banking systems in general are profitable and durable software businesses with high margins, thus why private equity regularly acquires them as assets. However, they can be difficult to run as a side division in a wider portfolio due to high operating costs and long sales cycles.
"Finastra was always going to be at a disadvantage in this fight," he said. "In focused hands, the same asset can thrive, which is probably the rationality behind both buyers, but from different perspectives. Pollen Street is a private equity [firm] that will invest aggressively in AI and modernization and eventually exit."
