Live Oak seeks to recreate nCino's success with First Data's help

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Live Oak Bancshares in Wilmington, N.C., is hoping to overhaul online small-business banking through a new joint venture with the payments firm First Data.

With the to-be-named company, Live Oak is essentially attempting to recreate on the deposit side some of the success it has enjoyed on the lending side with nCino, the lending platform it created and later spun out. The nCino lending platform is now used by 130 banks, including eight of the top 20 U.S. banks.

As part of the venture, Live Oak will contribute the work it has done on its “Acorn” project, which is aiming to innovate products like merchant services, online banking and bill pay. Meanwhile, First Data’s contribution will largely be the online banking tools its offers via FundsXpress, a firm it bought a decade ago and has 550 bank customers.

Although nCino is its own company now, Chip Mahan, Live Oak's CEO, sees the joint venture as part of a broader vision to offer a complementary suite of products.

“Online banking and bill pay is a bit of a yawn — kind of a rip-and-replace — but If we can deliver to those 550 banks a next-generation platform with both the lending and deposits side that would be quite interesting,” Mahan said during a conference call with analysts on Wednesday morning.

He later said, ”this is our effort to solve the other side [of the balance sheet] and bring them together on one platform.”

Mahan also nodded to Finxact, a cloud-based core banking systems startup that launched Tuesday, as a potential part of the envisioned platform. Live Oak is an investor in that endeavor.

While approval from the Federal Deposit Insurance Corp. is not required, Mahan said the companies are working with the agency and "answering their questions over what is a relatively complex transaction."

Live Oak said in a press release late Tuesday that it will own half of the venture. Live Oak and First Data will contribute their digital banking platforms, products and services to the new firm.

Live Oak is expected to contribute 40 engineers to the venture, while First Data will provide about 138 employees, Aaron James Deer, an analyst at Sandler O'Neill, wrote in a note to clients.

Live Oak said it expects to record a $38 million after-tax gain from the transaction, which should close in the third quarter. Under terms of the agreement, First Data will have a preference on the joint venture's earnings from 2017 and 2018.

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