Bendigo and Adelaide Bank to acquire digital bank Up in $116 million deal

The founders of digital bank Up have agreed to sell their fintech, Ferocia, to Bendigo and Adelaide Bank for $116 million, in the culmination of a nine-year partnership. 

Up was launched in 2018, through a joint partnership between Melbourne-based fintech Ferocia and Bendigo and Adelaide Bank. 

However, the partnership began back in 2012 when Ferocia founders Dom Pym and Grant Thomas began working with the bank as a vendor for its Bendigo e-banking app and Internet banking platform.

On Monday, Ferocia announced it would be fully acquired by its ASX-listed banking partner, in a share sale agreement for up to $116 million. 

The acquisition will be paid in Bendigo shares, with a portion of the consideration to be contingent on future performance. It is expected to be completed by the final quarter of 2021. 

Ferocia will maintain its independence and operate as a division within the bank, with the deal to include Ferocia’s 50% stake in Up, along with all the startup’s intellectual property and its team. 

That team will be led by Xavier Shay, who has been appointed chief executive of Up. Head of product Anson Parker will also remain on the Up board.

While co-founder Grant Thomas will now pursue other opportunities, Dom Pym tells SmartCompany he will be “sticking around with the Ferocia and Up team”. 

“The time is right”

While Ferocia has been working with Bendigo and Adelaide Bank for nearly a decade, Pym says a buyout was not always something he was interested in as an exit strategy. Rather, the fintech found success with Up and “the timing was right” to sell. 

There are three aspects to this, explains Pym. Bringing the teams together means they can “accelerate” delivery for the next growth phase of Up, while also applying Ferocia’s expertise in customer experience design to Bendigo Bank’s mobile and Internet banking platform. Thirdly, the deal means Ferocia will now become involved in Bendigo Bank’s technology transformation initiatives more broadly.  

“The deal structure is probably the most important element to us,” says Pym. “Being able to maintain our independence at Ferocia is critical for ongoing innovation and culture.”  

According to Bendigo and Adelaide Bank’s results presentation on Monday, Up now has more than 400,000 customers, with around 45% of those customers currently active. 

The digital bank has recorded $840 million in deposits in the three years it has been operating and has achieved 58% year-on-year customer growth during that time. 

Its customer profile skews to younger users, compared to Bendigo Bank’s customers, with Up’s customer base concentrated in the 18-24 years and the 25-34 years demographics. 

Both companies said that following the acquisition, Up will “continue to operate as the same brand, run by the same people, with the same customer proposition”, and Up customers will have the same access to their Up account as they did before the sale. 

However, Bendigo and Adelaide Bank also said the acquisition of Ferocia and consolidation of Up will allow the bank to develop its digital ecosystem, which also includes a partnership with digital home loan provider Tic:Toc, as well as strengthen its existing e-banking app and online banking platform. 

“The announcement unites our strong customer, community and innovation heritage with Ferocia’s market leading digital capability to deliver all Australians world-leading digital banking experiences,” said Bendigo and Adelaide Bank managing director Marnie Baker. 

“Through our partnership, we have embraced Up as a strategic, digital testbed — reimagining new banking experiences for a new generation of customers — and its rapid growth has far exceeded all expectations.”

Bendigo and Adelaide Bank announced the acquisition of Ferocia as part of its full year results on Monday morning. The bank recorded a 171% jump in statutory net profit after tax during the 2020 financial year to $524 million, while cash earnings after tax also increased by 51.5% to $457.2 million.

Don’t be afraid to ask

The sale is the latest example of a startup building a successful, and lucrative, relationship with a larger organisation and Pym says, for other founders looking to go down the same path, his advice is to “dream big and have a go”. 

“Approach the businesses you want to work with, big and small,” he says. “They can only say no”. 

If you do get a no, “you can learn something from your discussions for the next business you approach, until eventually one says yes”. 

And as for what makes a collaboration between a small and large business work over almost 10 years, Pym says there are a few essential ingredients. 

“In my view, [it’s] hard work and perseverance; trust amongst the partners, developed over time; resilience to work through the tough times; [and] alignment of culture and demonstrated commitment to purpose”.