Three years since neobank Up launched as a collaboration between fintech Ferocia and Bendigo and Adelaide Bank (ASX:BEN), the latter is buying out the former.

Ferocia is a fintech software development company co-founded by former St Kilda coach Grant Thomas that has collaborated with Bendigo for nearly a decade on its regular banking app. Together with Bendigo, it launched Up back in 2018 claiming it to be “Australia’s first fully cloud-hosted bank”.

Today as part of its annual results, Bendigo and Adelaide Bank said it was bringing Ferocia, and with it the neobank Up, directly in-house. It will pay up to $116m in shares as part of the deal.

Up has over 400,000 customers and $840 million in deposits, but both companies say the deal will help Up grow even further.

“The launch of Up ushered in a new digital banking age through a unique fintech and bank partnership,” said Ferocia co-founder Dominic Pym.

“With a vision to be Australia’s number one consumer lifestyle brand, the time is right to scale Up through a deepened relationship and new product offerings from the bank, while bringing Ferocia’s expertise to the rest of the bank’s highly engaged customer base.”

Bendigo’s boss Marnie Baker also lauded the deal.

“The announcement unites our strong customer, community and innovation heritage with Ferocia’s market leading digital capability to deliver all Australians work-leading digital banking experiences,” she said.

“As we further accelerate Up’s rapid pace of innovation and growth and further expand revenue opportunities through Up, customers of our other brands will benefit from Ferocia’s digital innovation and experience.”

Bendigo says the deal will result in a 1% increase in FY22 operating expenses but there are plans to expand revenue opportunities to balance the increase.

 

What does it mean for Up and  neobanks generally?

Up and other neobanks rose thanks to regulatory changes in 2017 aimed at increasing competition in the banking sector.

Today’s M&A update marks one of the more notable developments in Australia’s neobank sector since the collapse of Xinja last year.

While Xinja’s collapse came after failure to obtain $400m+ in funding from Dubai-based World Investment, experts blamed the difficulty of acquiring customers from scratch and then making money from them as to why it ultimately failed.

With a major bank on its side Up will clearly avoid Xinja’s fate but will anything more eventuate?

Stockhead spoke with one of those experts again, Bradford Kelly, who suggested one possibility was a rebranding but otherwise was not a big deal.

“Bendigo are just bringing the business in house, Ferocia ran the banking app for Bendigo,” he said.

“Expect Bendigo to re-platform to Up – so $116 million is cheap and this was always the plan.”

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