Lending Fintechs Acquire Analytics Fintechs: So What?

Recent acquisitions illustrate how data is driving fintech valuations.

Fintech deals continue to dominate the financial services headlines, and a growing number of these transactions are in analytics.

nCino recently announced the acquisition of portfolio analytics provider Visible Equity for an undisclosed sum. Visible Equity reports 850 clients, and Cornerstone sees them mostly in credit unions.

Q2 recently announced the acquisition of pricing analytics provider PrecisionLender for a cool $510 million. Precision Lender reports 150 clients, and Cornerstone sees them mostly in commercial banks.

nCino’s acquisition follows several years of rapid Salesforce-influenced organic growth, at first in loan origination and expanding to deposit origination and treasury. Q2’s acquisition follows many years of paced, organic growth in consumer and business digital banking and a string of acquisitions including digital deposit origination specialist Gro Solutions and loan/lease origination system provider Cloud Lending. nCino and Q2 executives believe analytics will add gasoline to their digital origination fires.

While Visible Equity and PrecisionLender applications of analytics might be slightly different, these deals have four critical points in common:

1. (Can’t Get No) Satisfaction: Most of the banks and credit unions we speak with are happy with the Visible Equity and PrecisionLender platforms. That may not sound revolutionary, but it really is extraordinary in an analytics world filled with displeasure. Cornerstone’s What’s Going On In Banking research points to a wicked combination for analytics: It’s the least future-ready area of a bank and the only one that has NOT been improving.

2. Seeing the Possibilities: Both nCino’s and Q2’s stated analytics ambitions with these acquired platforms go well beyond the original use cases of the platforms. And it doesn’t appear to be hubris. Some of their clients see the possibilities, too, and are pulling them into other areas.

3. Hey, Big Spender: I suspect that both nCino and Q2 paid handsome revenue multiples at the very least. Both nCino and Q2 state lofty ambitions. Both firms declined to disclose the acquired companies’ revenues. And, Cornerstone has seen rapid growth in both of the acquired platforms in our own bank and CU clients over the last few years.

4. Lending-Specific Applied Analytics: For all the talk about data lakes and warehouses, the truth is that smaller, applied analytics (especially around lending) are the ones with the best legs. Bank and credit union cultures developed mature chief lending officer functions and revenue/risk leadership that demanded (culturally, pulled) analytics through mission-critical revenue centers like lending. On the other hand, bank and credit union cultures have struggled with analytics that have historically been supplied (culturally, pushed, often up hill) as infrastructure buys from cost centers.

Lending is a great area of a bank for analytics to grow from naturally. From commercial to consumer lending, the credit process is one that banks have been re-working to reflect the shift to digital self-service buying. To be clear, nCino/Visible Equity and Q2/PrecisionLender aren’t the only two lending applied-analytics developments—they’re just two of the recent big ones. Other developments include:

• Abrigo acquired deposit-pricing-analytics consulting firm Farin Associates. This followed the 2018 acquisitions of credit analytics focused tech firms Sageworks and MainStreet Technologies that owner Accel-KKR paired with risk/fraud analyticsspecialist Bankers Toolbox to form Abrigo.
• CU Direct quietly acquired the remainder of lending analytics provider Intuvo, where it had a controlling interest since 2015.
• Finastra launched Microsoft Azure-based loan analytics offerings around some loan origination system products.
• Meridianlink leveraged analytics offerings from its Thoma Bravo-fueled merger with CRIF.
• Moody’s Analytics acquired real-estate analytics provider REIS.

Beyond lending, there have been plenty of frothy analytics developments in the broader horizontal tech market. IBM’s Watson was followed by Salesforce’s Einstein and, more recently, Merkle’s Archie. (Sidenote: Do you see a pattern here with the names? Data science people include many younger women of diverse backgrounds, so what’s with all the old-white-dude brand names?) At Finovate Fall recently in New York, I saw some interesting analytics developments from both big players like FICO and niche players like ARM Insight. In a review of the industry, my Cornerstone colleague Niel Devasir recently found that only 4% of analytics providers offer services to help financial institutions execute on the data. Those findings jibe with recent analytics consulting projects that my colleague Quintin Sykes and I have completed.

Since their revenues weren’t disclosed, we can’t evaluate the value-for-the-money of the Visible Equity and PrecisionLender deals. But, from Niel’s point about execution, I like the look of these deals because the analytics themselves are joined by lending process competencies to help the bank and CU leaders execute on findings. And, if nothing else, they can help banks and credit unions start a culture around an area of known leadership (credit) with analytics that can pull the next series of projects along—perhaps in other areas of the institution beyond credit. So, smaller data wins in the short term can fuel longer term, bigger data wins. 

Questions to Ask:

• If you are an nCino or Q2 client, how will Visible Equity’s or PrecisionLender’s capabilities tie into existing digital or lending processes to drive new value?
• If you are a Visible Equity or PrecisionLender client, how will the acquisition of the platform that you use work into the world view of your new provider? How will it impact R&D on the platform? How might it impact integration with other systems and processes you use?
• If you are a fintech provider, how does your company demonstrate how to apply analytics in meaningful ways to get results for clients? How does your company (even if with go-to-market industry partners) help banks execute on the data that your analytic offerings find?
• If you are a bank or CU leader anywhere, ask yourself if the last few management conversations about analytics revolved around revenue growth, new customers and earnings, and what’s been learned from the growth. Or, have the last few internal conversations about analytics revolved around governance, harvesting, cubes and lessons learned from investing in data that didn’t answer executives’ specific questions? The former is a good sign you may be setting your organization up for a sustainable cycle of analytics testing and learning. The latter might be a bad sign that you are setting your organization up for more meetings to talk about meetings.

Congratulations to nCino, Q2, PrecisionLender and Visible Equity on taking the risk at mashing data with process and delivery. And, to all of you GonzoBankers making good use of data to pragmatically drive the business forward, just keep going!
-Sam