Dive Brief:

• KeyBank bought payments startup XUP, a deal the $187 billion-asset bank said advances its embedded banking strategy by streamlining its merchant payments business, the firm announced Monday.
• XUP, which is short for transactions "up," claims its technology allows financial institutions to "take back the merchant experience" by connecting merchants, financial service providers and acquirers across all channels.
• "We've long embraced the software innovation that's sweeping through the financial services industry, and the acquisition of XUP allows us to continue to be a leader in this space," Ken Gavrity, head of enterprise payments and analytics for KeyBank, said in a statement. Financial terms of the deal were not disclosed.

Dive Insight:

KeyBank was an early investor in XUP, and led the startup’s $3 million seed round with Naples Fintech Ventures earlier this year, according to the Charlotte Business Journal. 

"We've been very active in the fintech space for the better part of eight years, leveraging the fintech partnership model to be able to bring best-in-class services to our clients," said Jon Briggs, KeyBank’s head of commercial product and innovation. "And as part of that strategy, it oftentimes goes beyond just bringing their capability through a bank channel to our clients, but it also includes an equity investment."

Briggs said the bank's strategy of investment in a fintech followed by an acquisition, allows it to see the inner operations of the company and influence its roadmap.

"We were looking for a partner to help transform our merchant services and card processing business, and it made sense, not only culturally, but also strategically, for us to acquire them and accelerate our roadmap," he said. 

The acquisition will help the bank address challenges regarding its legacy infrastructure, an issue many traditional financial institutions deal with, Briggs said. 

"Typically, core systems are very old and very siloed. Everything that a commercial client needs, in terms of technology infrastructure, has been built around those siloed products," he said. "In banking, because legacy technology and infrastructure are oftentimes built around product silos, it can feel like you're walking into McDonald's, getting in line to get your fries and then going into another line to get your hamburger."

XUP’s technology helps the bank create a singular experience for its merchant clients, Briggs said. 

"We're only asking them for their information once, and we're delivering our products and services to them in a very seamless and streamlined way," he said.

KeyBank has made several other strategic acquisitions over the past few years.

The Cleveland-based bank acquired student lender Laurel Road in 2019 and relaunched the platform as a national digital bank for healthcare professionals in March. The bank also purchased McLean, Virginia-based analytics and data science firm AQN Strategies in March. 

"We're taking that same approach, building on the success we've had with Laurel Road to bring the XUP team in, maintain them as a fintech company operating with the size and scale of KeyBank to really advance their capabilities," he said. 

All of XUP’s employees will be retained, and the fintech’s operations will continue out of their offices in Atlanta and Charlotte, North Carolina, Briggs added. 

"Those locations, in the banking and payments space, are two beachheads of talent in the industry," he said. "You can expect to see continued investment in those geographic locations to be able to grow the team further."