Bendigo and Adelaide Bank buys Ferocia for AU$116m as IT expenses increase in FY21

In line with its new acquisition, Bendigo and Adelaide Bank continued to spend big on digital capabilities during the 2021 financial year.

Bendigo and Adelaide Bank has struck a deal to acquire Melbourne-based fintech Ferocia for AU$116 million to further bolster the bank's digital strategy.

Under the deal, Bendigo will acquire 100% of the shares in Ferocia, which will see the two companies consolidate the ownership of their digital banking app, Up. Since its inception in 2018, Up has been operating under a collaboration model between Ferocia and Bendigo and Adelaide Bank.

The bank has also been working with the fintech firm for the last nine years on building Bendigo's e-banking app and internet banking platform.

Under the terms of the deal, Ferocia will continue to operate independently as a standalone division of Bendigo and Adelaide Bank.

"This transaction will require minimal integration efforts, providing the bank opportunity to accelerate quickly in the development of both Up and the Bendigo e-banking app and internet platform," Bendigo and Adelaide Bank managing director Marnie Baker told shareholders on Monday.

"This acquisition cements the enormously successful partnership between Ferocia and Bendigo and Adelaide, uniting our collective innovation, heritage, and matched capabilities to further growth a unique digital banking proposition."

The acquisition deal is expected to be finalised by the second quarter of FY22, with operating expenses for that year anticipated to increase by approximately 1%. Baker assured that "plans [are] underway to expand revenue opportunities to balance this increase" and that by FY23 there will be "minimal earnings impact, with positive earnings impact in the years following".

The acquisition deal comes off the back of the bank announcing on Monday it achieved a whopping 172% boost in statutory net profit from AU$193 million to AU$524 million for 2021 full year, and after-tax cash earnings of AU$457 million, a 51.5% increase from AU$301.7 million last year.  

For the period to 30 June 2021, operating expenses tipped past the AU$1 billion mark, which was impacted by the company's decision to accelerate its technology and transformation spend, which totalled AU$87 million, a AU$30 million increase on FY20.

When it came to growth and transformation spend, the bank splashed out AU$165 million during the financial year, substantially higher than the AU$91 million in the prior year. Of that, 24% was invested into foundational technology, 31% was for risk and compliance, and while the largest portion of 35% was towards growth and productivity.

Baker listed some of the bank's tech spend during the year included improving the bank's customer experience and productivity, delivering simplification and key capabilities such as Open Banking and comprehensive credit report, simplifying its merchant facility systems from seven to one, enhancing its e-banking app, and broadening the use of digital acceptance of documents.

Further, she noted that the company also continued its multi-cloud journey by moving 7% of total applications to the cloud.

"We continue to accelerate our digital and customer experience transformation to drive above system lending and ongoing customer growth. This investment is combining our human, digital, and community strengths to shape future banking for our customers," Baker said.

Looking ahead, the company expects to continue to accelerate its transformation, with belief that the acquisition of Ferocia will support this further.

"As we advance our transformation strategy, we expect above system lending growth to continue, driven by our consumer business, and further advances in small business and agribusiness sectors, whilst maintaining a resolute focus on costs, improving our productivity, and preserving a strong and resilient balance sheet," Baker said.

"Our greatest opportunity and key unique strengths lie in our ability to bring together our human approach to customer and community connections with our strong digital capabilities and new digital investments. We have a proven history in delivering innovative banking firsts in Australia and this provides us with an excellent foundation upon which to build further investment in new capabilities, partnerships, technology, and skills."

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