KeyBank acquired payments firm XUP as 'connective tissue,' exec says

KeyBank NA moved to acquire the Charlotte, N.C.-based XUP Payments Inc. after using the company's software to package and deliver its payments and banking products to merchants for over a year.

The partnership, which began in mid-2020, helped KeyBank increase customer loyalty and grow the revenue in its merchant payments business by more than 40% year over year in 2021, Ken Gavrity, head of enterprise payments and analytics for KeyBank, said in an interview.

The results prompted the Cleveland, Ohio-based regional bank to pull the trigger on M&A, acquiring XUP for an undisclosed sum.

The deal is the latest in KeyBank's push to build, buy or partner with fintech platforms. The bank purchased Laurel Road's digital student loan refinance platform in 2019 and acquired data analytics consultancy AQN Strategies LLC in February. It formed strategic partnerships involving equity investments with business-to-business payments companies AvidXchange Holdings Inc. in 2015 and BTRS Holdings Inc., doing business as Billtrust, in 2017.

The XUP acquisition comes as banks explore fintech solutions to streamline payments. Earlier in November, U.S. Bancorp, the parent company of U.S. Bank NA said it will acquire San Francisco-based TravelBank to bolster digital payments in its commercial segment.

KeyBank Head of Enterprise Payments Ken Gavrity. Source: KeyBank

KeyBank adds XUP's software to it its banking capabilities in commercial cards, deposit accounts and risk management, where it helps hide the complexity of integration and make payments more intuitive on the front end. When businesses think about their accounts payable flow, they mostly focus on the end result and want payments to be "invisible to some degree, or embedded," Gavrity said.

KeyBank's 3.5 million customers include roughly 250,000 small businesses and 5,000 middle-market customers. Banks often outsource merchant services to third-party vendors, but with the XUP acquisition, KeyBank hopes to take the process back, to create "connective tissue" across its legacy infrastructure, Gavrity said.

KeyCorp encourages collaboration across divisions including investment banking, commercial banking and risk management, and the embedded banking solution enabled by XUP's technology can also serve the technology companies that KeyBanc Capital Markets, the firm's investment banking arm, advises on capital raising and M&A, Gavrity added.

XUP launched in May 2020 as a division of Atlanta-based Midtown Consulting Group and was spun off in December 2020. KeyBank announced an equity investment in May. Following the acquisition, XUP will continue to serve its outside customers including several payment processors and fintech firms.

The company has roughly 50 staff members in Charlotte, N.C., and Atlanta, two hubs for talent in financial services and fintech, and KeyBank looks to grow the team, Gavrity said, noting that KeyBanc Capital Markets' fintech investment banking team is already located in Charlotte.