ClickSwitch Holdings Inc., a Minneapolis financial technology company that provided a simpler way for banks to sign new customers, is being purchased by Q2 Holdings Inc., a publicly-traded provider of technology and software for digital banking.
Terms of the deal were not disclosed. An announcement from Q2 did not say what would become of ClickSwitch’s operations in Minneapolis nor whether its executives would continue to have a role.
The deal represents a payoff moment for founder Cale Johnston, who started ClickSwitch in 2014 at age 26, and the investors he attracted to it since then.
Johnston was working at an Eden Prairie financial services company when he heard bankers complain about the obstacle to signing new customers that was posed by the automatic bill-payment services so many people had come to rely on. He struck out to engineer a solution and initially tapped a group of programmers in Duluth to help before getting enough momentum to open an office and hire his own team.
In a statement, Q2’s chief executive Matt Flake said many banks still see the conversion of bill payments and direct deposits as a barrier to attracting customers to change banks. “We believe Q2’s acquisition of ClickSwitch will enable us to help our customers efficiently solve this pain point and drive account profitability,” Flake said in a statement.
Since taking its process to market in 2015, ClickSwitch has signed more than 450 banks as customers, including a record 47 in the fourth quarter of 2020. Some banks use the service chiefly on their website and others use it behind the scenes when a representative signs up a new customer in a branch.
Johnston didn’t immediately return a request for comment. In a statement, he called Q2 “a recognized leader in providing innovative solutions for financial institutions.”
Johnston and some of his relatives provided the initial investment in ClickSwitch. He first turned to outside investors in 2018, raising $3.5 million in a Series A round led by Commerce Ventures of San Francisco. ClickSwitch raised another $13 million in 2019 in a Series B from a group led by Commerce Ventures and Point 72 Ventures of New York.
ClickSwitch initially developed a process to migrate automatic bill payments for bank customers, but it attracted more banks after also developing a way to migrate direct-deposit paychecks.
“From 2015 to early 2020, we didn’t have any competition. It was a land grab for us,” Johnston said in an interview in February.
Last year, several new competitors emerged. Johnston said ClickSwitch identified several new service areas to enter, including providing employment and income verification on behalf of borrowers to prospective lenders.
“What if a customer wants better loan rates? The onus shouldn’t be on the customer to pull their paystubs. ClickSwitch can provide that information on their behalf,” Johnston said. “We’re trying to create this more wholistic approach in our services to stay ahead of new competition.”
The shutdown of bank branches early in the coronavirus pandemic put a crimp on growth for ClickSwitch, but by the end of the year it was signing new customers at a record pace. One was a Top 10 bank, though Johnston declined to identify it.
“We were tested,” Johnston said in February as he looked back at 2020. “If we could grow in a pandemic, it’s going to be fun to see how we go when we’re out.”
Q2, based in Austin, Texas, offers a cloud-based digital banking platform for banks of all sizes. Its revenue was just over $400 million in 2020, up 28% from 2019.
Evan Ramstad • 612-673-4241