Q2 Holdings (NYSE: [[ticker:QTWO]]) sees big opportunity in the digitization of small banks.
The Austin, TX- based company sells software to community financial institutions, including credit unions, so that they can offer banking services online and via mobile devices. In March, the company went public in a $101 million initial public offering, selling 7.8 million shares at $13 each. I recently caught up with Q2’s CEO Matt Flake following the expiration of the post-IPO quiet period to find out about the company’s customers and its expansion plans.
“We’ve been around for 10 years…digital services have become much more common in banking,” he says.
The catalyst? Proliferation of smartphones and the advent of social media sites like Facebook and Twitter. “With the ramp up of mobile, what you’re seeing in business technology is the need to function on all of these devices all the time,” Flake added. “People aren’t going to the branch anymore. ”
Big banks are already tailoring services to enable customers to conduct many transactions online and via their smartphones. Flake says Q2’s software helps their smaller counterparts level the playing field. After all, he adds, community banks make 75 percent of the loans to small business. “They are the lifeblood of the economy,” he says.
Founded in 2004, Q2 now provides electronic banking services to more than 340 banks and credit unions. That’s less than 3 percent of the 13,500 such institutions in America today, but Flake says Q2 is growing. The company has customers in 48 states, with 3.5 million users—a growth of 33 percent in the past year—accessing their services through Q2’s software.
For the first quarter, Q2 reported a net loss of $5.3 million, compared to a net loss of $2.2 million from the same quarter a year earlier.
The company plans to use the new funds to expand its sales and marketing efforts as well as invest in R&D to come up with new software related to security and analytics, Flake says. He plans to expand Q2’s workforce by nearly 100 people to 500 workers by year’s end.
Q2 is part of a broader group of tech firms seeking to innovate within the financial industry, an area covered by my
