Fundtech will be the name of the combined companies. Fundtech's Reuven BenMenachem will be executive chairman and S1's Johann Dreyer will be CEO, they said. Atlanta will be corporate headquarters.

“The future of the transaction banking industry is highly dependent upon innovation and state-of-the-art solutions and this combination will put us at the forefront of these advancements,” Dreyer said. “This merger will expand our geographic footprint and enhance our ability to accelerate revenue growth and increase profitability.”

Aite Group research director Christine Barry said Fundtech had been mentioned as a takeover target in recent days but that she did not expect S1 to be the suitor.

“There were talks about a possible merger last week for Fundtech, but I don't think too many people expected it to be with S1,” she said.

“While surprising, both companies have much to benefit. As two leaders in the cash management space, there were be an opportunity for the newly combined company to establish a dominant role in that market. Additionally, Fundtech will be able to expand its product offerings vertically not only into consumer online banking, but also voice, branch and lending,” Barry said.

“It will also better position the company to take advantage of opportunities in the small institution space. Its success in this market had been limited in the past due to its lack of a retail offering. S1 will also benefit from Fundtech's stronger end-to-end payments capabilities and financial stability. Both will enjoy new cross-selling opportunities,” she said.