S1 Corp. and Fundtech Ltd. are merging in a stock swap valued atapproximately $700 million, the companies said Monday.

S1 is an Atlanta-based provider of online banking and paymentssoftware with more than 3,000 clients worldwide. It also is ownerof PM Systems Corp., a South Carolina-based provider of onlinebanking and security services to about 175 credit unions.

Fundtech is an Israeli company with U.S. operations based inJersey City, N.J., and said it has a client list of more than 1,000companies worldwide using its wire transfers, ACH origination,cross-border payments and remittance. Fundtech said it also operates the world's largest SWIFTservicebureau.

When the transaction closes, S1shareholders will own approximately 55% of the company and Fundtechshareholders about 45%, the companies said. The two companies hadcombined revenue of $95 million in the first quarter and no debt,they said.

Fundtech will be the name of the combined companies. Fundtech'sReuven BenMenachem will be executive chairman and S1's JohannDreyer will be CEO, they said. Atlanta will be corporateheadquarters.

“The future of the transaction banking industry is highlydependent upon innovation and state-of-the-art solutions and thiscombination will put us at the forefront of these advancements,”Dreyer said. “This merger will expand our geographic footprint andenhance our ability to accelerate revenue growth and increaseprofitability.”

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

“There were talks about a possible merger last week forFundtech, but I don't think too many people expected it to be withS1,” she said.

“While surprising, both companies have much to benefit. As twoleaders in the cash management space, there were be an opportunityfor the newly combined company to establish a dominant role in thatmarket. Additionally, Fundtech will be able to expand its productofferings vertically not only into consumer online banking, butalso voice, branch and lending,” Barry said.

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