MILAN, July 11 (Reuters) - Italy's third-largest bank Banco BPM said on Tuesday it had agreed to enter exclusive talks with domestic private equity fund FSI to create the country's No. 2 payments player in which it would retain "a significant stake".
FSI, founded by former Merrill Lynch banker Maurizio Tamagnini, first invested in payments by setting up the BCC Pay payments venture with unlisted bank Iccrea.
It further invested in Italy's financial sector earlier this year when it bought a stake in Anima, a leading asset manager of which Banco BPM is the main shareholder.
Banco BPM currently partners with NEXI, Europe's biggest payments company by volume of transactions.
To receive cash upfront and boost growth prospects for its payments business, Banco BPM this year said it would seek a new long-term partnership, drawing interest from Nexi, Worldline and FSI-BCC Pay.
CEO Giuseppe Castagna had said the bank would not sell any parts of the business but only seek a commercial agreement.
But Banco BPM said it would transfer its cards and retailers' payments operations into a new company, receiving both cash and shares as payment from FSI-BCC Pay.
Banco BPM said the deal would allow it to continue to fully benefit from fees it reaps from payments which amounted to 140 million euros in 2022, while taking advantage of future growth.
Italy is a digital laggard but the global COVID-19 pandemic has boosted digital and online payments.
Nexi currently handles cards and shopowners' payments for Banco BPM. Switching provider is a lengthy process with execution risks entailing a bigger upfront payment, bankers said.
When factoring in prospective fees, Banco BPM has said its payments business is worth more than 2 billion euros.
In February, Spain's Sabadell agreed to sell its retailers' payments business to Nexi for up to about 350 million euros. (Reporting by Valentina Za; Editing by David Gregorio)