Byline: Andrew Johnson
Fidelity National Information Services Inc. said Tuesday that demand is picking up for core processing upgrades - contradicting a report last week from its rival Fiserv Inc.
FIS did not provide an explanation for the difference, which suggests to Andrew Jeffrey, a managing director at SunTrust Robinson Humphrey, that FIS is stealing market share.
Fiserv's comments "are more consistent with what we've heard from [chief information officers] generally, which is more of a tempered 2011 spending environment," Jeffrey said in an interview on Tuesday. But FIS has a bigger presence in the larger-bank market.
"Generally big banks have more diversified [information technology] needs, spending needs and budgets, so I think FIS' greater relative enterprise exposure probably helps it there," Jeffrey said.
The economic crisis highlighted technology deficiencies for many financial institutions, Gary Norcross, the chief operating officer of the Jacksonville, Fla., financial technology vendor, said on an earnings conference call.
"They are at a point where they want to fix all of their foundational elements so in the event they have to go through this process again, they are on a much more stable platform," Norcross said.
FIS expects such deals, which can cost banks millions of dollars and take several years to complete, to pick up this year, a contrast from the more muted outlook executives at Fiserv gave last week for core processing projects.
FIS forecasts revenue to grow 9% to 11% this year.
Jeff Yabuki, Fiserv's president and chief executive, said on a conference call Thursday that in the U.S., "we're just not hearing a lot of energy on core" replacements.
"Until people are able to move on with the business of banking, I just don't see them putting the energy in that," Yabuki said.
A small number of core replacements at large banks with a U.S. presence are underway or in the planning stages, including at Citigroup Inc.FIS said last year it is working with Citi to upgrade its systems.
Overall, most experts anticipate such large-scale projects will continue to be rare this year, as banks wait for new regulations to be put in place.
In 2010, FIS' revenue grew 42%, to $5.3 billion. Factoring in results from Metavante Technologies Inc., which it acquired in October 2009, FIS' adjusted revenue would have grown 4.2%.
FIS' revenue in the fourth quarter grew 8.8% from a year earlier, to $1.4 billion, spurred by increases in its financial services segment, which provides core processing, treasury management, Internet banking and technology, as well as in its in international segment. Those increases offset a small decline in payments revenue, which fell because of lower check processing activity.
FIS' net income was $112.3 million in the quarter, compared with a net loss of $52.8 million a year earlier.
Like other vendors, FIS executives said pending regulations, including the Federal Reserve Board's proposed caps on the fees banks earn from debit card use, will likely influence how and when banks invest in technology.
A report released Tuesday by Boston Consulting Group said banks could lose up to $9 billion in debit interchange revenue as a result of the rules, though some analysts peg that figure at as high as $12 billion.
FIS, which gained the alternative PIN debit network NYCE Payments Network LLC with its acquisition of Metavante, could potentially benefit from a provision in the rules requiring card issuers to add alternative network routing options for debit cards.
FIS has also seen more interest from banks in its prepaid card services because prepaid cards are exempt from the proposed interchange caps, Norcross said.
Bank acquisition activity, which is increasing, is a wild card for FIS and its competitors. Norcross highlighted three recent deals that could affect FIS: Bank of Montreal's pending acquisition of Marshall & Ilsley Corp., People's United Financial Inc.'s deal to buy Danvers Bancorp Inc. and Hancock Holding Co.'s pending purchase of Whitney Holding Co.
"Based on what we've seen over the past few weeks, we believe that bank consolidation could accelerate in 2011," Norcross said, adding that FIS performs services for banks involved in the three deals he cited.
"We expect to have ongoing technology relationships with all of the banks," Norcross said. "However, as with any consolidation, our relationships could undergo changes."
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