The recent departures of two Bisys Group Inc. customers have industry experts wondering about the future of the company's bank outsourcing business.
Bisys, based in Little Falls, N.J., ranks among the top five providers of core processing services to banks. Its executives maintain they have no plan to sell or scale back that business.
But several banks, including two of Bisys' largest thrift industry customers - Roosevelt Bank in Chesterfield, Mo., and Roosevelt Savings Bank in Garden City, N.Y. (not affiliated) - said they have left the outsourcer in recent months.
The defections are noteworthy mainly for the reasons behind them. The thrifts said Bisys does not support core processing services the way it once did, and they questioned the company's long-term commitment.
Analysts said the concerns are valid, given that Bisys has become increasingly focused on investment-product distribution and administration services. Next year these services are expected to account for 65% of Bisys' $310 million in revenues, analysts said.
Bisys executives vigorously denied any shift in strategic focus and said they are fully committed to core outsourcing.
"We've had the best sales year ever, and we have the strongest prospects in the pipeline we've ever had," said Bisys chairman Lynn J. Mangum.
"All the people in the company who have been working full time" in outsourcing "are still working full time," he said.
Speculation about Bisys' longer-term intentions have intensified as analysts are expecting a consolidation in the outsourcing business, and they view Bisys as ripe for takeover.
"Until now, no one's market share has changed dramatically," said Carl Faulkner, managing director at M One Inc., a consulting firm in Phoenix. "But core processing is a bad business to be in right now. It's going through the same consolidation pressures that the banking industry is seeing."
Also fueling the speculation are statements from former customers.
Bisys' "focus seemed to be switching heavily toward mutual funds," said Robert Engleman, president of $600 million-asset Avondale Federal in Chicago, which signed with FIS Inc. in Orlando, Fla., after its five-year service bureau contract with Bisys expired in June.
Executives at other thrifts, speaking anonymously, said Bisys is not spending enough on research and development to upgrade its processing services.
"Our concern was that (Bisys) had been making major investments in the mutual fund side, but it did not appear that they were making the same investments on the servicing side," said one executive.
To be sure, customer turnover is normal in the outsourcing business. Mr. Faulkner said about 8% of banks historically switched outsourcers when their contracts expired; this year that number should rise to 11%.
Given the ebb and flow of the outsourcing business, Bisys said it is faring well. Its data processing business, which includes core processing and electronic funds transfer services, is expected to grow 10% in 1997.
But Bisys still faces an uphill battle if it hopes to remain in core outsourcing, analysts said. The company is having trouble attracting clients beyond its core thrift customers, which could hinder long-term growth.
The company has 700 core outsourcing clients, but only 18 have assets exceeding $500 million, according to M. Arthur Gillis, an independent Dallas consultant who tracks bank technology service providers.
One of the biggest clients, Crossland Federal Savings Bank, with $4.5 billion of assets, left Bisys when it merged with Republic New York Corp.
Despite such bad news, Bisys Group is poised to grow 15% to 20% over the next year, but investment services will drive that growth, analysts said.
These services - including bank mutual fund distribution and administration, defined-contribution plan servicing and marketing, and common trust fund conversions - could expand by 25% in the next 12 months, according to Steven Birer, analyst at Hambrecht and Quist in San Francisco.
Analysts therefore say a shift in strategy would be natural. "If I were Bisys, I certainly would be focusing more assets on the business that's doing better," said Mr. Birer.
