Wall St. Warms to Bank Tech Stocks

Wall Street appears to be renewing its passion for a number of bank technology stocks, particularly those that provide electronic commerce and alternative forms of payment systems to banks.

The reasoning, according to analysts, is this: The banking industry, which is currently reaping record profits, is expected to dramatically increase its investments in payment systems to keep pace with the rapid changes in the banking environment.

"You've had a recent general wave that has helped technology stocks," said Gary Craft, analyst at Robertson Stephens & Co., San Francisco. "The payment system is shifting incrementally from paper to electronics," he added.

"It has to because of the big push for electronic commerce in the economy."

Though Intel Corp. stock plunged Friday (the technology bellwether said its quarterly earnings will fall short of expectations), bank technology stocks including Sterling Commerce and Transaction Systems Architects Inc. have gotten a healthy boost in the past few weeks.

Stocks of these companies had been trending downward since October.

In a forthcoming report, Mr. Craft predicts that spending on third-party payments technology will exceed 35% for several years to come.

In 1996 banks invested about $750 million for this technology, which includes software for electronic funds transfers, check imaging, and financial electronic data interchange, Mr. Craft says.

He predicts they'll spend $2.5 billion on such technology in 2000.

Spending on financial EDI in particular will increase tenfold, to $300 million in 2000, he says.

"The real smart banks are looking at themselves as networks for facilitating credit-types of products and services related to financial planning," Mr. Craft said in an interview.

He said banks must contend with declining revenues from indirect sources, such as payment system float.

Another reason, he said, is that the federal government will require the computer automation of nearly all transactions between government agencies and the private sector by 1999.

Other experts supported Mr. Craft's predictions.

"I do not believe those numbers are startling, when you realize where banks are now and where they need to be," said James Wells, managing director at Furash & Co., a Washington-based consulting firm.

Few banks can now process EDI payments, he said, and more must develop such systems themselves or through correspondent relationships with other banks.

"If banks don't spend this, nonbanks will," he added.

But Peter Freund, chairman and co-founder of Certco LLP, said Mr. Craft's numbers are too high.

"Banks will pool their resources and have common utilities that can be branded," said Mr. Freund. The build-it-yourself approach he said would be expensive and unnecessary, he said.

His company, spun off from Bankers Trust Corp. last year, provides encryption for Internet electronic commerce. u

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