But it took the banking technology provider nearly a year to articulate a strategy, with its September 2006 unveiling of an initiative it termed Fiserv 2.0. And that approach, emphasizing an internal streamlining and a management shuffle, struck many observers as almost timid.
It was not until this August that Fiserv made a truly transformational deal: its $4.4 billion agreement to buy CheckFree Corp. of Atlanta, the leading provider of electronic bill payment and presentment services.
That deal, expected to close by yearend, is the most expensive since Fiserv was founded in 1984 as an agglomeration of regional bank-servicing bureaus. And it will be the biggest directional shift for the company since 1995, when its purchase of Information Technology Inc. of Lincoln, Neb., put it in the business of selling core deposit-accounting software for banks to run in-house.
Executives and analysts agree that CheckFree's portfolio of payments businesses will fortify Fiserv in a market that is more profitable than the relatively low-margin business of core processing.
If this kind of big deal seemed to be a long time coming, Mr. Yabuki says the measured approach has been necessary, largely because of the stature of the company, which now owns the No. 2 spot in the FinTech 100 after a long reign as No. 1.
"People are looking for ways to differentiate themselves," Mr. Yabuki said in an interview. "We are being very careful to be sure the changes we make are enhancing how we go to market."
Making His Mark
Indeed, for a company that has historically grown through acquisition, Fiserv has been relatively quiet so far in 2007 on the M&A front, the CheckFree deal notwithstanding. It has bought only three other companies this year: NetEconomy, a Dutch security software firm, in March; WorkingRx Inc., a Salt Lake City provider of technology that pharmacies use to handle workers' compensation claims, in September; and BancIntelligence Corp., an Atlanta provider of market data to banks.Still, it is clear that Mr. Yabuki is putting his stamp on Fiserv. For instance, the Brookfield, Wis., company has long been known for letting its business units operate independently and even to compete against one another. But it is starting to consolidate some operations and pare back others.
Thomas Hirsch, an executive vice president at Fiserv and its chief financial officer, told analysts at the company's investor day presentation in New York in October that it once offered 18 to 24 core processing platforms. "Now we're down to four," Mr. Hirsch said, though it is doubtful that number will be reduced any further, because "there are going to be different products that are needed for different market segments."
And for possibly the first time, Fiserv has begun a disciplined review of low-performing businesses that do not fit its new business model. In May it announced a deal to sell its investment support services division to TD Ameritrade Holding Corp. for at least $225 million in cash and possibly an additional $100 million if the unit hits certain revenue targets.
Mr. Yabuki has said he is willing to cut loose the company's fledgling health-care payments business, which was organized in 2003 to take advantage of growth in the health-care industry, if it doesn't measure up. "We're not pleased" with how the unit is executing, he told analysts during the investor day presentation.
However, the CEO also noted that his company is only a year into a strategic business plan for the unit that is expected to take 18 to 24 months to complete. "We think there's a strategy that makes sense. The question is can we execute it."
Transformation and Consolidation
Wall Street is taking note of Mr. Yabuki's efforts. Tien-Tsin Huang, an analyst at JPMorgan Securities Inc., upgraded Fiserv to "overweight" from "equal weight" after the investor day."We view the pending CheckFree acquisition as a very compelling, transformational deal for investors," Mr. Huang wrote. "In our view, CheckFree not only enhances Fiserv's growth, but also serves as a catalyst to change Fiserv's culture and story from being a siloed bank technology roll-up to a more integrated core processor with real payment assets to cross-sell."
Mr. Yabuki held up NetEconomy as an example of Fiserv's new, more streamlined approach. It is incorporating NetEconomy's risk management and fraud-fighting capabilities into all of its core processing systems. "There's no reason we can't deliver a NetEconomy solution to a non-Fiserv core customer," Mr. Yabuki said. "We're going to market with it in a one-Fiserv fashion. Instead of eight solutions, we're doing one solution and doing best in class."
CheckFree, with its bill-payment services and ACH origination software, will add to that, as will two CheckFree acquisitions from the second quarter: Corillian Corp.'s online banking software and Carreker Corp.'s payments risk and fraud software and consulting services.
"Our goal is to effectively surround our clients" with Fiserv software, Mr. Yabuki said. "The more integrated the solutions are, and the more integrated the service delivery is, the more differentiated your offering will be."
Rahul Gupta, the group president of Fiserv's payments and industry products group, said the fraud and risk capabilities of NetEconomy and Carreker strengthen Fiserv in an area that "we were not so strong" in but one that will become increasingly important as the company moves further into payments processing.
Fiserv should be able to become even more effective in those areas because it can integrate the transaction-monitoring systems tightly into its core systems, Mr. Gupta said. "The more you know about the consumer, the more holistically you can do this business."
Fiserv remains the dominant provider of core processing software and services, with a market share of 34% by number of clients, according to Computer Based Solutions Inc., a Dallas research and consulting firm. Jack Henry & Associates Inc. of Monett, Mo., is in second place, with 13% of institutions.
Fiserv's clients tend to be smaller banks, thrifts, and credit unions, which often lack the resources to integrate transaction-processing systems with core processing, Mr. Gupta said. However, the distinction between the two services is often irrelevant to banks' customers, he added.
"What is banking and what are payments? Those things are highly intertwined for the consumer and the small business," he said. "This is where we see those guys going: They want to go online. They want to go mobile. They don't want to have to go into a branch to do transactions."
Fiserv was already the top nonbank check processor, Mr. Gupta said. "We were very deep in checks. We will now be very deep in ACH."
Outsourcing Trend
Though the popular perception is that small banks outsource and big banks handle things in-house, Fiserv executives argue that the big guys outsource more — certainly on a dollar-value basis — and that the growing complexity of the payments business may encourage them, for functions such as ACH processing."The volume is increasing, and that might be an impetus for them to insource, but the complexity is increasing" with the proliferation of ACH entry classes, including ARC for accounts receivable conversion of checks to ACH at the lockbox, TEL and WEB for consumer transactions over the phone and online, and most recently BOC for back-office conversion, Mr. Gupta said.
But regardless of the decisions that banks make about in-house or outsourced ACH processing, he said, "I think we'll be in a good position" to offer them whatever they need. Fiserv could strengthen CheckFree in areas such as expedited payments, Mr. Yabuki said. "There are some near-expedited capabilities in CheckFree today," but he envisions "merging them with our BillMatrix, which is the market leader in expedited payments," he said. Fiserv bought BillMatrix Corp. in August 2005.
Thomas W. Warsop 3rd, the group president of Fiserv's financial institutions group, said Fiserv plans to pursue more opportunities abroad. "The financial services industry becomes more and more global every day," Mr. Warsop said, and though 90% of Fiserv's revenues are domestic, it has established international facilities in India and Costa Rica.
"It started out, as in most companies, as a cost play, but that went away pretty quickly," he said. "You can't find the skills you need" domestically.
"We want to identify capabilities that can be applied wherever our clients do business."
Synergy and Sales
At the October investor day, Fiserv executives said they saw equal opportunities for selling their 350 existing products to CheckFree's client base and for offering existing customers products from CheckFree, a statement that surprised some analysts."We had thought there were much more revenue opportunities selling CheckFree products into the Fiserv client base," said David J. Koning, an analyst at the brokerage firm Robert W. Baird & Co.
Part of the reason is that he sees opportunities for Fiserv to sell more than just CheckFree's core payments businesses, Mr. Koning said. "They spoke several times about how good they feel about Corillian."
Clearly, Fiserv has begun thinking about ways to combine CheckFree's assets with its own businesses. For example, Mr. Yabuki said Corillian's online consumer banking software could be joined with Fiserv's BankLink online cash management software to provide a "best-in-market business Internet banking, commercial treasury solution for both the large and small banks."
But all the talk of integration and streamlining raises the question about what Fiserv will do with PayTraxx, the current version of a bill-payment service that its Integrasys credit union division introduced in 1994 and is used by nearly 500 institutions that use Fiserv systems for core deposit accounting.
Executives would not say how or whether they planned to integrate CheckFree with PayTraxx or shutter the latter and offer smaller banks a narrower set of CheckFree functionality, perhaps at a lower price.
In a manner that reinforced his image as a careful, methodical chief executive, Mr. Yabuki waved off the question as speculative. "We think we'll be able to put together a very attractive CheckFree offering," he said. "We'll make those decisions in due time."
