Fiserv's Mobile Strategy Comes In Loud and Clear

Deep down in the bowels of Fiserv's business lies the company's mobile banking revenue. But Fiserv is counting on the numerous investments it's made in mobile banking and alternative payments to spur its growth.

"There is a huge interest and frankly a huge demand to have the mobile platform enabled in financial institutions," says Jeff Yabuki, chief executive officer and president of Brookfield, Wis., Fiserv, in an interview.

Last year's acquisitions of Mobile Commerce Ltd. (M-Com) and CashEdge Inc. will bolster Fiserv's business in mobile and person-to-person payments, he says. Fiserv will also benefit from cross-selling to its base of 16,000 financial institutions, for which it provides core banking and other services.

Certainly, Fiserv isn't alone in gearing up for the mobile banking revolution. Competing core provider Fidelity National Information Services Inc., of Jacksonville, Fla., announced last week that it will provide its customers with mobile wallet capabilities that are application-based, not dependent on a near-field communication chip.

But Fiserv also has wallet capabilities, Yabuki says. These come from its acquisition of M-Com, whose technology enables mobile payments based on NFC.

"We are paying a lot of attention to this, but we also think it is very early in the evolution" of the mobile wallet, Yabuki says.

There is a big opportunity — for everybody — in mobile banking.

About 3,500 financial institutions globally offer the product, according to research firm Aite Group, and this number is expected to double by the end of the year. Currently there are about 19 million mobile banking users in the U.S., a number that is expected to more than double by the end of 2013.

"We are just starting to scratch the surface with mobile banking," says Christine Barry, a research director for Aite Group LLC.

For the time being, Fiserv will still have to rely on core technology and payment solutions, which include online bill-pay, debit card transaction processing and ATMs, for the vast majority of its earnings, says Peter Heckmann, senior research analyst for Avondale Partners LLC.

Fiserv reported Thursday that its revenue rose 7% to $1.2 billion in the fourth quarter from a year earlier. Its net income jumped 23% to $143 million. Heckmann estimates its mobile-banking revenue is $15 million for the full year, or just over 1%.

The majority of Fiserv's core banking sales came from its 5,500 existing core clients, but half of all new core deals went to Fiserv in 2011, Yabuki says.

"If [Fiserv] doesn't grow their [core] customer accounts, they have a lot of room for pricing up share of the banks' total spending on technology," says John Kraft, an analyst for D.A. Davidson & Co.

Fiserv's earnings report did contain one drag, a small one, on revenue growth for the full year: the Durbin rule's cap on debit-interchange fees.

But financial institutions did not take the hit, Yabuki says. Instead, many of the vendor's biller clients experienced fee compression in the quarter.

Though analysts expressed some confusion on this point and pressed Yabuki to elaborate, he spoke in generalities during an earnings call and in an interview with American Banker.

"There are many different models used to work with billers, and we use all of them," Yabuki says, citing competitive reasons for not going into further detail. The negative impact was the equivalent of roughly $20 million, he says.

By contrast, Fiserv's debit-card transaction volume grew by about 18% in the quarter and 19% for the year. The majority of Fiserv's clients fall below the Durbin threshold of $10 billion, making them exempt from the interchange-fee cap.

"That has been an important element of our success, and an important driver of revenue," Yabuki says.

Fiserv also said it allowed for a possible early renewal of Bank of America Corp's bill-payment contract, which is set to expire at the end of 2013. The contract is worth nearly 5% of Fiserv's annual revenue, primarily from electronic bill payment, analysts say. Bank of America was a customer of CheckFree Corp., which Fiserv purchased in 2007.

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