For Jack Henry and Fiserv, it was the rudest kind of alarm for an April morning. Archrival Fidelity National Information Services agreed to buy Metavante, turning the already cutthroat bank IT vendor game into a battle royale.

But perhaps even more striking is FIS has its sights set on an even larger game.

Lee Kennedy, Fidelity's president and chief executive officer, says the financial core processing vertical is too big and too lucrative not to attract the attention of mainstream tech companies such as IBM and Oracle. "We know all the big players are looking at this market."

It is that emerging threat, more than the traditional competition with competitors, that motivated Fidelity and Metavante to hook up in a $2.94 million deal, Kennedy says. "In order to remain competitive, it is all going to be about scale in the not-too-distant future."

While Kennedy speaks of a lucrative bank IT market, there will likely be fewer IT dollars at fewer firms both in and outside of banking as the economy emerges from the recession, creating a Darwinian environment that will make bulking up a survival strategy for many tech firms. "The revenues of banks are never going to be what they were, and there's going to be more consolidation. The vendors are going to be in the same boat," says Jeanne Capachin, research director of corporate banking at Financial Insights. And not just conventional bank-tech vendors, she adds. "Maybe that is the opportunity for IBM, Oracle and Hewlett-Packard to get into the financial software business."

Capachin also says that as banks chart a new course, outsourcing strategies may change as institutions job out commodity processing operations while retaining only capabilities that provide competitive differentiation. "I really believe we're going to go further in that direction, if only because the banks are forced to do it," she says.

Although Metavante is the largest of Fidelity's deals, Chairman Bill Foley has pursued an big-picture strategy to build a fin tech juggernaut ever since he entered the bank-tech market in April 2003, with the acquisition of Alltel Information Services from the telephone company Alltel Corp. In that case, the acquirer was Fidelity National Financial Inc., where Foley had pursued a similar rollup strategy to cobble together a collection of local title insurance companies to become one of the nation's largest title insurers.

The renamed Fidelity Information Services unit became a busy shopper, absorbing the card-payment processors Certegy in January 2006 and eFunds Corp. in September 2007, along with a host of smaller deals. Along the way, the insurer FNF spun off tech vendor FIS in November 2006 and its mortgage servicing unit, Lender Processing Services in late 2008.

The FIS/Metavante deal, which is expected to close in the third quarter, will combing the No. 2 and No. 3 core processing vendors and likely unseat Fiserv from its throne. But Fiserv also isn't sitting still, and is reportedly looking to boost its position, perhaps by an international acquisitions, although executives don't attribute the decision to Fidelity and Metavante. But Jeff Yabuki, Fiserv's CEO, promised analysts in May that he plans to be able to articulate a strategy at the company's investor day in the fall.

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