In another sign of the shifts taking place in online bill payment, Online Resources Corp. disclosed that it has lost Jack Henry & Associates Inc., the No. 4 core account-processing provider, as a customer.
The Internet banking outsourcer also lowered its earnings projections, citing slower growth of a potentially lucrative expedited payment service it has introduced.
Its stock price tumbled Friday as one analyst cut his recommendation on the stock and another put his recommendation under review.
Meanwhile, CheckFree Corp., the largest provider of online bill payment, said its profit shrank as expenses rose in what is likely to be its last quarter as a public company. CheckFree expects to complete its $4.4 billion sale to the core processor Fiserv Inc. of Brookfield, Wis., this quarter.
Catherine A. Graham, an executive vice president at Online Resources and its chief financial officer, said the Chantilly, Va., company believes the worst is over after its July 2006 purchase of Princeton eCom Corp., the No. 3 provider of electronic billing and payment services.
Jack Henry "was another large client loss, what we feel is the last large client loss related to the Princeton eCom acquisition," Ms. Graham acknowledged in an interview Friday.
Online Resources has been stung by a series of customer losses, including BB&T Corp. of Winston-Salem, N.C., which moved its bill-payment business in January to CheckFree, and MBNA Corp., which was bought last year by Bank of America Corp. of Charlotte, CheckFree's biggest client.
But after Jack Henry's departure, the company's top 10 bill-payment clients have all renewed their contracts, Ms. Graham said. "While we have reduced our numbers, we have improved our visibility."
Jennifer Roth, a senior analyst at TowerGroup of Needham, Mass., an independent research firm owned by MasterCard Inc., said the Jack Henry loss was not surprising, since the two compete in some areas.
"This was one of the threats when they purchased Princeton eCom to begin with," Ms. Roth said, "because of the conflict with" Jack Henry's online banking product."
She noted that Online Resources has won renewals with other rivals, such as S1 Corp. of Atlanta, which also offers online banking software.
And the Jack Henry loss is not entirely a bad thing, she said. "It diversifies their business even further," so that the company is less reliant on a few large customers. "If they do lose another one, it won't be as big a hit to their bottom line."
Vernon E. "Pete" Hopkins Jr., Jack Henry's general manager of Internet solutions since the position was created in July, said the Monett, Mo., company is shifting its electronic payment fulfillment to a smaller rival, iPay Technologies LLC of Elizabethtown, Ky., which he said would help "increase our electronic penetration."
Jack Henry processes check-based online payments for 1,060 of its 2,300 core-banking institutions, Mr. Hopkins said, but for several years it has been using Online Resources to process payments completed electronically.
The electronic completion rate is now at 61%, but Mr. Hopkins said he believes Jack Henry can eventually raise that rate to 73% to 75% with iPay. "By going electronic, we make money, and our customers save money," he said.
The vendor also can implement changes more quickly with iPay than it could with Online Resources, and it can sign up local billers more quickly, he said.
Jack Henry has converted four banks to the iPay system and plans to convert 20 more this week, Mr. Hopkins said. It plans to complete the conversion by yearend.
Online Resources reduced its earnings guidance for the remainder of 2007, and executives told analysts in a conference call Thursday that they are making more conservative assumptions for 2008 as well, though they did not provide detailed guidance.
Matthew P. Lawlor, Online Resources' chairman and chief executive, said on the call that the company also was lowering its expectations for expedited payments. "We are confident that the product will be a winner but want to be particularly cautious about first-year adoption rates and on pricing since there is no bank-based precedent for expedited consumer payments," he said.
Third-quarter results were relatively strong. The company said it turned a profit of $3.1 million, compared with a loss of $1.3 million in the year-earlier period. Revenue grew 21.2%, to $34.2 million.
But the lower outlook prompted investors to sell Online Resources' stock on Friday. The shares closed at $8.53, down 30.59% from Thursday's close.
Glenn Greene, an analyst at Canadian Imperial Bank of Commerce's CIBC World Markets, downgraded the stock to "sector performer" from "outperformer." In a Friday note to clients he called the company "a valuable scarce asset in a rapidly consolidating bill pay market," but noted that its "growth outlook has moderated considerably, and suddenly, relative to what we felt were our realistic expectations."
Matthew J. McCormack, an analyst at Friedman, Billings, Ramsey & Co. Inc., put his "outperform" rating for Online Resources under review. "We believe the pricing decline for bill pay has accelerated as the company focuses on larger clients that have volume tiering," Mr. McCormack said in a note.
CheckFree, of Atlanta, said its earnings fell 4.4%, to $29.8 million, or 33 cents a share, in the three months that ended Sept. 30, its first quarter of fiscal 2008, compared with a year earlier.
It said revenue grew 25%, to $284.7 million.
CheckFree did not host a conference call for analysts or offer guidance for future earnings.
