Bank mergers have helped to whittle the market of data processing companies to a fraction of its former size.
Twenty-eight companies now provide outsourcing to banks, down from 71 companies in 1987, according to Computer Based Solutions Inc., which produces an annual study of the industry. Twenty-seven vendors now provide in-house turnkey bank processing, down from 42 in 1986.
Bank spending on basic data processing dries up when banks merge, said M. Arthur Gillis, president of Computer Based Solutions. He estimated, for example, that $600 million of potential revenue for technology companies disappeared when BankBoston Corp. and Fleet Financial Group merged in October.
Three outsourcers now own 80% of the market.
- Fiserv Inc. of Brookfield, Wis., has the most clients because it has "tried to be everything to everyone," Mr. Gillis said. Fiserv goes "broader and deeper" into its product offerings than any other company, he said.
- o M&I Data Services of Brown Deer, Wis., generates the most revenue of the three because it tackles larger clients, Mr. Gillis said.
- o Alltel Information Service Inc. of Little Rock is between M&I Data and Fiserv in terms of revenue and number of clients, but it can boast the nation's largest bank, Bank of America Corp., as its customer, Mr. Gillis said.
Only 21% of banks with more than $10 billion of assets outsource their core applications, as do 31% of those with $500 million to $10 billion and 40% of smaller banks, according to the survey. Banks with less than $10 billion of assets are increasingly turning to turnkey system providers so they can run operations in-house. The top three are Jack Henry & Associates Inc. of Monett, Mo.; Information Technology Inc., a subsidiary of Fiserv; and - a distant third - Phoenix International of Heathrow, Fla.Mr. Gillis predicted that these companies will have to follow the lead of the outsourcers and "go broader and deeper in their business" to thrive.
Bank mergers also have contributed to an increase in litigation between vendors and banks. "The door to litigation has been opened far wider than it ever has in the past," Mr. Gillis said.
A recent example is a lawsuit that was filed by Affinity Technology Group Inc. against Dime Savings Bank of New York and Hudson United Bancorp. The suit alleges intentional interference with a contract between Columbia, S.C.-based Affinity and Dime. The vendor says Dime had indicated that it did not intend to use Affinity's iDeal system once a proposed merger between Dime and Hudson United was complete; the banks have since canceled their merger agreement.
Mr. Gillis said that he has been asked to testify as an expert witness in 15 similar cases over the past eight years. Most of the cases were settled out of court, he said.
"Vendors work hard to earn revenue, and the last thing they want to hear is that it's over next month," he said.