Banks are ready to spend more on technology, but concerns over compliance expenses could keep some of them from moving forward soon with major upgrades.
Tech vendors say financial companies are evaluating various technology initiatives, from mobile and bill-pay applications to updating their online banking sites to overhauls of their core systems.
Many of these projects were put on hold during the economic crisis, and some are under already way, according to Fiserv Inc. and Fidelity National Information Services Inc.
The two banking technology vendors both reported healthy earnings last week and said their deal pipelines are starting to fill up quickly.
However, legislation limiting or eliminating debit card overdraft fees and credit card fees has many bankers worried, some to the point that they are disinclined to invest heavily in projects that can take months to years to finish.
"I see it diverting resources," said Quintin Sykes, a managing director with Cornerstone Advisors Inc. in Scottsdale, Ariz. "Instead of working on something — trying to improve my customer experience or enhance my delivery channel — I'm focused on CARD Act, I'm focused on Reg E, I'm focused on all the regulatory changes."
"It's a huge wild card and it makes it a pain to do technology planning both for the client and the vendor," he added.
The regulations, however, also could create new revenue opportunities for vendors that are able to help their clients address the changes.
Greg Smith, a managing director with Duncan-Williams Inc., said the Credit Card Accountability, Responsibility and Disclosure Act of 2009 and changes to Regulation E, specifically, could prompt more banks to outsource some functions to third parties in an effort to increase efficiency.
However, "by the same token, if the banks are losing revenue they may be more hesitant to spend on a big up-front software license, so that can delay other things," Smith said.
Peter Redshaw, a research vice president in London who follows bank outsourcing trends for Gartner Inc., said the changes have focused bankers to pay more attention to their risk management systems.
But since it is not clear what the full impact of the new laws will be for financial companies, it is "difficult to rebuild your risk management system right now," Redshaw said.
Fiserv, whose first-quarter revenue fell 1.5%, has retooled its specialty consulting business over the last six to nine months to help clients focus on new regulations, its chief financial officer, Tom Hirsch, said Thursday during an earnings conference call with analysts.
The Brookfield, Wis., vendor's first-quarter sales fell slightly, to $1.01 billion, from $1.02 billion a year earlier.
Lower administrative and product costs contributed to drive up Fiserv's net income 17.5%, to $121 million.
The combination of increased sales and a focus on cost efficiency should help Fiserv's performance continue to improve throughout the year, Hirsch said.
Jeffery Yabuki, Fiserv's president and chief executive, said he expects the regulatory actions to have a "neutral" long-term effect on his company's sales.
Fiserv and Fidelity both said they expect growth to accelerate in the second half. The two tech vendors noted that they are in various stages of contract negotiations with financial companies for both discrete projects like bill-payment products, and more extensive, system-wide initiatives, including core platform upgrades.
"We are seeing quite a bit of demand on the core processing front," Gary Norcross, executive vice president and chief operating officer at Fidelity, said last week during the Jacksonville, Fla., company's quarterly earnings conference call.
"It's not totally surprising for us but it is a little more demand on core processing than what we expected," Norcross said. "I think a number of our clients are looking to improve their foundational elements, putting in the next generation of technology to be able to take share in this market."
Fidelity said its revenue rose 57.4% year over year, to $1.25 billion, helped by its October acquisition Metavante Technologies Inc..
Fidelity reported a net profit of $93.6 million for the three months, versus $33 million a year earlier.
