Despite the poor economy, earnings reports from several technology vendors show that banks remain willing to spend on projects that can save costs in the near term.
Online Resources Corp. and S1 Corp. have each reported quarterly gains that put to rest some concerns that the problems affecting banks would drive down sales of banking technology.
However, the slim profit increase at Jack Henry & Associates Inc. made clear that some kinds of projects, especially the larger ones that may not deliver immediate savings, are not getting the green light from banks.
Matthew P. Lawlor, Online Resources' chairman and chief executive, recognized that industry watchers are carefully analyzing banks' spending trends.
"The concern is this: If the banks catch pneumonia, then perhaps we who serve them will catch cold," he said in a conference call with analysts on Tuesday. "I think this concern is fair."
However, he also noted that banks can sometimes spend money to save money and that some of his company's products "can help our banking clients and help ourselves in dealing with the economy."
By investing in self-service channels such as online banking, banks can reduce their costs while increasing their sales, he said.
Some products have fared better than others, he noted. Banks like the Chantilly, Va., vendor's online collections tool because it helps keep call center costs down while addressing the delinquency problem. In addition, smaller banks are starting to push online bill pay to reduce check processing costs.
"With a weakening economy," banks "will aggressively pursue self-service to significantly lower their cost of delivery," he said.
However, Online Resources' results were also affected by factors including flat remittance volume due to some departing clients.
The company's total revenue rose 27%, to $39.2 million in the first quarter from the year earlier, and its net loss narrowed 62%, to $3.6 million.
Mr. Lawlor's comments echoed those of S1, which reported last week that the poor economy has prompted many banks to examine ways to control expenses.
Johann Dreyer, S1's chief executive, said on a conference call Friday, "Our products do help reduce costs at customers, so when a customer is in a more of a squeeze situation, they tend to turn to automate certain processes."
The Norcross, Ga., vendor, which offers a variety of bank automation products for both large and small financial companies, said this trend would continue to help its sales. It even raised its full-year guidance after just seeing first-quarter results.
Revenue in the quarter rose 15%, to $54.7 million, from a year earlier, and net income rose 75%, to $5.2 million. The company raised its full-year revenue guidance to a range of $220 million to $226 million, from $216 million to $220 million.
Jack Henry, which also sells a diverse range of products and services, said bank attitudes are working both for and against it, depending on the line of business.
Jack Prim, Jack Henry's chief executive, said in a conference call Wednesday that the company had "strong growth in support and services and challenging growth in license fees."
Though its licensing fees grew 20% from a year earlier, this was below the Monett, Mo., core processor's expectations. Adopting a new core processing system is one of the most complex projects a bank can undertake.
The slimmer-than-expected growth in licensing fees hindered Jack Henry's earnings, though Mr. Prim noted that the company had "seen an acceleration in banks' looking to move from our in-house system to outsourced delivery," which generates more recurring revenue for his company over time and can often cut banks' expenses in the short term.
Jack Henry also reported poor hardware sales, driven mainly by slowing demand for check sorters as more banks adopt imaging.
The company said its total revenue rose 11%, to $187.9 million in its fiscal third quarter, which ended March 31, from the year earlier. Net income rose 1%, to $26.6 million.
Edward Woods, a senior analyst at the Boston market research firm Celent LLC, the financial research arm of Marsh & McLennan Cos. Inc.'s Oliver Wyman consulting unit, said the economic slump has not dampened banks' enthusiasm for self-service and electronic payments.
"The story around the value and low cost-of-use continues to resonate," he said. Since people who bank and make payments online are known to transact more, banks have reason to cater to them.
Banks are also interested in bringing in more money through new online services such as expedited bill payments, which can generate fee revenue, he said.
Ron Shevlin, a senior analyst at Aite Group LLC, said that though banks may not be cutting their spending for online banking and bill payment software they may not be increasing it either.
"When we surveyed the online banking executives last year around what their priorities were, the No. 1 business objective for the online channel group … was improving sales," he said. Cutting costs was a low priority, and only 5% to 10% of respondents listed it as key motivation.
Since then, "I'd have a tough time believing all of a sudden there's a huge shift" in that attitude, he said. More likely, "it's a relative factor because of the greatly diminished demand in other areas."
