Diebold Inc., a company known primarily for its automated teller machines and bank security systems, now hopes to make a name for itself as a provider of payments services.
The seeds of this evolution were planted a year ago with the purchase of a small imaging and automated clearing house service provider, and now Diebold is beginning to tout its capabilities in payments.
“For us to provide capabilities and competencies that expand beyond the ATM is going to be where we’re moving into,” Thomas W. Swidarski, its president and chief executive, said in an interview last week. “Payments is a very important aspect of this, and as people start thinking about imaging, and people start thinking about the outsourcing of those images and the handling of that, we can play a nice role there.”
The move into payments is one of the first strategic shifts implemented by Mr. Swidarski, who became the CEO in December 2005. Five months later Diebold purchased Eras Inc. of Miami for $13.5 million. The unit had revenue of about $5 million in 2006, Mr. Swidarski said.
David Wilson, the president of what is now Diebold Eras, said his unit provides small banks with imaging outsourcing services. These include archiving files, clearing checks by sending electronic cash letters to the Federal Reserve banks, remote capture, and originating ACH payments.
Diebold Eras also produces paper and electronic statements for banks to deliver to account holders.
Mr. Swidarski said that even though such services are relatively new for Diebold, they are an “extension of an outsourcing strategy that we see as core to where we’re taking the company.”
For example, Diebold already installs and operates ATMs for some banks, he said. “They just put their name on it and pay us a transaction fee.”
Until recently, Diebold has not promoted its Eras unit, Mr. Swidarski said. “I didn’t want to acquire a company and overwhelm them.”
Though Eras’ capabilities are “scalable,” he said, the Miami company was small when Diebold came along — just 50 to 60 employees — and he knew his company could not transform it into a huge operation overnight. “We wanted to study it, understand it, and then begin moving it into other regions of the United States.”
Gil B. Luria, an analyst for Wedbush Morgan Securities, said that Diebold is starting to make a big deal out of Diebold Eras, including giving it a prominent place at the parent company’s booth at the Bank Administration Institute’s TransPay conference last month.
Diebold already has “some of the most established relationships with banks of anybody,” he said. “So why not get into selling them this kind of product?”
Revenue from payments services could offset U.S. banks’ lower spending on ATMs, Mr. Luria said.
The remote capture service offers perhaps the most potential for Diebold, he said.
The market for the service, in which merchants are provided with scanners to convert checks into images and send them to the bank electronically for deposit, is “very fragmented” and has “no real established players,” Mr. Luria said. “They might as well throw their hat in the ring.”
Mr. Wilson said Eras, which was established in 1988, initially developed software such as signature verification tools. It moved into imaging in 1995 and expanded its payments capabilities in 2004 when the Check Clearing for the 21st Century Act took effect.
“Before Check 21 we could do check imaging, but we could not clear the item by image,” he said. “When Check 21 passed, instead of sending a paper cash letter to the clearing house, we could send an electronic cash letter.”
Yvonne Varano, an analyst with Jefferies & Co. Inc., said the efforts in payments likely will be a better fit for Diebold than the 2002 acquisition of the voting machine company Global Election Systems Inc. Numerous press reports have questioned the machines’ security and accuracy, and Diebold says it is evaluating whether to sell the unit. (A decision is expected next month.)
Processing image payments is a “logical extension of what they’re currently doing in the serving area for ATMs,” Ms. Varano said. “I don’t think you have the political overhang or headaches in payment processing that you did with elections.”
