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The attempt by large banks to impose debit card fees wasn't just about wringing a bit of extra revenue out of existing customers. It was an effort by Bank of America and its competitors to rework their basic retail account business model.
October 31
Bank of America Corp.'s decision to drop its controversial debit-card fee may have come too late to retain some accounts, as many big-bank customers have begun defecting to smaller banks in protest over various fees.
Bank of America's short-lived plan to charge a $5 monthly debit fee surfaced only at the end of the third quarter. But similarly unpopular pricing changes at large banks had upset customers enough to motivate them to take their business elsewhere during the quarter, according to Fidelity National Information Services Inc., the vendor known as FIS.
"We saw a spike in our new-account openings [at community banks] due to some of the fee generation tactics that the large financial institutions put in place," Gary Norcross, the executive vice president and chief operating officer of FIS, said during a conference call Tuesday to discuss his company's third-quarter earnings.
Norcross said FIS has benefitted from smaller banks outsourcing both core banking and payment transaction processing to its payments business.
For the quarter, FIS, of Jacksonville, Fla., reported net earnings attributable to shareholders rose 8% to $145.4 million from $134.3 million for the same quarter a year earlier.
FIS reported revenue for the quarter of $1.43 billion, an increase of 4.3% compared to the same quarter a year earlier.
While FIS does significant business with smaller banks, it also provides a range of services to larger banks, analysts say.
"When a big player like FIS says its smaller banks are growing accounts, it means its larger banks are losing accounts," says Lee Kyriacou, a partner with the consulting firm Novantas LLC in New York.
FIS is benefitting from an industry-wide outsourcing trend domestically and abroad, Kyriacou says.
But as larger banks continue to consolidate, FIS will also find it competes with them for core processing and transaction payment services, Kyriacou says.
Norcross agreed.
"As you move up in size, our largest single competitor in the large financial institutions is the in-house developed software," Norcross said during the call.
FIS reported international revenue increased 49.3% to $298 million.
In 2010, FIS entered into a joint venture with Banco Bradesco S.A. to process its portfolio of 14 million bankcards.
FIS reported it owns a 51% share in the joint venture, called Fidelity Processadora e Servicos S.A.
Its acquisition, also in 2010, of global technology consultancy Capco, of Antwerp, added to revenue it earned from its European operations.
"The continued strong performance is due primarily to higher card-processing volumes in Brazil as well as growth within Capco's European business, which continues to perform very well," Mike Hayford, FIS' executive vice president and chief financial officer, said during the call.
