Banks are still doing more talking about new technology than buying it, forcing large vendors to rely on existing work to sustain financial performance.
"Although there is a sense that the sector outlook has started to stabilize, we do not yet see that headline turning into any material change in current-year buying behaviors," Fiserv president and CEO Jeff Yabuki told analysts during a recent discussion of the vendor's second quarter earnings. Yabuki and Lee Kennedy, Fidelity's president and chief executive, both say a rebound is unlikely until 2010 at the earliest. "Everything we have seen in our conversations with our top-tier banks is that sometime toward the end of the year, as we roll into next year, we will see an improvement," Kennedy says.
Fiserv, Fidelity National Information Services and Metavante reported decent second quarter earnings. Fidelity's annual revenue fell four percent to $834.8 million, but Metavante's revenue grew four percent to $440.3 million. Fiserv's revenue fell 20 percent to $1.03 billion, but part of that reflected the sale of its insurance division. Its net income grew 40 percent to $140 million.
But the relatively solid performance is due largely to new cost-cutting and old deployments. David Koning, an analyst at Robert W. Baird & Co., says the firms derive much of their top line from service fees from ongoing contracts to provide core processing and payments services to small and midsize banks. "Even struggling banks that are undergoing regulatory actions are still paying their bills to Fiserv, Fidelity and Metavante because they have to, to survive," Koning says. "Even after the FDIC takes over a bank, they still have to maintain their operations."
But tech spending isn't entirely dead. PNC recently agreed to convert National City's online bill payment to Fiserv's. And vendors may have additional growth in the next few quarters as outsourcing increases. "There's an increasing propensity for banks to want to outsource rather than to do things internally, and that is being accelerated because of the current environment," says John Kraft, an analyst at D.A. Davidson. "They've got other priorities right now."