Deluxe Data Corp. lives by the adage that timing is everything.

In recent years, the Wisconsin-based electronic banking processor and software provider has demonstrated an uncanny knack for identifying and seizing the right moments to make business decisions.

Last year, for example, Deluxe relocated one of its data centers from Los Angeles to New Berlin, Wis., only a few months before an earthquake rocked Southern California.

A few years before that, Deluxe made an even more timely move when it recognized the need to diversify its business in the face of a sea change in the types of services demanded by its customers.

Adjusting to the Market

Once almost exclusively a provider of transaction switching and related services for regional automated teller machine networks such as NYCE, Star, and Yankee 24, Deluxe has expanded its software and government services businesses as demand for network processing services has waned.

With that repositioning nearly complete, Deluxe is focusing more directly on marketing its broad range of services.

"Our vision from here on is to move from a technology-driven company to a sales- and marketing-driven company," said James E. McGowan, an International Business Machines Corp. veteran, who took the helm of Deluxe as president in September 1993.

"It's a change that's necessary - not for survival, but certainly for continued growth," he added.

Lifesaving Steps

Despite Mr. McGowan's statement to the contrary, many in the industry believe that Deluxe, which is owned by Deluxe Corp. of St. Paul, would be struggling for breath now if not for the changes in strategic focus made in the last few years.


The company represents a diversification move by its parent, better known for its sizable check printing business. In the 1980s, Data Systems had weighted its activity strongly toward transaction processing for regional electronic banking networks. The vast majority - 82% of the company's sales revenues in 1986 - came from processing deals with such compaines.

"Deluxe would have a tough time growing or even just surviving as a business if it relied on switching transactions as heavily as it had in the past," said Richard Speer, chairman of Speer & Associates, a consulting firm based in Atlanta.

Consolidation Trend

At the time, this business was a lucrative one, with good margins and the prospect of millions of new transactions from consumers who were just warming to the idea of banking through ATMs.

Although the number of consumers using ATMs continued to grow, other changes in the electronic banking industry combined to persuade Deluxe to reconsider its strong reliance on revenues from network services.

Primary among these forces was the consolidation of regional networks.

In the late 1980s, around 150 networks dotted the map of the United States. As the financial institutions that owned most of these companies grew weary of maintaining multiple network relationships, mergers between networks became common.

In less than a decade, the number of regional networks has dropped to a little over 50, and the consolidation continues. Meanwhile, the number of electronic transactions continues to expand.

Outsourcing Is Out

The result of these trends is that many of the remaining networks have enough transaction traffic to justify purchasing and operating their own processing systems rather than outsourcing to Deluxe or others.

Deluxe anticipated these developments and adjusted adroitly, according to customers and industry observers. Today, network processing services account for only 27% of sales, but the reduced reliance on this business did not significantly hurt overall revenues. These grew by 15.4% last year and have expanded by an average of 9.95% annually over the last four years.

"They are shaping up as a strong partner, stronger than they've been in the past," said Steven Rathgaber, senior vice president of New York Switch Corp., Hackensack, N.J., which uses Deluxe software to operate the NYCE electronic banking network.

New Opportunities Sought

As part of its diversification, Deluxe has organized itself into four basic business units: processing, facilities management, software, and professional services.

The processing unit is the home of many of the network services that are still an integral part of Deluxe's business. But of growing importance within this unit are other services provided to individual banks, such as ATM driving and gateway links to networks.

Along with expanding business with traditional customers, Deluxe is looking for processing opportunities in emerging markets, such as government services.

Specifically, it hopes to be a significant player in electronic benefits transfer, in which government benefits, such as welfare and social security, are delivered through ATMs and point of sale terminals.

"We see value in diversity," said Paul Schmelzer, vice president of marketing at Deluxe. "We aren't reliant on any one business or service, and that makes us a lot more stable than we were before."

Deluxe plans to expand the range of banks using its electronic banking software.

In the past, the company targeted only top 100 banks, but it now hopes to attract institutions with $1 billion to $10 billion in assets with an adapted version of its Connex software.

To retain networks that have taken processing in-house as software clients, Deluxe is upgrading its network software. NYCE is the most recent example of a network taking control of its own processing. Connecticut-based Yankee 24 plans to leave Deluxe as a result of a pending merger with NYCE.

Personal Crusade

While the diversification of services is important to Deluxe's survival, Mr. McGowan points out that the services must be effectively marketed if Deluxe is to prosper.

As such, marketing is his personal crusade. And while he admits that Deluxe's sales force could use some more training, Mr. McGowan has reason to be pleased - in 1993 revenues were up more than 15% from the previous year.

"Is everything perfect? Absolutely not," he said. "Do we still have some holes in our overall organization? Absolutely.

"But what we're able to do now is to know our objectives, to know where we want to be. Now we can fine-tune the organization to take better advantage of that knowledge."

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