Banks should expect more one-stop shopping for their technology needs in the future.

Vendors that serve the banking industry will keep buying other firms to round out their product offerings, industry experts say. Specifically, expect to see more consolidation in the payments space and among companies that provide lending-related products.

Bankers continue to fret about consolidation's effect on pricing, but most realize that working with fewer vendors could reduce time spent on due diligence.

"Larger companies are looking to acquire technology and fill in their gaps," says Trent Fleming at Trent Fleming Consulting, who expects mergers in areas such as mobile banking and document imaging.

Last year was an "average, lackluster year" for tech vendor deals, with the exception of a few headline-grabbing transactions, says Michael Krall of Krall & Co., an investment bank that provides M&A advisory services to financial technology companies.

These bigger deals included Fiserv (FISV), the third-largest provider of financial services technology on Bank Technology News' FinTech 100 ranking buying Open Solutions, a smaller provider of core banking software. Davis + Henderson, a Canadian financial services technology developer, bought Harland Financial Solutions, the fourth-largest provider of core banking systems in the United States.

Pricing for tech deals remained strong, especially when a buyer had "plans to sell a small company's technology into its own large customer base" or wanted to consolidate within its field, Krall says. Private equity has even placed high values on financial technology companies, he says.

It is unlikely that this year will see many significant deals, especially in core processing, say industry experts who note that this area has already been heavily consolidated.

"You've seen the last of the big blockbuster mergers of core vendors," says Terence Roche, a principal at Cornerstone Advisors. "What happened for most of 2013 was a fill-in acquisition strategy, with one vendor acquiring another who had a complementary product. This year might be a lot like 2013."

Core processors, which completed a number of acquisitions in the last decade to fill out product offerings, have a "nice complement of ancillary services," Krall says. They will continue to "make additions along the edges, but a lot of consolidation has happened" for these firms, he says.

D+H executives wouldn't have predicted making such a significant acquisition last year though they constantly meets with other firms, says William Neville, president of D+H USA. These talks are not limited to mergers; some focus on partnerships, he says.

Consolidation among tech vendors will likely focus more on larger players buying smaller firms that have developed innovative technology but lack the distribution channel to widely reach banks, Neville says. "Acquisition growth will always be part of our agenda but we are focused on organic growth," he says.

Last year, there was some activity among tech companies that provide lending products, industry experts say. Many of these firms have carved out an expertise for themselves and are looking to expand their capabilities and market share.

For example, Optimal Blue, a web-based provider of product eligibility and pricing engine technology, or PPE, bought its largest competitor, LoanSifter, in December. (PPEs allow loan originators to search for loan products in a database. They also determine an applicant's eligibility and provide real-time adjusted pricing.)

Optimal Blue should be able to expand its client base, cut costs and increase its capabilities within the PPE arena, industry experts say. The deal should also give the company an opportunity to make greater investments in product development.

"We're beginning to see a number of vendors who are going to say they compete on loan originations or new account opening or on an entire payments suite," Roche says. "It's interesting that these noncore vendors are saying they will be all things" in their field of expertise.

The regulatory scrutiny banks face managing vendor relationships is also driving consolidation, says Brian Fitzpatrick, president and chief executive at LoanLogics, which was formed by the merger of Aklero Risk Analytics and NYLX. Banks must complete upfront and ongoing due diligence of a vendor's security measures, financial stability and policies. Due to these requirements, many banks can benefit from working with fewer vendors.

"Why would banks vet five... providers when they could vet just one?" Fitzpatrick says. "Banks need to control the number of vendors they're working with."

Because of the "deeply scrutinized" nature of third-party relationships, a bank should typically start with its core processor "to see if they have a product that will work," says Tamara Gurney, president and CEO at Mission Valley Bank in Sun Valley, Calif. If that works out "then you have already crossed some hurdles."

Limiting the number of vendors a bank works with also gives management "one throat to choke," if something goes wrong, Gurney adds.

Regulators are paying more attention to loan origination, processing, underwriting and servicing, Fitzpatrick adds. Having fewer vendors inserted in the process can make sure that processes run more smoothly and compliance requirements are met.

Still, the potential for increased pricing remains a concern for bankers as their choices diminish, Fleming says. A bank may also become disappointed if its preferred product is discontinued by an acquirer after a deal closes.

Finally, more consolidation is likely to take place in the payments sector, industry experts say. Consumers are increasingly looking for services such as person-to-person payments and remote-deposit capture, making this technology more important to banks.

So banks are looking for vendors that can provide traditional payments processing, like checks, along with new services, says Bill Zayas, D+H USA's chief operating officer.

Providing these services can make a bank more attractive to customers, says Sam Kilmer, a senior director at Cornerstone. This can translate into more business for the bank, better client retention and, assuming the bank properly markets its debit card, could indirectly lead to higher interchange revenue, he adds.

"Historically banks have owned the payments channel," Zayas says. "Over the last several years, nonbank providers have jumped into it. That takes away from the value proposition a bank provides to its customers. We, as service providers to financial institutions, have to make sure we provide this total proposition to banks."