Technology vendor Fiserv Inc. is making a bold move to bolster its digital payments arsenal by shelling out $465 million to buy the smaller technology company CashEdge Inc.
Fiserv said Wednesday that the deal, which it expects to close by September, would help it compete for bank clients, particularly in the growing market for online person-to-person payments.
"We think this market is going to move fast and the ability to make sure we have the best technology and the best people to deliver that technology is most important," Jeffery Yabuki, the president and chief executive of the Brookfield, Wis., vendor, said in an interview.
CashEdge, of New York, has 500 clients for its various invoicing, account aggregation and payments software programs. Its Popmoney person-to-person payments software, first deployed in January 2010, is in use by 200 banks and competes directly with Fiserv's ZashPay, which debuted in the middle of last year. More than 730 banks and credit unions have agreed to offer the service as of March 31, according to a Fiserv spokeswoman.
Fiserv's technology portfolio includes core processing systems, online banking platforms, bill payment tools and mobile software sold mostly to small and medium-sized financial institutions. It was attracted to CashEdge for several of its platforms that Yabuki said would "enhance our Internet banking and eventually our mobile experience," including programs for opening and funding new bank accounts online and transfering money between accounts. CashEdge's AllData aggregation technology, which wealth managers and financial advisors to view their clients' various accounts at once, was also appealing, Yabuki said.
While Fiserv has account-to-account transfer tools, CashEdge has a "much more sophisticated" transfer platform that is used by many of the 30 largest financial institutions.
Yabuki, however, stressed the opportunity to grow its person-to-person, or P-to-P, services as a driver.
An October report from Aite Group LLC found that U.S. households performed more than 11 billion P-to-P payments worth more than $865 billion in the last year.
Ron Shevlin, a senior analyst with Aite Group, said the acquisition could strengthen Fiserv's P-to-P platform, allowing for "a much tighter integration" with its online banking and core banking applications.
CashEdge and Fiserv have marketed their payments systems as a way for banks to compete against the dominant person-to-person payments provider, PayPal. Many bankers view the eBay Inc. subsidiary as a threat to their own services, though PayPal in the last year has been pushing to deploy its transfer services through banks.
The vendors' efforts to capture a bigger share of the P-to-P payments market also face competition from a bank-owned joint venture announced in May called clearXchange. The initial owners of the service are Bank of American Corp., Wells Fargo & Co. and JPMorgan Chase & Co., which are first making the service available to their own customers but plan to offer it to other financial institutions.
Analysts have said the venture could steal bank clients away from CashEdge's Popmoney and Fiserv's ZashPay services, though Yabuki said he does not view clearXchange as a threat.
"I believe that the more people who are exercising their opportunity to engage in electronic P-to-P [payments], the better," Yabuki said.
Andrew Jeffrey, an analyst with SunTrust Robinson Humphrey, said he is skeptical of the long-term viability of bank-owned technology consortiums like clearXchange because of past history of similar ventures. However, he still questioned Fiserv's plan to buy CashEdge.
"It has me scratching my head a little bit," Jeffrey said. "Either in my mind Fiserv decided that ZashPay wasn't sufficiently robust or that Popmoney is that much better that it was worth acquiring. I realize CashEdge has other functionality in addition to just the P-to-P piece. My sense is that P-to-P is kind of the crown jewel of their technology portfolio and it seems a little bit duplicative."
Yabuki said the acquisition is not being done because ZashPay lacks features, though he noted that CashEdge has been a leader in money transfer and P-to-P services.
"They've built out their roadmap very well," Yabuki said. "They're multiple generations ahead of anyone in the market, including us. That will allow us to bring a far more advanced set of capabilities to our clients."
Yabuki added that CashEdge's management team has "been living and breathing this at a degree we think is really important for growing this solution."
Fiserv plans to evaluate the components of the companies' respective P-to-P platforms and make decisions on which pieces to keep in the future.
"We think that ultimately the winning strategy is a single network strategy," Yabuki said.
Fiserv has made several acquisitions in recent months. In March, it announced deals to buy three smaller technology vendors for an undisclosed amount to expand its mobile banking, prepaid and other offerings.