In its most detailed look yet at its plans for incorporating CheckFree Corp., Fiserv Inc. said that it is considering offering a scaled-down version of the Atlanta vendor's bill payment technology to appeal to small banks.
Jeffery W. Yabuki, Fiserv's president and chief executive, said at an analyst day presentation last week that almost half his Brookfield, Wis., company's 6,000 core processing clients - predominantly small banks, thrifts, and credit unions - do not even offer bill payment to their depositors.
Some banks are still weighing the appeal of bill payment as a way to attract and retain customers against the expense of providing the service, he said. "Smaller-tier banks may not want all the capability that CheckFree has. Bill payment is really early in adoption."
Executives would not say whether they planned to integrate CheckFree's capabilities with those of Fiserv's PayTraxx bill-payment service, which is used by nearly 500 of the financial companies that use its core processing software.
However, Mr. Yabuki said that PayTraxx is a very small part of his company. "The small amount of revenue we're getting today from bill pay is a rounding error."
Fiserv agreed in August to buy CheckFree for $4.4 billion. The cash deal is expected to close this quarter, and Mr. Yabuki said that one issue yet to be decided is whether to change CheckFree's name.
"We don't know yet how we're going to brand those things," he said. "The CheckFree brand has a lot of equity."
He reiterated that his company expects $100 million of annual savings and $125 million of "revenue synergies" from the purchase.
"In general, we're pleased with what we've done here," Mr. Yabuki said. "We do believe CheckFree will be accretive" from the first year.
Thomas Hirsch, an executive vice president at Fiserv and its chief financial officer, projected that CheckFree would contribute $305 million to $321 million to its operating income next year, boosting cash earnings by 23 to 37 cents a share. "The economics of this transaction are very compelling today and will be for the long term," Mr. Hirsch said.
Executives said falling interest rates are likely to reduce Fiserv's cost in closing the deal, though the spasm in credit markets has cut into its home equity lending business, so its adjusted earnings from continuing operations for this year will come in at the low end of its expected range of $2.74 to $2.82 a share.
Analysts said Fiserv's projections were stronger than they had anticipated.
Several analysts asked Mr. Yabuki about the prospect that Bank of America Corp., CheckFree's largest customer, might take all or part of its bill-payment activity in-house, but he downplayed the risk of a defection.
"We accounted for what we believe will happen with the larger-customer base," he said, without mentioning the Charlotte company by name. "We're comfortable that the economies we can create will justify the purchase price."
But bankers should be wary about the operational challenges of operating a bill-payment system, Mr. Yabuki said. "This is a fairly complicated piece of technology."
The system has to deliver payments to the right place, on time, while being able to handle dispute resolution, he said. "Bill-payment services have to make the institution look better to the client."
(A B of A spokeswoman would not comment.)
The opportunity for Fiserv and the banking industry is still large, according to Mr. Yabuki. He presented statistics showing that 70 million of the nation's 112 million households have access to the Internet at work or home, but only 36 million bank online, and just 13.4 million are paying any bills online - two-thirds of them through the nation's 25 largest banks.
Tien-Tsin Huang, an analyst at JPMorgan Securities Inc., upgraded Fiserv to "overweight" after the meeting, remarking in a note to clients that the addition of CheckFree should accelerate Fiserv's growth.
"We view the pending CheckFree acquisition as a very compelling transformational deal for investors," Mr. Huang wrote. "In our view, CheckFree not only enhances Fiserv's growth, but also serves as a catalyst to change Fiserv's culture and story from being a siloed bank technology roll-up to a more integrated core processor with real payment assets to cross-sell."
Daniel R. Perlin, an analyst at Wachovia Securities Inc., wrote in a note that he "came away feeling slightly more positive on the recent CheckFree acquisition, still moderately concerned about the slowdown in mortgage processing volumes, and unconvinced that its insurance segment organic growth will rebound anytime soon."
Mr. Perlin has an "overweight" rating on the stock.
