As other data processors seek to expand their business prospects by investing in electronic bill presentment and payment, Fiserv Inc. is exploiting a low-tech opportunity: helping banks wring savings from the old-fashioned handling of paper money.
The Brookfield, Wis., company is seeking U.S. bank partners to form a company that would manage large-scale cash handling operations. The company would be designed based on a five-year-old venture Fiserv has with Canadian Imperial Bank of Commerce called Intria Inc., which handles back-office check and cash processing for Canadian clients.
Fiservs cultivation of paper processing stands in stark contrast to the activities of some of its competitors, which recently have made acquisitions aimed at broadening their capabilities in electronic bill payment and presentment. Fiservs Wisconsin rival, Metavante Corp., announced a definitive agreement to buy Cyberbills Inc. last Tuesday, and Princeton eCom bought Quicken Bill Manager, Intuit Inc.s electronic billing front end, on May 16.
A Fiserv spokesman said the company has not ruled out making acquisitions in EBPP but no deals are on the table.
Fiserv sees opportunities elsewhere.
Everybody talks about how the whole world is going electronic, said Ken Acheson, president of Fiservs item processing division. All I know is this: Cash doesnt seem to go away. Theres more cash being processed each year, and it needs to be handled.
Fiservs Intria venture has 11 cash-handling plants across Canada that take in deposits and sort cash so that banks need not handle the task on their own or farm it out to small-scale operators. In Intrias model, cash moves directly from a banks corporate clients to the cash factories.
Intria has 14 bank customers, including two of Canadas top six CIBC and Toronto-Dominions TD Canada Trust and it processes cash on behalf of hundreds of corporate clients.
The main goal, from a banks point of view, is to take the expense center out from the bank and transform it into a lower-cost operation, Mr. Acheson said.
A bank can shave about 20% from the cost of handling money, Mr. Acheson said. In addition, co-owners of the venture could turn a nonearning asset on their books into a lower-cost performer and an earning asset, he said.
Robert M. Kelly, vice president of national operations services at CIBC, said Intria has been tremendously successful in signing up customers. He would not disclose the fees it charges but said it has certainly been a worthwhile investment. In addition, CIBC has had cost savings of 10% to 15% for its own paper processing.
CIBC used to handle cash in-house, Mr. Kelly said. We used to think we did it reasonably well, but in terms of the technology investment for it to be done right on an ongoing basis, you need to have the critical mass. Through economies of scale, you can improve unit costing.
Mr. Acheson said, We believe this kind of business isnt banks core expertise. Most banks today concentrate on acquisition strategies and customer traction, and the last thing they need to worry about is check processing, back-office processing, or cash handling. We can do all of that for the financial industry.
Fiserv has been hesitant to approach new types of business like electronic billing, said Craig Peckham, an analyst at Jefferies & Co. Inc. in New York. They have a dynamite business with outstanding returns on capital and great cash flow, so there is no imperative for them to start playing around in emerging business lines like EBPP, which are more speculative and no one is making money on it right now.
Admittedly, Fiserv is not in the sexiest businesses, Mr. Peckham said, adding, The benefit they get is being the scale provider who can get better margins than competitors who lack that scale.
