Fiserv Invests Heavily in Payments Services

It's show time for Fiserv.

Now that the vendor has plowed resources into developing a person-to-person payments service and acquiring smaller mobile banking and prepaid technology providers, analysts are challenging the vendor to make these investments pay off.

"There are a number of companies out there that are making aggressive mobile and P-to-P pushes," said Andrew Jeffrey, an analyst with SunTrust Robinson Humphrey. "The question becomes if you're Fiserv and you're making these investments, what's your confidence level in the" return on investment?

Fiserv executives, not surprisingly, are bullish on the likelihood that their investments will bear fruit, noting they already have had success in adding banks and credit unions as clients for services such as ZashPay, the P-to-P payments network it started last year. During a conference call about quarterly earnings on Wednesday, they said banks' interest in payments technology is high.

"Recent investments in new technology solutions, such as ZashPay and Mobile Money, while enhancing differentiation with our clients, are not yet providing Fiserv with any material revenue," Jeff Yabuki, the president and chief executive of the Brookfield, Wis., vendor, said during the call. "Based on our current view, we anticipate that these investments will begin to generate measurable organic revenue later this year and have strong momentum into the foreseeable future."

John Kraft, an analyst with D.A. Davidson & Co., said that prediction might even be conservative. "When [Fiserv] talks about seeing the fruits of their investments, I think they've seen it. I think they're already seeing it," Kraft said. "It's fair to say that the company now is an innovative leader in some of their products rather than a follower."

Analysts agree that Fiserv, as well as many of its competitors, has the necessary pieces to address financial institutions' emerging technology needs. Many have worked over the past year to integrate features such as remote deposit capture, bill payment and money transfers into their mobile banking platforms.

Fiserv last year began selling ZashPay, which allows consumers to send money to each other using a mobile phone number or email address. To expand the service, it struck a deal with Visa Inc. to allow card-to-card transfers.

In March, Fiserv bought Mobile Commerce Ltd., a mobile banking software company it collaborated with to develop its Mobile Money platform. In an interview on Thursday, Yabuki said the acquisition has helped to better align the two companies' strategies.

"The big help there is we're completely aligned on what we're trying to do," Yabuki said. "We had a good partnership with M-Com but M-Com was its own company, and they were making decisions around resource allocations that were not always pure to Fiserv and now we're aligned on that."

During the quarter, the company signed 100 electronic bill payment clients and 53 debit clients. It also said 123 new financial institutions agreed to offer ZashPay to their customers, bringing the number of ZashPay clients to more than 730 as of March 31.

While the bulk of Fiserv's clients are small and midsize community banks, Fiserv also is signing larger clients.

Fiserv said it has a deal with U.S. Bancorp for using the Mobile Money mobile banking software, replacing Firethorn Holdings LLC, a Qualcomm Inc. subsidiary that announced earlier this year it was shifting its focus from mobile banking software to a new mobile wallet service.

Yabuki said Firethorn's move has helped open up more "incremental opportunities" to get new mobile banking clients.

A spokeswoman for the Minneapolis banking company said that by yearend Fiserv will be providing it with applications, mobile browser and text-based banking. Fiserv already provides its online banking and bill pay services.

U.S. Bancorp also works with the vendor Fidelity National Information Services Inc., which provides it with mobile remote deposit capture technology and is working with the bank on a mobile payments pilot involving Visa and DeviceFidelity Inc. The relationship with FIS is not affected by U.S. Bancorp's deal with Fiserv, the spokeswoman said in an email.

Jeffrey, the SunTrust Robinson Humphrey analyst, wrote in a research note published on Thursday that he is "not convinced that … [Fiserv's] technologies will meet with near-term mainstream adoption."

But the fact that the company is also making investments in the prepaid card business, a segment that analysts say is ripe for expansion, is positive, Jeffrey said. "I'm a big believer in prepaid."

In addition to buying M-Com in the quarter, Fiserv also bought Maverick Network Solutions Inc., which manages prepaid and reward card programs. Those two acquisitions, along with the purchase of Credit Union On-Line Inc. in the quarter, which performs outsourced account processing for credit unions, cost the company about $50 million, Yabuki said during the conference call.

Fiserv's first-quarter net income fell 7.4% from a year earlier, to $112 million. Its revenue rose 4%, to $1.05 billion, fueled by a surge in its payments services.