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Fiserv Inc.'s deal to buy the software vendor CashEdge Inc. narrows the field of contenders vying for dominance in the growing person-to-person payments space.
June 30
Bank technology provider Fiserv Inc. has positioned itself for a wave of growth in electronic payments.
Though its recent purchase of rival CashEdge Inc. is contributing just a small portion of Fiserv's of revenue today, it expects CashEdge and related business lines to balloon in the coming years as more consumers and small businesses initiate payments through mobile devices and the Web.
"The energy around this is great," Jeffery Yabuki, president and chief executive of Fiserv, said during a conference call to discuss its third-quarter earnings.
CashEdge's Popmoney is a person-to-person payment product that many large banks offer consumers. It competed with Fiserv's ZashPay, which has been more business-focused. Both allow bank customers to make payments to one another using just a recipient's name and email address or mobile phone number.
Fiserv will likely combine the products to better serve the consumer and small business markets, experts say. The Brookfield, Wis., company currently has 1,000 customers for its ZashPay product, Yabuki said.
Fiserv's net income declined 5%, to $127 million, from $134 million in the third quarter a year earlier. Its revenue rose 3.7%, to $1.06 billion, from $1.02 billion a year earlier.
Though Fiserv talks up the payments aspect of its CashEdge acquisition, its immediate revenue from P-to-P is likely to be quite modest, says Peter Heckmann, senior research analyst for Avondale Partners LLC, of Nashville.
Fiserv will get about $60 million in revenue a year from its September purchase of the New York company, although P-to-P will be less than 5% of that, or less than $3 million, Heckmann says. By contrast, ZashPay will add less than $5 million in annual revenue.
A greater percentage of revenue will come from other products that CashEdge offers, such as its account-opening and funding services and account aggregation, Heckmann says. Popmoney is more strategic at this point, he says.
"By combining ZashPay and Popmoney, Fiserv probably has one of the larger footprints of affiliated banks, and we do expect P-to-P payments as a vehicle to grow," Heckmann says.
Fiserv's total revenue from P-to-P should increase to between $10 and $15 million by mid-2012, Heckmann predicts.
PopMoney and ZashPay products could enable banks to increase their revenue by charging a premium for faster payments, Yabuki said.
"We are big fans of the FedEx pricing model," Yabuki said, where consumers pay commensurate with the speed of delivery.
Though Fiserv talks up its newer payments products as differentiators, it is also working to make them a seamless part of a bank's overall payments offering.
"It will be difficult, we think, for consumers to make the differentiation: 'Do I go into bill pay [or] do I go into P-to-P?" Yabuki said.
P-to-P payments may be particularly useful for some small businesses that do not want to collect the greater amount of information needed for automated clearing house or wire transfers, says Steve Ledford, partner for Novantas LLC.
"If you think about these person-to-person transfers as being a complement to other methods like bill payment and purchase cards, they could fill a niche if there isn't a negotiated relationship," Ledford says.
Among core providers, Fiserv offers one of the more comprehensive products and service sets for small business banking, says Christine Barry, a research director for Aite Group LLC of Boston.
"Small businesses place a high value on things that save them time and money and help them operate more efficiently, and they particularly like it when those things are offered as an extension of the online channel," Barry says.
