With new rules likely to cut into banks' fee income, Fiserv Inc. is betting that financial companies will be more interested in technology that can spur customer adoption of online services and cut their costs.
"Given all the pressure that is on the financial institutions because of some of the regulatory reform, we're seeing more and more people try to capture the potential of the digital channel," Jeffery Yabuki, the vendor's president and chief executive, said in an interview Wednesday.
"By far the Internet channel is the lowest-cost way to interact," Yabuki said. Research shows that online consumer transactions are as much as 15 times cheaper than in-branch, teller-based transactions, he said.
Fiserv, of Brookfield, Wis., says demand for its bill-pay services is increasing. It reported Tuesday that bill-payment transactions rose 9% year over year in the second quarter, to 348 million, while the number of electronic bills that were delivered rose 2%, to 82 million.
Fiserv also said ZashPay, the person-to-person payments service it rolled out in the quarter, is gaining traction. More than 160 financial companies have agreed to offer the service to their customers as of the end of the quarter but Yabuki would not name any of them or say how many transactions have occurred on the network.
More than 250,000 people have registered for ZashPay, and he said banks could charge a fee for it.
Concern about the rapidly changing regulatory environment continues to prevent banks from investing full force in new technology. But with the Dodd-Frank Act signed into law and new rules coming, banks likely will increase their tech spending, Yabuki told analysts during an earnings conference call Tuesday.
"I am pleasantly surprised by the kinds of conversations that are being held out in the market," he said. "At least the idea of IT spending is picking up, and that's a good thing."
Banking executives, he said, "clearly are viewing technology as one of the ways they have to fight or combat" new cost pressures.
At Fiserv and other large banking technology developers, sales plunged during the industry crash as banks diverted money away from IT projects. Fiserv and its competitors have reported a pickup in demand this year for everything from core processing systems to mobile payment software.
Fiserv signed up 157 new electronic bill-payment clients and 58 new debit clients during the quarter, in addition to closing some large deals, including one announced Tuesday in which it will provide online consumer and business banking services to Westpac Group, of Sydney.
John Kraft, a senior research analyst at D.A. Davidson & Co., said he was encouraged by the growth in the bill-pay business.
"The bill-pay sector has been more cyclical than … previously thought," Kraft said. "As the consumer stabilizes, I suspect you'll see those transaction metrics pick up. I think that the banks are becoming more focused on driving people to that channel in an effort to lower branch costs."
Fiserv's revenue for the quarter rose 2.2% year over year, to $1.02 billion. Net income fell to $127 million, or 83 cents per diluted share, from $140 million, or 90 cents per diluted share, a year earlier.
"I do believe that the money that's being spent on technology today is insufficient to serve as the backbone for the financial industry," Yabuki told analysts. "We are going to have to see a step-up in spending."
