Fiserv Inc. is betting that its equity investment in a vendor management company with a roster of minority-owned suppliers will help it win contracts from large banks with targets for "diversity" spending.
The Madison, Wis., banking technology and outsourcing provider said last month that it had purchased a 35% stake in Urban Settlement Services LLC, a Pittsburgh provider of title, appraisal, and closing services to home lenders.
Like other vendor management companies, Urban does some of the work itself but farms out the rest. Either way, money spent through Urban can help banks reach diversity goals, because its founder and majority shareholder, Charles Sanders, is African-American.
"Many of the large banks have diversity goals they have to meet," said Jeff Seymour, a marketing director with the fulfillment division of Fiserv's lending solutions group. "Urban gives them the ability to do that and gives us the ability to offer products through Urban."
Lenny Springs, the supplier diversity director for Wachovia Bank, said that at major corporations, "most contracts today stipulate that some part of the business has to be subbed out" to a minority-owned company. "If any company has an active supplier diversity initiative, those companies are requiring a percentage of the spend go to minority companies."
Banks employ people to work with current and prospective minority suppliers, so that the bank is spending money with minority-led or -owned firms, and the bank employee's work has evolved into providing things like "technical assistance," Mr. Springs said.
At Wachovia Corp., "we make sure that from the standpoint of strategic sourcing and procurement, minority-owned firms are offered opportunities to participate," he said.
He called Fiserv's investment in Urban an especially "smart thing to do, because they know that when they work with Wachovia and other major companies" with diversity spending programs, "they can say they work with a minority company." A client "can know that Fiserv is committed to supplier diversity," and the company "will have a better opportunity to get a contract" that stipulates minority spending.
Urban competes with Fiserv's lending solutions group for settlement services work, but Mr. Sanders said his firm, by virtue of being part-owned by Fiserv, could get work "on a secondary basis" from the technology company.
"Fiserv may bid on a product - say, all the lien protection work for a bank," he said. The contract likely would require that 10% of the work be allocated to a minority company, and Fiserv "would hire us to do some portion of that work."
Peter Maglaris, a contract compliance officer for the fulfillment services division of Fiserv's lending solutions group in Rocky Hill, Conn., said, "For the clients where minority business is important, it's certainly an advantage to be able to go in with a well-known minority company as either your business partner or a subcontractor" in the bidding process. "It certainly wouldn't hurt if that's what's important to that client."
The National Minority Supplier Development Council Inc., a group that connects such suppliers with corporations, divides spending on minority firms into two tiers: Tier 1, for money spent ordering products directly from minority suppliers; and Tier 2, for business subcontracted to minority firms. Companies usually have targets for each tier as a percentage of their overall procurement.
Ordering an appraisal from Urban would count as Tier 1 spending; subcontracting such a job through Urban or Fiserv to a minority-owned business would count as Tier 2.
Mr. Sanders, a former professional football player, has worked in settlement services for 11 years. He founded Urban in 1998 while working at ValuAmerica Inc., a Pittsburgh vendor management company. In 2000 he committed himself to his company full-time.
Mr. Sanders said that getting major contracts with companies like Bank of America Corp., Wachovia, and PNC Financial Services Group Inc. "put me on the map with the Fiservs of the world." Teaming up with Fiserv, "a larger prime vendor," has given his company "the potential … to have the capacity, research, and products to be a prime vendor."
Access to Fiserv's stable of vendors has let him expand his database of vendors fivefold, to more than 30,000; take his business national; and price his services more competitively, he said.
Fiserv's technology has also enabled his firm to do things like title searches online, vastly speeding up turnaround time, and Urban can use Fiserv's licenses to offer title insurance in all 50 states, Mr. Sanders said.
Urban handles 120,000 settlement transactions a year, but he said his new Fiserv contacts will let him triple that figure next year.
Besides making money, Mr. Sanders said, he had another motivation for founding Urban.
"I want more minorities to get involved in the settlement business," he said. "There is no major barrier to get into the business. You don't need a doctorate degree. All we do is provide back-office [work] for banks making loans to people."
Since more and more homebuyers are Hispanic or African-American, "it's very important to me that if we are going to be buying, we should participate in the business part of it," Mr. Sanders said. "Like any industry, only good comes out of inclusiveness."
