Bankers have long said they would prefer a comprehensive, integrated technology platform over a fragmented one, and two vendors' earnings reports last week suggest that that desire is indeed directing their tech spending.
S1 Corp. and Open Solutions Inc. reported healthy earnings last week, largely on the strength of their integrated banking suites, which they said are attracting both new customers and repeat business.
The companies say that the sales patterns show that banking companies will spend money on software that can handle a large portion of their needs, especially if it can be implemented easily.
"It's a significant proof point that banks are willing to consider dealing more and more with a single vendor," Jaime Ellertson, S1's chief executive, said in an interview Thursday.
S1's Enterprise platform in-cludes a range of interconnecting modules for personal and business online banking, as well as teller and call-center applications designed to provide a bank with a consistent view of the customer at all points of interaction. Though the Atlanta company introduced the first version of Enterprise in December 2001, it did not fill in the last pieces of the banking technology puzzle until August, when it began offering the third version.
Enterprise has been a key component of S1's sales turnaround in the past year; it reported Thursday that in the fourth quarter it had signed 24 sales deals. Half were to previous customers, three of which bought software for channels where they had not previously been using S1 software.
This year S1 has signed up two new customers: Regions Financial Corp. of Birmingham, Ala., and Sky Bank, a subsidiary of Sky Financial Group Inc. of Bowling Green, Ohio.
S1's fourth-quarter net income rose 489% from a year earlier, to $11.3 million. It posted full-year net income of $15.5 million, versus a $38 million loss in 2003. Fourth-quarter revenue rose 8%, to $65.2 million, but full-year revenue fell 3%, to $241 million.
According to S1, part of the reason for the relatively flat revenue was a change in its pricing structure. Banks now subscribe to its products, rather than paying a large up-front price for the software and then a smaller maintenance fee for continued use.
Open Solutions, of Glastonbury, Conn., which serves small banks and credit unions, has adopted a comparable but more narrow strategy; it offers products for both core transaction processing and online banking. It released an updated version of its core data processing software, the Complete Banking Solution, in July; four months later it started offering its first online banking and cash management suite.
Since then Open Solutions has made a string of sales. In December it announced two deals. And this year Open Solutions has landed at least six more customers.
Open Solutions posted fourth-quarter net income of $14.5 million, versus a net loss of $31.9 million a year earlier. Fourth-quarter revenue rose 76%, to $36.1 million. For the full year it posted net income of $25.1 million, versus a net loss of $30.2 million in 2003. Full-year revenue rose 68%, to $107.2 million.
"We have become a proven, viable alternative to the bolt-on approach of masking older legacy systems," Louis Hernandez Jr., Open Solutions' chairman and chief executive, said in a conference call with analysts last week.
He expects banks to keep looking to simplify their information technology infrastructures by using more comprehensive banking platforms. "We see no decline in the trend."
Both S1 and Open Solutions are trying to further round out their capabilities through acquisitions. In November, S1 announced that it would buy Mosaic Software Holdings Ltd., a U.K. provider of automated teller machine software. ATMs are currently the only primary channel for which S1 does not sell software.
In October, Open Solutions bought Datawest Solutions Inc., a Canadian outsourcer for phone and Internet banking, as well as Internet customer relationship management and Internet loan origination.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said banks and credit unions are showing more interest in working with fewer vendors that can deliver software that supports several aspects of the bank operations, especially components designed to work together.
"Banks are shying away from huge integration projects, and what small to midsize to large banks are expecting increasingly from vendors is the ability to deliver a suite of products" that is already integrated, Mr. Bezard said.
This trend is exactly what S1's Mr. Ellertson said he is hoping to exploit. "As our product suite expands, so does our ability to deepen our relationships," he said Thursday in a conference call with analysts.
However, Mr. Bezard said that banks are still leery of becoming too dependent upon a single provider, and even though S1 and Open Solutions are posting strong sales, they will probably not become the sole vendor for any bank.
"I think it's true that banks want to reduce the number of vendors that they have to manage; it doesn't mean that bank only wants to use one vendor," he said. "It doesn't mean that they will buy everything from one vendor."
