S1 Corp. is moving more forcefully into Europe.
The market-leading provider of Internet banking software and outsourcing services said last week it has signed a letter of intent with Zurich Financial Services Group to develop a European data processing center.
Zurich, the 12th-largest global financial institution, with $423 billion of assets under management, plans to spend $15 million for a 10% equity stake in the data center, which will operate as a stand-alone subsidiary of S1. Zurich has an option to buy another 5%, and S1 may parcel out additional equity stakes to other potential customers.
Officials said the alliance between S1 and Zurich is a way to quickly develop Internet services in Europe, a market that S1 executives said is poised to expand rapidly. Zurich will be the data center's first customer.
"We want fast access to S1 technology, and we clearly want to roll it out to our customer base as fast as possible," said James Pezerell, a manager at Zurich.
Of the 350 million people in Europe, as many as 40 million use the Internet, he said. Market studies project 100 million users and up to a 15% on-line banking penetration rate within three years.
William Soward, head of corporate business development at S1, said the Zurich alliance is an example of how rapidly the industry is developing a range of financial services that spans insurance, brokerage, and banking.
The multifaceted Swiss financial institution has 15 million insurance and money management customers in Europe. It also owns Scudder Kemper Investments Inc. in Boston and Los Angeles-based Farmers Insurance Group, a property and casualty insurer that operates in 31 states.
S1 already has 450 employees in Europe through its November acquisition of Brussels-based FICS Group NV, a corporate banking software developer.
In explaining S1's reasons for also aligning with Zurich, Mr. Soward said, "We really wanted to work closely with a major player already familiar with the local markets. We were fortunate to match up with the folks at Zurich who I think share the same vision of how we think the market is going to unfold."
Traditionally, European institutions have been more reluctant than their counterparts in the United States to outsource operations to third parties, but that is changing, Mr. Soward said.
"The market demands for on-line financial services are such that it is beyond the skills of most institutions over there," he said. "Consequently in order to stay competitive in the market, they will be increasingly likely to turn to outsourced solutions."
The data center is expected to begin operations by mid-2000 and will probably be based in the United Kingdom. The subsidiary is tentatively being called "New Co." and will initially have 50 employees, from both Zurich and S1.
Jeffery B. Baker, an analyst at SunTrust Equitable Securities, called the deal a "great move." S1 has effectively gotten another company to fund development of a new business at the cost of only 10% of ownership, he said.
Shares of S1 rose $17.81 last week, or 27.5%, to $82.5625 by midday Friday. Mr. Baker attributed the stock's rise to an investor meeting held last week at which the company indicated revenues would grow faster than expected.
He raised his forecast for S1's revenue in 2000 by 10%, to $265 million, and said he expects the company to produce $90 million of revenue this year.
Based on the market's valuations of market-leading Internet companies in other sectors, Mr. Baker said he thinks S1 should trade at $200 a share. S1 is a dominant provider with little competition, he said.
"There is no question in my mind that they have the right platform, product, and strategy," Mr. Baker said. "They are head-and-shoulders above everybody right now."