Fidelity National Information Services Inc., or FIS, says demand is picking up for core processing upgrades, contradicting a report last week from rival Fiserv Inc., company executives said during a Feb. 8 conference call to discuss earnings.
FIS did not provide an explanation for the difference, but it suggests that FIS is stealing market share, according to Andrew Jeffrey, a managing director at SunTrust Robinson Humphrey.
Fiserv’s comments “are more consistent with what we’ve heard from [chief information officers] generally, which is more of a tempered 2011 spending environment,” Jeffrey said in a Feb. 8 interview.
But FIS has a bigger presence in the larger-bank market. “Generally, big banks have more diversified [information-technology] needs, spending needs and budgets, so I think FIS’s greater relative enterprise exposure probably helps it there,” Jeffrey said.
The economic crisis highlighted technology deficiencies for many financial institutions, Gary Norcross, chief operating officer of the Jacksonville, Fla.-based financial-technology vendor, said during the earnings call. “They are at a point where they want to fix all of their foundational elements so in the event they have to go through this process again they are on a much more stable platform,” Norcross said.
FIS expects such deals, which can cost banks millions and take several years to complete, to pick up this year, a contrast from the more muted outlook executives at Fiserv gave last week for core processing projects (
FIS forecasts revenue to grow 9% to 11% this year.
A small number of core replacements at large banks with a U.S. presence are under way or in the planning stages, including at Citigroup Inc. FIS said last year it is working with Citi to upgrade its systems.
Overall, most experts anticipate such large-scale projects will continue to be rare this year, as banks wait for new regulations to be put in place.
In 2010, FIS’s revenue grew 42%, to $5.3 billion. Factoring in results from Metavante Technologies Inc., which it acquired in October 2009, FIS’s adjusted revenue would have grown 4.2%.
FIS’ revenue in the fourth quarter grew 8.8% from a year earlier, to $1.4 billion, spurred by increases in its financial-services segment, which provides core processing, treasury management, Internet banking and technology, as well as in its in international segment. Those increases offset a small decline in payments revenue, which fell because of reduced check-processing activity.
FIS’s net income was $112.3 million for the quarter; it reported a net loss of $52.8 million a year earlier.
Like other vendors, FIS executives said pending regulations, including the Federal Reserve Board’s proposed 12-cent debit card interchange cap, likely will influence how and when banks invest in technology.
Banks could lose up to $9 billion in debit interchange revenue as a result of the rules, according to a report released Feb. 8 by Boston Consulting Group. However, some analysts peg that figure at as high as $12 billion.
FIS, which gained the PIN-debit network NYCE Payments Network LLC with its acquisition of Metavante, potentially could benefit from a provision in the rules requiring card issuers to add network brands to their cards not affiliated with the signature-debit function their cards support.
FIS also has seen banks express more interest in using its prepaid card services because prepaid cards are exempt from the proposed interchange caps, Norcross said.
What do you think about this? Send us your feedback.
