Bank Technology Providers Consolidation: Of Course This Will Continue

Implications: The big will continue to get bigger; there is very little doubt about that trend continuing. The question will be who does it better? Financial institutions prefer to buy technology from large established providers. The SOX requirements to demonstrate a significant effort on vendor management drives these financial services firms to reduce the number of providers they do business with. Two questions arise from this trend. Firstly, who will be the winners that make smart acquisitions, integrate the products, realize cost savings, and gain overall market dominance? Secondly, who will be acquired, and at what premium over current market value?

Analysis: There are several categories of providers.

1)The major players in the US, Fiserv, Fidelity, and Metavante all have a wide breadth of product offerings across the systems, services, and transaction processing platforms.

2)The next tier providers that have a narrower product focus like Jack Henry, First Data, and ACI Worldwide, will need to demonstrate some significant breakthrough to get to the next level, most like through acquisitions of their own.

3)The niche players like Open Solutions, S1 Corp cater to emerging banks and financial institutions, will need to establish a market presence and determine whether to acquire or be acquired.

4)Traditional software companies like IBM, SAP, and Oracle are also looking to expand their horizons and are continuing their investment in financial services systems.

5)Finally the non-US based companies like Temonos, Sanchez, and Infosys tend to have more modern, internationally scoped systems but have had a hard time breaking into the highly regulated and conservatively minded US markets.

The major providers; Fiserv, Fidelity, and Metavante will initially emerge as the firms that will continue to get bigger. Their management teams will be challenged to make wise purchasing decisions and consolidate the various product lines. From the middle tier there will be some fall off and I suspect that partnerships like the Metavante-Temonos deal will work to both company’s advantage.

It is certainly interesting times for these companies and some will clearly win while others will fade away or be acquired.