Banks continued to demonstrate renewed confidence in their technology-spending decisions during the third quarter, executives of Fidelity National Information Services Inc. acknowledged during a conference call with analysts Oct. 26.

The Jacksonville, Fla.-based financial-technology vendor and transaction processor said investments in core processing systems are picking up, but it also is winning new sales with ancillary services, such as bill pay, Internet banking and card processing.

“More than half of our core clients in North America have purchased additional services from us in 2010,” said Gary Norcross, FIS chief operating officer.

The company, which significantly expanded its size a year ago with its acquisition of rival Metavante Technologies Inc., expects banks to continue moving forward on spending decisions, which largely stalled during the most recent economic downturn. As the economy has improved, banks have been more willing to invest in upgrades and new services than they were previously.

FIS reported adjusted year-over-year revenue, which includes the revenue of Metavante, grew of 3.3% to $1.29 billion in the third quarter from a year earlier (the Metavante purchase closed last October).

“The key is that 3.3% organic-growth number for revenue,” says Brett Huff, a research analyst with Stephens Inc. of Little Rock, Ark. “It shows FIS is executing cross-sales and new customer sales well. It’s also a sign that there is some spending in the bank tech market overall.”

FIS, along with competitor Fiserv Inc., are considered bellwethers of the financial-technology industry. Both companies, and smaller vendors, have reported an uptick in contracts over the past several months, noting that additional clarity surrounding new regulations have helped banks grow more comfortable with moving forward on plans.

Because of the recent wave of new regulations, which is forcing banks to revamp their payments and lending strategies, FIS also sees opportunities to play more of a consulting role to clients. Its executives said they expect to bolster their strengths with the company’s previously announced plans to acquire Capital Markets Co., an international technology-consulting firm that works with several large banks.

“We’re very focused on continuing to grow and expand in large financial institutions, and this is where Capco does most of their work,” Norcross said.

The companies expect to close on the acquisition by the end of the year.

FIS’s non-adjusted revenue grew 65% year over year to $1.37 billion. Its net income in the quarter rose 63%, to $110.4 million (see story).

FIS did experience softening in its payment solutions business, which saw revenue decline 1.9% to $600.6 million, because of lower item processing and retail check activity, the company said.

The company has put its Fidelity National Participacoes Ltda. item-processing and remittance-services subsidiary in Brazil up for sale.

The “paper-intensive, check-based” business does not have the “scale and leverage” that FIS has in the United States, Michael Hayford, FIS chief financial officer, said during the call. With check volume declining, it is more difficult to operate the business there, Huff said.

In the U.S., volumes are high enough so there is “more room from a profitability standpoint,” he said.



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