This story was updated Feb. 6 to clarify the status of Fiserv's relationship with Bank of America Corp.
Fiserv Inc. says mobile banking will continue to feed the growth in revenue it reported in the fourth quarter. But every silver lining has a cloud.
The cloud, in this case, is the impact of the Durbin amendment to the Dodd-Frank law that served as a small counterweight to otherwise strong earnings.
Fiserv, of Brookfield, Wis., reported its revenue rose 7% to $1.2 billion in the fourth quarter from a year earlier. Its net income jumped 23% to $143 million. Fiserv expects the investments it made this year in mobile banking and alternative payments to further this growth in the coming years.
"There is a huge interest, and frankly a huge demand, to have the mobile platform enabled in financial institutions," says Jeff Yabuki, Fiserv chief executive officer and president, said in an interview.
Last year's acquisitions of Mobile Commerce Ltd. (M-Com) and CashEdge Inc. will bolster Fiserv's business in mobile and person-to-person payments, he says. Fiserv also will benefit from cross-selling to its base of 16,000 financial institutions, for which it provides core banking and other services.
A small drag, equivalent to about 50 basis points for the full year, came unexpectedly from the Durbin rule's cap on debit-interchange fees.
But financial institutions did not take the hit, Yabuki says. Instead, many of the vendor's biller clients experienced fee compression in the quarter.
Though analysts expressed some confusion on this point and pressed Yabuki to elaborate, he spoke in generalities during an earnings call and in an interview.
"There are many different models used to work with billers, and we use all of them," Yabuki says, citing competitive reasons for not going into further detail. The negative impact was the equivalent of roughly $20 million, he says
By contrast, Fiserv's debit card transaction volume grew by about 18% in the quarter and 19% for the year. The majority of Fiserv's clients fall below the Durbin asset threshold of $10 billion, making them exempt from the interchange-fee cap.
"That has been an important element of our success, and an important driver of revenue," Yabuki says.
Competing core provider Fidelity National Information Services Inc., or FIS, of Jacksonville, Fla., announced last week that it will provide its customers with mobile-wallet capabilities that are application-based, not dependent on a Near Field Communication chip.
Fiserv also has wallet capabilities, Yabuki says. These come from its acquisition of M-Com, whose technology enables mobile payments based on NFC.
"We are paying a lot of attention to this, but we also think it is very early in the evolution" of the mobile wallet, Yabuki says.
Revenue from mobile banking and P2P payments are still a mere pip for Fiserv, about $15 million for the year, says Peter Heckmann, senior research analyst for Avondale Partners LLC.
"The vast majority of Fiserv's earnings continue to come from its core technology and payment solutions," which include online bill-pay, debit card transaction processing, and ATMs, Heckman says.
Certainly there is a big opportunity yet to be gleaned from mobile banking. About 3,500 financial institutions globally offer mobile banking, according to research firm Aite Group, and this number is expected to double by the end of the year. There are about 19 million mobile banking users in the U.S., a number that is expected to more than double by the end of 2013.
"We are just starting to scratch the surface with mobile banking," says Christine Barry, a research director for Aite Group LLC.
Fiserv also said Bank of America Corp. may make an early renewal of its bill payment contract, which is set to expire at the end of 2013. The contract is worth nearly 5% of Fiserv's annual revenue, primarily from electronic bill payment, analysts say. Bank of America was a customer of CheckFree Corp., which Fiserv purchased in 2007.
The majority of Fiserv's core banking sales came from its 5,500 existing core clients, but half of all new core deals went to Fiserv in 2011, Yabuki says.
"If [Fiserv] doesn't grow their [core] customer accounts, they have a lot of room for pricing up share of the banks' total spending on technology," says John Kraft, an analyst for D.A. Davidson & Co.
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