Larger financial institutions are beginning to engage in broader product and service agreements, and that is opening the door to more outsourcing opportunities, the chief financial officer at Fidelity National Information Services Inc. said Sept. 7 during the Citi Global Technology Conference.
“Institutions that traditionally would have been in-house, would have bought services, would have bought software, are now looking to outsource,” said Michael Hayford, who also is an executive vice president at the transaction processor. “They’re looking predominantly as a way to save money and cut costs, but they are looking at it as a way to make sure they’re current to technology and they can get the upgrade and the cycle times that an outsource model brings them.”
The U.S. regulatory environment, in particular the Credit CARD Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act also has institutions exploring outside assistance, he said.
“Any time you have financial institutions that are impacted by change, whether it’s technology, whether it’s the marketplace, whether it’s, in this case, regulatory change, that will involve some type of change to their systems, and for us change is a good thing,” Hayford said. So having that regulatory change, which will require people to make changes to how they run their business, how they get fee income, how they address some of the historical places that they get revenues, again is going to be an opportunity for [Fidelity] to participate in supporting that.”
Internally, it is too soon to say whether U.S. credit card market reforms will have an effect on the company. And the recent changes affecting the debit card market, particularly with regard to potential reductions in interchange rates, likely will have little effect, Hayford said. “We’ll have to see how that plays out, but we generally see that as neutral to positive,” he said.
Fidelity, however, which owns the NYCE electronic funds transfer network, may benefit from changes that ban exclusivity arrangements, in which institutions, for example, cannot offer Visa check cards with only Visa’s Interlink PIN-based point-of-sale brand mark also on them (see story).
“We look at that aspect of the law, specifically around the NYCE network, and see an opportunity to go into institutions that might use Visa on the front of the card for signature debit and sell to them the NYCE network on the back of the card for PIN debit and create an opportunity for institutions to still do fairly well on the interchange,” Hayford said. “We actually think they will get a strong profit on interchange, PIN debit versus signature debit, and from a merchant standpoint, the PIN is always going to be less costly than the signature and less fraud. So we have to think through some opportunities on the debit side that the regulation has created for [Fidelity] in the marketplace.”
Internationally, Fidelity expects to see sizable growth in Brazil, where in August its joint venture with Banco Bradesco SA entered a 10-year deal to provide processing and other services for the banking company. The deal came as Banco Bradesco increased its ownership in the venture, Fidelity Processadora e Servicios SA, to 49% when Banco Santander gave up its stake. That deal did not affect Fidelity’s 51% ownership stake in the joint venture (see story).
Banco Bradesco has committed to migrate its portfolio, which Fidelity expects to do by the end of the year, Hayford said, noting Brazil’s large, untapped market.
“They’re not talking about multiple credit cards for a customer, but customers that do not have a credit card, and [Banco Bradesco] chose an outsourced model that we are very excited about …,” he said.
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