Banking BPO Insight
NelsonHall's Banking BPO Insight newsletter provides commentary and insight on key banking industry developments and vendor actions which impact your sourcing decisions.
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Latest Edition - February 2010
Contains commentary and insight from NelsonHall analysts on key banking outsourcing industry developments that impacted your sourcing decisions.
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Fidelity National Information Services Announces Q4 2009 Revenues Up 2.7% at $1,316.1m
Fidelity Information Services has announced Q4 2009 revenues, for the period ending December 31, 2009, of $1,316.1m, up 2.7% year-over-year. Revenue growth numbers are based on the pro forma assumption that the Metavante acquisition had taken place on January 1, 2008 (instead of the actual October 2009 date).
Q4 2009 revenues (and revenue increase) by activity were:
- Financial Solutions: $452.5m (-1.3%)
- Payments Solutions: $629.6m (-1.0%)
- International: $232.3m (+24.0%)
- Consolidations: $1.7m (n.a.)
Revenues were impacted by:
- Financial Solutions: increased demand for software license and commercial services and decreased demand for professional services
- Payments Solutions: increased demand for debit and network solutions and reduced demand for item processing, and lower consumer spending
- International: increased demand for software and services , with increased organic account acquition for transaction processing across all geogrraphies.
Full year 2009 pro forma revenues (including Metavante revenues for 2009) were $5,051.9m a decrease of 0.8% over 2008.
Full year 2009 pro forma revenues (and revenue increase) by activity were:
- Financial Solutions: $1,766.6m (-1.2%)
- Payments Solutions: $2,485.7m (-1.2%)
- International: $799.4m (+1.3%)
- Consolidations: $0.2m (n.a.)
Analyst comments:
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Visa Announces Fiscal Q1 2010 Revenues Up 12.7% to $1,960m
Visa has announced fiscal Q1 2010 revenues, for the period ending 31 December 2009, of $1,960m, up 12.7% year-over-year.
Fiscal Q1 2010 revenues (and revenue increase) by activity were:
- Service fees: $827m (+4.3%)
- Data processing fees: $765m (+38.1%)
- Volume and support incentives: -$374m (+39.0%)
- International transaction fees: $552m (+9.3%)
- Other revenues: $190m (+21.8%).
Total Visa cards outstanding (as of quarter end Q3 2009, most recently available): Credit: 787m (-3.0%), and Debit: 979m (+13.0%).
Analyst comments:
Visa's strong yoy revenue growth indicates a continued improvement in the economic environment. However, the strongest growth (as was also the case in Mastercard's results) was in volume and support incentives (sales incentives) demonstrating that in this market growth is push driven, not pull driven.
Key results included:
- Visa's price increase (March 2009) has not reduced revenues, but has required increased sales incentives
- U.S. Q4 credit card usage continued its downward trend (-1.0%), while debit card usage continued its very strong growth trend (+15.5%)
- Overall payments volume declined in the U.S. (-1.0%) and increased in Asia Pacific (+12.3%) and Latin America (+7.8%)
- Visa credit cards outstanding declined in Q3 2009 versus Q3 2008, while debit cards increased for the same period.
As banking recovers from its credit crisis, non-credit lines of business, such as payments are growing rapidly. Even within payments, non-credit products and services are growing while credit based products are shrinking.
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Alliance Data Announces Q4 2009 Revenues Up 7.5% at $545.9m
Alliance Data has announced Q4 2009 revenues, for the period ending 31 December 2009, of $545.9m, up 7.5% year-over-year.
Q4 2009 revenues (and revenue increase) by activity were:
- Loyalty Services: $210.1m (+7.1%)
- Epsilon Marketing Services: $141.8m (+9.8%)
- Private Label Credit Services: $115.9m (-18.8%)
- Private Label Services: $190.5m (+11.1%)
- Intersegment: $(112.4)m (+10.3%)
Alliance Data's full year 2009 revenues, for the period ending 31 December 2009, were $1,964.3m, a decrease of 3.0% compared to full year 2008.
Full year 2009 revenues (and revenue increase) by activity were:
- Loyalty Services: $715.1m (-5.3)
- Epsilon Marketing Services: $514.3m (+4.7%)
- Private Label Credit Services: $396.6m (+3.6%)
- Private Label Services: $693.2m (-7.6%)
- Intersegment: $(354.9)m (+0.2%)
Analyst comments:
Q4 2009 was Alliance Data's 1st quarter of y-o-y revenue growth in over a year. Revenue declines during the past year had been due to currenncy exchange and credit losses. Revenue growth in Q4 2009 was due to growth in loyalty services (primarily the Canadian Airmiles program) and new contract signings in the Epsilon Marketing Services line of business.
The growth in revenues reflect two trends:
- Strengthening economy in Canada and perhaps more generally (U.S. and Brazil)
- Adoption of third party services by larger organizations. Key large contract wins include:
- Best Western for loyalty card program
- Visa, to develop and host their next version of a loyalty card program.
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Fiserv Announces Q4 2009 Revenues Up 2.1% at $1,062m
Fiserv has announced Q4 2009 revenues, for the period ending 31 December 2009, of $1,062m, an increase of 2.1% compared to Q4 2008.
Q4 2009 revenues (and revenue growth) by activity was:
- Processing and services: $844m (+1.6%)
- Product: $218m (+4.3%).
Full year 2009 revenues were $4,077m, a decrease of 11.1% compared to full year 2008.
Full year 2009 revenues (and revenue growth) by activity was:
- Processing and services: $3,329m (-3.9%)
- Product: $748m (-33.4%).
Analyst comments:
Fiserv faced revenue challenges in the difficult environment of 2009, but through aggressive cost control it met its targets for profits and margins.
In terms of revenues, Fiserv demonstrated several key trends:
- Strong demand for payments products and services. Fiserv's payments segment grew revenue in 2009, unlike its other segments.
- Weak demand in the U.S. for banking products and services (outside of payments)
- Steady improvement in market demand over the course of 2009. This was best demonstrated by year over year growth by quarter in Fiserv's Financial segment (representing c.50% of overall adjusted revenues). Adjusted revenue growth (which approximates organic revenue growth according to Fiserv) for 2009 in the Financial segment was:
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- Q1: (5%)
- Q2: (7%)
- Q3: (3%)
- Q4: 0%
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Jack Henry Announces Fiscal Q2 2010 Revenues Up 10.9% to $210.9m
Jack Henry has announced fiscal Q2 2010 revenues, for the period ending 31 December 2009, of $210.9m, up 10.9% year-over-year.
Fiscal Q2 2010 revenues (and revenue increase) by activity were:
- License: $12.0m (-19.0%)
- Support and service: $184.1m (+19.0%)
- Hardware: $14.7m (-28.0%)
Key performance drivers were:
- Support and service grew 19.0% of which 5% was organic and 14% due to acquisitions
- Cost control initiatives produced a 14% increase in operating profit versus an 11% increase in revenues
- Backlog increased 14% to $316.3m ($76.6m in-house and $239.7m in outsourcing).
Analyst comments:
All vendors in the U.S. market are facing reduced demand for products (software and hardware) in this environment. Support and service remains the only area of growth for banking vendors in the U.S.
Jack Henry's outsourcing backlog, primarily its Outlink service of hosted core banking, represented the largest dollar growth in backlog ($23.2m). Increasing numbers of banks want to migrate from in-house platforms to outsourced platforms to reduce headcount and investment in operational assets.
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Yucheng Announces Q4 2009 Revenues Down 49.7% to $11.2m
Yucheng has announced fiscal Q4 2009 revenues, for the period ending 31 December 2009, of $11.2m, a decrease of 49.7% compared to fiscal Q4 2008.
Fiscal Q4 2009 revenues (and revenue decrease) by activity were:
- Software: $8.9m (-49.6%)
- Platform and services: $1.2m (-60.0%)
- Point-of-sale: $0.96m (+22.4%).
Full year revenues for fiscal year 2009 were $54.8m an increase of 2.5% from prior year 2008.
Full year revenues for fiscal year 2009 (and revenue increase) by activity were:
- Software: $43.5m (+14.1%)
- Platform and services: $7.5m (-39.5%)
- Point-of-sale: $2.9m (+39.1%).
Yucheng believes that Q4 2009 contract signings were depressed because banks have anticipated:
- The Chinese government will increase their reserve ratio rates for Chinese banks in 2010 (done in mid-January 2010)
- Increases in loan losses over the next year.
Analyst comments:
Yucheng's revenue slowdown at the end of 2009 reflects the impact of China's government induced slowdown on the Chinese banking industry. This is likely to continue over the next year as China's underlying economy has picked up in the face of reducing stimulus.
Key actions by the Chinese regulators:
- Raised reserve requirement for large banks by 0.5% to 16.0% and for small banks by 0.5% to 14% on deposits as of January 18, 2010
- Raised interbank rate on January 8, 2010 by 0.04% to 1.3684%
- Announced it would review mortgages on 2nd homes
These actions come as the lending market in China has continued to accelerate into January 2010. Large Chinese banks are government owned and subject to higher reserve requirements than U.S. banks (14% in China versus 10% in U.S.), but enjoy higher margins than banks in most other economies, due to pricing power which allows low cost deposits and high priced loans.
As the Chinese government continues to reduce its stimulus, the banks will be pressured to control lending and reduce growth initiatives. This will place a damper on banks operations initiatives. Still China will be a high growth economy relative to others. While investment decisions will be postponed for 6 to 9 months, the Chinese banks will close on projects they have on the drawing boards after a pause.
Banking BPO Insight - June 2009
Contains commentary and insight from NelsonHall analysts on key banking outsourcing industry developments that impacted your sourcing decisions in June 2009.
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Experian Awarded Debt Collections Software Implementation Contract By BMW Financial Services
Experian has been awarded a contract by BMW Financial Services for the implementation of its debt collection software 'Tallyman' across Germany.
Tallyman, a core component of Experian's debt collection and recovery suite, helps identify customers who have fallen behind on their loan or lease repayments.
Analyst comments:
This software implementation contract illustrates the increasing importance that organization put on efficient debt collection as a way to improve profits, increase working capital and improve cash flow.
However, it also illustrates that organizations in continental Europe are as yet reluctant to outsource these functions. In many cases, this is due to organization's fear of losing control over the customer relationship. Experience from the Anglo-Saxon market have shown that it is service providers with strong credentials in customer management services that become trusted providers for first and/or second party debt collection services as they can ensure a seamless customer experience aligned with the organization's culture and reputation.
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Atos Worldline Launches SEPA Mandate and Debit Management Solution in Europe
Atos Worldline has launched its SEPA Mandate and Debit Debit management solution in Europe. The solution will facilitate the transition to a SEPA compliant debit environment.
Functionality provided includes the ability to:
- Import existing creditor's mandates data with IBAN and BIC codes
- Manage the mandate lifecycle including:
- Mandate Reference (UMR) generation
- Dematerialization of new paper mandates
- Archiving
- Generate SEPA compliant direct debit instructions based on existing domestic formats
- Route direct debits to creditor banks
- Notify debtors
- Manage "day 2" transactions (reversals, refunds, rejects, returns).
Analyst comments:
Atos Worldline's European Mandate and Direct Debit Management solution facilitates the transtition for banks to a complete e-mandate solution encompassing acceptance, routing, authentication and validation.
The solution accommodates legacy systems and legacy functionality, while providing the new functionality required to comply with SEPA regulations and allow banks to offer pan-European delivered direct debit payment services in an electornic environment.
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Genpact Launches Loan Modification Services Line To Enhance U.S. Mortgage Industry Offering
Genpact has launched a new line of services to help U.S. mortgage organizations to improve the efficiency and effectiveness of loan modification processes.
The loan modification services comprise a set of automated, web-based modules that can be deployed to process modification requests with minimal lead time. The services comprise:
- Analytics
- Borrower outreach and campaign management
- Loan modification transaction processing
- Loan surveillance
- Legal and regulatory reporting.
Analyst comments:
In the current credit crisis in the U.S. there is an ongoing spike in the demand by lenders for default management services. Loan modification services are a critical part of this demand (and a method of default management heavily encouraged by the U.S. government). This offering should face high demand for at least the next two years.
Genpact has placed the delivery personel for these services in Wilkes Barre Pennsylvania and Irvine California. Given the high degree of sensitivity by consumers to accents in negotiating mortgage modifications, Genpact's siting decision should lead to higher levels of consumer satisfaction than if they had placed the delivery center elswhere.
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First Data Joint Venture Merchant Solutions Awarded Card Acceptance Contract Extension By China Union Pay
First Data's joint venture with Standard Chartered Bank, Merchant Solutions, has been awarded a card acceptance contract extension by China Union Pay (CUP). Currently CUP cards are accepted in Hong Kong and Macau by merchants using Merchant Solutions services.
The contract extension will add acceptance for CUP cards in the following countries: Singapore, Malaysia Brunei, Bangladesh, India and Sri Lanka.
Analyst comments:
This joint venture, which is 56% owned by First Data and 46% by Standard Chartered, was formed to support Standard Chartered Bank's merchant clients with First Data products and services for debit and credit cards, e-commerce and contactless and prepaid card acceptance services. Standard Chartered Bank has a unique brand value as the result of operating for 150 years in Asia.
The extension of this contract by CUP to cover all the markets covered by this merchant acquirer provides significant support to First Data's efforts to expand within the Asia market, since China has the:
- Largest number of cards in Asia
- Fastest growing card base
- Rapidly increasing international travel by its citizens (46m Chinese travelled abroad in 2008 according to Chinese government records).
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First Data Announces Q1 2009 Revenues Down 2.0% to $2,076m
First Data has announced Q1 2009 revenues, for the period ending 31 March 2009, of $2,076.2m, a decrease of 2.0% compared to Q1 2008.
Q1 2009 revenues (and y-o-y evenue growth by activity were:
- Merchant services: $621.5 (-2.0%)
- Check services: $86.5m (-14.0%)
- Card services: $470.4m (-7.0%)
- Other services: $128.4m (-6.0%)
- Investment income: -$5.8m (-90.0%)
- Product sales: $174.0m(-18.0%)
- Reimburseable fees: $589.6m (+23%)
Analyst comments:
First Data had essentially flat revenues on a constant currency basis ( up 1% on a constant currency basis). The strong dollar hurt performance, especially in the international segment.
It is bringing to market new products, specifically a new card issuing platform, which should shore up its weakest segment, financial institutions, which experienced a decline in revenues on both a constant currency basis (-1.0%) and on an reported basis (-3.0%).
Fidelity's results confirm 2009 market trends which are continuing into 2010. Those trends are: