‘Electronification’ – Fiserv banks on mobile payments

Brookfield-based Fiserv Inc. has positioned itself to grow in line with the rising popularity of mobile payment and banking technologies worldwide. Consumers are asking banks to offer more flexibility, and Fiserv develops the technologies that enable banks to answer those demands.

The $4 billion, 20,000-employee company offers about 700 technology solutions to financial institutions around the globe, said president and chief executive officer Jeff Yabuki.

“Things like remote deposit, mobile capture and those types of technologies are in fact changing the way we bank,” Yabuki said. “Banks are needing to change the experience they deliver and a lot of that is going to happen through mobile technologies, tablet based technologies, different kinds of relationships that allow you to create the power of a face-to-face relationship through an enabled device.”

Fiserv has become a leader in the packaged financial solutions field, said David Albertazzi, a senior analyst at Boston-based financial services research firm Aite Group. Fiserv’s Mobiliti solution, for example, offers financial institutions a mobile banking, alerting and payments suite.

Other big players in the packaged banking technology field include FIS and Jack Henry & Associates Inc.

“As mobile banking is maturing very quickly, I think we’re seeing that mobile payments and mobile commerce are the next milestones,” Albertazzi said. “There’s a lot of startup companies in that space and everybody is still trying to figure out their position at this point, but there is a real opportunity here in terms of changing the way a consumer makes payments at the point of sale.”

Fiserv serves about 40 percent of the nation’s banks and credit unions, so it has a good market position, said David Koning, senior research analyst at Milwaukee-based Robert W. Baird & Co. Inc.

“In terms of the number of core processing clients they have, they’re the biggest,” Koning said. In terms of revenue, competitor FIS is a bit larger than Fiserv.

Fiserv’s new SpotPay mobile card reader goes up against established technologies such as Square, with one significant difference: SpotPay is bank-centric.

“The products and solutions that we build are largely around enabling our financial institutions to best serve their customers,” Yabuki said.

With Fiserv’s technology, the trusted banking institution is the issuer of the product.

“Consumers say, ‘Well, if my bank is offering this service, it must be secure,'” Yabuki said. “That’s the power of having the banks behind this. That is what is really going to allow a service offering like this to really take off and to really scale.”

SpotPay is marketed to merchants, particularly small businesses that would like to accept credit cards.

Fiserv plans to provide real-time money transfer technology for small business transactions on SpotPay starting in 2013. So instead of waiting a few days for funds to transfer, businesses would receive the payment instantly.

Fiserv also has recently introduced a person-to-person electronic payment technology called Popmoney, for use in situations like splitting the bill at dinner or repaying borrowed cash.

“The point of Popmoney is to allow money to move from point A to point B without having to burden yourself with swiping a card or writing a check or anything else,” Yabuki said.

There were more than 200 billion payments in the United States in 2011, and about 16 billion of those were very well suited for the Popmoney product, he said.

Small businesses don’t always have sophisticated payment systems, and Fiserv aims to make it easier for them to accept payment other than cash.

“The point of it is to electronify that last mile of payments — cash and check and those things,” Yabuki said.

There are other competitors in the electronic payment space, like PayPal, but Fiserv again relies on consumers’ trust for banking institutions and their existing bank accounts as the core of its offering.

“As it relates to being able to move money to and from consumers within the banking system, there’s really no one who’s doing that today,” Yabuki said. “Given we are enabling banks to work directly with their customers, we believe that is the competitive advantage.”

There is a small fee, just like with credit card transactions, but the new payment technologies offer an added convenience to businesses and consumers. There are a lot of transactions that don’t happen because the seller cannot accept a credit card, but this could capture those potential payments, Yabuki said.

“These new technologies such as SpotPay are making it easy for anyone to take cards as a way to facilitate more transactions, and that’s really the glory of it,” he said. “It’s a little bit of democratization—everyone can take cards.”

About 1,700 banks are now offering Fiserv’s Popmoney technology.

Banks benefit from the SpotPay and Popmoney fees, while providing the customer with a faster, more efficient service, Yabuki said.

“We think there’s somewhere between $10 billion and $12 billion of revenue opportunity for financial institutions for delivering this new and exciting value to consumers,” he said.

Fiserv considers Popmoney a social payment system that could grow in popularity among friend groups.

“This new form of payment transactions we think has that same kind of viral capability (as social networks),” Yabuki said. “It’s a really interesting convergence of social media and electronification and digital competency and capability and as they come together, you’ll see these new kinds of services and solutions start to intermediate the way we live our lives on a day-to-day basis.”

While Fiserv’s new technologies are not its lifeblood, they are expected to become growth engines.

Mobile payments were at $20 million last year. This year the segment is at $45 million, and Yabuki projects it will be at $140 million by 2015.

Meanwhile, the company has seen 120 percent year-over-year growth in bill pay transactions and nearly 100 percent year-over-year growth in people who are paying bills using a mobile device. And that’s an “older” technology.

The nature of managing a technology business is your revenue streams can change quickly, Yabuki said.

“We’re pretty proud of the fact that we’ve been able to build products that are demanded in the market and will turn into value for our clients and for our shareholders,” he said. “You have to be close enough to what’s going on in the market. You know that not every decision you’re going to make around technology is right.”

Fiserv has grown and added new technologies through acquisition since its founding in 1984. It had made about 150 acquisitions by 2006.

Since Yabuki became CEO in 2005, he has slowed the pace of acquisitions and worked to focus the direction of the company as a financial institution technology provider.

He divested unrelated segments of the business, and in 2007 acquired Norcross, Ga.-based CheckFree for $4.5 billion, the largest acquisition in the company’s history.

With the CheckFree technology, Fiserv was able to fully commit to financial payments and banking services.

“We basically sold off half the company and then bought a new half,” Yabuki said. “It was really the transformational catalyst that helped us become the company we are today.”

Fiserv’s strategy until recently was to acquire companies that had technology it wanted, rather than developing the technology internally. Now that it has established market dominance, it’s likely Fiserv will focus on further developing the products it has acquired.

“Fiserv will probably continue to make small tuck-in acquisitions,” Koning said. “We don’t really expect or see any transformational acquisitions out there that would make much sense in our view.”

Leading a company that makes ever-changing technology means setting a focus and sticking to it, Yabuki said.

“We have a very clear vision of where we’re going, so to the extent that we can deliver new technologies and better deliver existing technologies that really allow our clients to be successful in serving their customers, keeping that in focus all the time, will allow us to make better decisions,” he said.

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Molly Dill, former BizTimes Milwaukee managing editor.

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