Fiserv Gains Payments Tech, Global Reach in $89M Deal for Monitise

In a potential sign that mobile payments technology may not be living up to its early promise, Brookfield, WI-based financial IT vendor Fiserv is acquiring a U.K. software maker that has struggled in recent years.

Fiserv (NASDAQ: FISV) announced earlier this week it has agreed to pay about £70 million—or $89.4 million, at the current exchange rate—for Monitise, which develops mobile payments software and other digital tools for financial institutions.

Fiserv provides banks, credit unions, and other financial institutions with software for processing customer deposits and managing general ledgers, among other things.

Monitise was worth about £2 billion in 2014 but has struggled amid competition from free mobile payments services such as Apple Pay, according to a Reuters report. Monitise was reportedly seeking to be acquired two years ago, but a buyer did not come forward.

Several other companies, including San Francisco-based Clinkle, have introduced technology allowing users to make point-of-sale purchases with their smartphones. However, most consumers haven’t had an issue with continuing to pay for store-bought goods using credit cards or cash, says David Koning, a senior research analyst at Robert W. Baird & Co. “I don’t know that it will ever get to massive penetration,” Koning says of mobile wallet technology.

According to its website, Monitise counts large U.S. banks like PNC (NYSE: PNC) and BMO Harris as customers. Monitise also has clients in countries outside of Europe and North America. In 2009, it reportedly signed a $13 million deal with Visa International to help Visa (NYSE: V) develop technology to allow its cardholders across the world to make secure payments. In a research note published on Tuesday, Koning and other Baird analysts write that they expect Fiserv to “use Monitise’s diverse global exposure to expand Fiserv’s reach.”

Still, the Baird analysts write that the Monitise deal is “immaterial” to Fiserv’s long-term outlook. After all, the acquisition cost is only about 0.3 percent of Fiserv’s $26 billion-plus market cap.

Monitise’s shareholders still need to approve the deal. If they do so, it is expected to close by the end of September, Fiserv says.

A few more details about Fiserv, which is something of a quiet giant in Wisconsin’s business and technology landscape:

Fiserv is one of the biggest companies in the business of providing core IT services to the financial industry. It ranked fourth in IDC Financial Insights’ most recent list of technology-focused businesses that sell software, hardware, and services to financial institutions.

Fiserv has about 13,000 employees and 23,000 customers worldwide. Total sales in 2016 were more than $5.5 billion.

The company’s direct competitors include Jacksonville, FL-based FIS (NYSE: FIS); Monnett, MO-based Jack Henry & Associates (NASDAQ: JKHY); and Toronto, Canada-based D+H.

Over the years, Fiserv has grown through mergers and acquisitions. The company was founded in 1984 after Milwaukee-based First Data Processing and Tampa, FL-based Sunshine State Systems combined.

Koning says Fiserv has an “incredible track record” when it comes to M&A. He estimates the company has made more than 100 acquisitions since it was incorporated, though there’s been a slight slowdown in the last decade. Still, in 2016 alone Fiserv acquired Atlanta-based Online Banking Solutions, for an undisclosed amount; HP’s (NYSE: HPQ) Convenience Pay business; and Community Financial Services, which had previously been a part of Naples, FL-based ACI Worldwide (NASDAQ: ACIW). In a regulatory filing, Fiserv said the latter two deals were worth a combined $265 million.

Critics have accused Fiserv and its competitors of being an “oligopoly.” Fiserv, FIS, and Jack Henry together control 85 percent of the market for core IT services in the financial industry, according to the website of the Golden Contract Coalition, a consortium formed about a year ago that includes leaders of community banks.

Due to this “vendor oligopoly”—as founding members of the Golden Contract Coalition wrote in a news release announcing its launch—some community banks and credit unions have for years been “unable to develop and deploy the same cutting-edge, customer-facing services as those produced by larger national banks.”

The Coalition complains of exorbitant fees Fiserv and other technology providers charge when two or more banks come together through a merger or acquisition and need to integrate their software infrastructures. The Coalition seeks to level the playing field by banding together and encouraging member institutions to use a standardized contract for IT vendors. Fiserv and a couple of its competitors responded to some of the Coalition’s criticisms in a Forbes article published shortly after it was formed.

Despite the opposition, many analysts believe Fiserv is in a position to continue its strong run. Koning says the company has “massively outperformed” the expectations of industry observers and is one of the only companies in the S&P 500 stock market index that has reported a double-digit percentage increase in earnings per share each year over a 30-year stretch. He acknowledges that the declining number of banks and credit unions represents a “modest headwind” for Fiserv. With fewer financial institutions operating, they have more leverage when negotiating pricing and other contractual terms with technology providers like Fiserv. But ultimately, Baird analysts write in their research note, they “like Fiserv as a steady compounder.”

The Monitise acquisition, bringing with it global exposure and mobile payment technology, may be a sign that Fiserv is looking to counter that headwind with moves to new markets and lines of business.

Jeff Buchanan is the editor of Xconomy Seattle. Email: jbuchanan@xconomy.com Follow @_jeffbuchanan

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