Firethorn and Monitise Make Major Announcements

September, October and November are traditionally great months for new product announcements. True to form, at least five major U.S. mobile banking announcements appeared last week. Brandon McGee posts a quick synopsis here.

Of special interest were the announcements by Firethorn/CheckFree and Monitise/Metavante, all of which will be presenting at our upcoming FINOVATE conference in New York City on Oct. 2 (see note 1).

Firethorn ended a relatively quiet stretch with an important announcement, the addition of Ogden, Utah-based America First Credit Union to its mobile banking consortium which includes Wachovia Bank among others (see previous coverage here). The top-10 credit union has more than 400,000 members and gives Firethorn a reference account in the credit union and non-mega-bank categories. The service is expected to go live in early 2008.

We've had the pleasure of hearing the Firethorn story several times, but going into the critical fall marketing period, it will be interesting to hear an update on the Firethorn rollout with AT&T and Verizon Wireless.

Monitise/Metavante Joint Venture
Although disclosed in March of this year, the Monitise and Metavante joint venture was officially announced last week (here). Monitise crosses the Atlantic with mobile banking and payment solutions already widely deployed in its United Kingdom home market under the MONILINK brand. Its client list reads like a who's who of U.K. financial and telecom players: BT Global Services, T-Systems, HSBC, First Direct, Alliance & Leicester, Royal Bank of Scotland, NatWest, Vodafone, Orange, O2, T-Mobile and Hutchison 3G. The JV's Oct. 2 presentation at FINOVATE marks the first time the new entity, Monitise Americas, will be on stage to DEMO the new service expected be available by year-end.


1. Our FINOVATE 2007 DEMO conference is expected to sell out some time next week, so if you want to reserve a place you should register ASAP at

Payments Still a Vital Part of Online Banking Success

As a one-time bill payment product manager, I've long appreciated the difficulties of making online payments live up to the hype. It was one of online banking's "dirty secrets" in the 1990s that if you wanted your bill paid quickly, you'd usually be better off whipping out your checkbook and dropping the "ink on dead trees" into the so-called snail mail (see note 1). 

Thankfully, those days are behind us. Thanks to CheckFree, Metavante, Online Resources, MasterCard RPPS, and smaller companies such as iPay Technologies, Billeo Inc., Princeton eCom (now owned by Online Resources), and Yodlee, we have reached the point where most bill payment transactions are fully electronic from consumer initiation to posting by the biller. The paper has finally been wrung from the system, at least on the remittance side. There's still some work to be done on the actual billing statement itself.  

Luckily, we have six of these payment innovators appearing at our upcoming FINOVATE 2007 conference to be held in NYC on Oct. 2, although Yodlee will be showing its online personal finance manager and Online Resources will be DEMOing its virtual collection technology. If you are interested in attending the conference, please register now, since there are only 37 seats remaining. Here's the link.

Billeo Inc.
Billeo is an outside-the-box-thinking online payments facilitator that uses the power of Web-based tools to make it easier for consumers to track and manage all their payments, both at the point-of-sale, and one-time and recurring bills. Blue-chip clients include Visa and Target among others. The Santa Clara, CA-based company won an OBR  Best of the Web in 2005 for its toolbar-based interface. The venture-backed company's innovative streak lands it on the pages of NetBanker quite frequently (see previous coverage here) and we look forward to seeing the next generation of its service at FINOVATE in three weeks.  

CheckFree literally created the market for online bill payment in the United States and has worked tirelessly to help convert what was once a large paper-pushing operation into a finely tuned, almost totally electronic, process. They've been the leader not only in creating a smooth back-office system, but also in smoothing out the rough edges in the payee sign-up process, in the customer interface, and in moving billers towards bill presentment. CheckFree, which closed on its acquisition of platform-provider Corillian just a few months ago, has been swept up by Fiserv in a proposed acquisition pending shareholder approval. Every year the company raises the bar for online bill payments, and I look forward to seeing what they have in store for FINOVATE attendees.

iPay Technologies
We've written about iPay Technologies in Online Banking Report a number of times, but unless you've shopped bill payment providers in the past few years, you may not be familiar with the nimble Elizabethtown, Kentucky-based firm. The privately held, 250-person bill payment specialist now handles payments for more than 1,000 banks and credit unions with a total user base just under 500,000. The company is a full-service provider offering not only bill payments, but also person-to-person payments, interbank transfers, gift-oriented payments, and even old-school telephone bill payment. If you haven't met the management team of iPay yet, you are in for a treat. Dana Bowers and her team are a delight, and I encourage everyone to talk to them during the FINOVATE breakout session.

Metavante, wholly owned by Marshall & Ilsley, but on a path to be spun out later this year, is involved in almost every aspect of banking from risk management to loan originations and of course payments and online banking. The company's Products and Services page lists 78 items. I've had the opportunity to participate in its user conference the past three years, and it's mind-boggling to see the breadth and depth of its products displayed in one event. Its latest is a joint venture with leading UK-based mobile-provider Monitise, another FINOVATE presenter (press release here). On Oct. 2, Metavante will be demonstrating its Immediate Payments service, something that customers have long valued. It will be interesting to see how Metavante delivers on this tricky payment capability.

1. For those of you new to the bill-payment business, the reason snail mail beat online payments was that prior to the turn of the century, the majority of "online" bill payments were actually sent via snail mail, often from remote locations, that took longer to traverse the country than if the consumer had sent it themselves.

mShift Leads in U.S. Mobile Banking Deployments

mShift is the biggest mobile banking player you've never heard of. Despite powering WAP sites for 32 U.S. financial institutions, with several in operation for more than five years (see list below), the company remains relatively unknown. I had a chance to catch up with CEO Awele Ndili and Director of Biz Development Pam Livingston at Metavante's user conference this week, where mShift demo'd its WAP services in the exhibition hall and in a private session.

San Jose-based mShift has 32 clients live, 5 banks and 27 credit unions, many deployed through mShift's relationship with online banking platform provider, Digital Insight, now a unit of Intuit. Only 5 clients have been deployed prior to 2004. More than half (19) launched in the past 12 months, with 8 launching in December 2006 alone. 

Here's a list of mShift clients and when each first deployed WAP-based mobile banking:

2000 (1 deployment)

  • Patelco CU (Sep)

2001 (2)

  • Alliance CU (Nov)
  • VisionsFCU (Dec)

2002 (2)

  • BFSFCU (Oct)
  • Golden 1 (Nov)

2004 (3)   

  • DCU (Jan)
  • XFCU (Mar)
  • Illinois National Bank (June)

2005 (3)

  • Premier America CU (April)
  • MACU (July)
  • FlagStar Bank (July)

2006 (15)

  • VyStar CU (Feb)
  • Amplify CU (Mar)
  • First Republic Bank (Aug)
  • SAFE CU (Aug)
  • Owen Com. Bank (Sep)
  • Trumark Financial CU (Oct)
  • STCU (Nov)
  • Metro CU (Dec)
  • NIHFCU (Dec) 
  • TDFCU (Dec)
  • Allegacy FCU (Dec)
  • Metro1 CU (First Metropolitan CU) (Dec)
  • Sun West FCU (Dec)
  • Heritage Com. CU (Dec)
  • SEFCU (Dec)

2007 (6)

  • CECU (Jan)
  • Mazuma CU (Jan)
  • First City Credit Union (Jan)
  • Salem Five Bank (Jan)
  • Cardinal Bank (Apr)
  • SDFCU (Apr)

In addition to the usual balance/transaction info, the mShift system can also display check images on the mobile phone display, a service we hadn't really thought would be in high demand. But at least on larger mobile devices, such as a Blackberry or Treo, the check images are very readable. As mobile browsers improve the ability to easily zoom in on selected content (for example, Apple's iPhone), the check-image display should prove popular. It's an important part of online self-service with one caveat: However cute the check-image display on today's small flip phones, they are still largely unreadable.

Update: Steve Bills at The American Banker published an article today that discusses mShift and the advantages of a so-called vendor-neutral WAP mobile service (article here).

Expect M&A to Stir the Pot in 2006

Dust off your resumes. Companies large and small will be embracing or fending off suitors this year, and since merger-and-acquisition (M&A)activity always means staff consolidation—also known as layoffs—some of the biggest beneficiaries of such deals will be outplacement firms and headhunters.

There’s plenty of money around to make this happen. Private equity firms have identified payments as an area ripe for their attentions, in part because the sector offers their investors predictable and recurring revenues, but also because it has high organic growth rates and, aside from a handful of giants, many small firms that can be picked up cheaply.

“Private equity companies pulled in something like $111 billion for this year, and they’ve got to use it somewhere,” says Richard X. Bove, a banking analyst with Punk Ziegle & Co. “They have to buy a lot of things, and a lot of big things, and they have to put that money to work.”

Another reason for accelerating M&A activity: Payments is a commodity business so competitive that almost the only way to grow is to buy companies for their customers. And larger, established companies need to grow, or suffer the wrath of Wall Street. That combination will prove deadly this year to attractive targets.

When they do put that money to work, expect long-established company names to disappear, along with many of their jobs. “They have to add value, and add value quickly, and since they don’t know how to build businesses, they strip them, so there will be a lot of pieces (of acquired businesses) available if they buy them,” says Bove.

There were 113 closed acquisitions of various sizes last year, according to Mercator Advisory Group, and while Mercator has no estimate of the dollar value of those deals, it expects the pace of this year’s M&A deals to be brisk in the payments space—especially those originating from private equity funds, which find such deals relatively easy to sell to their investors.

“They have a hard time finding businesses that have recurring and predictable revenues going forward, and payments companies are like that, so even if the growth rate (of individual companies) isn’t what it used to be because of the maturation of the industry, private equity firms are interested,” says Evren Bayri, who tracks deals as director for the company’s credit advisory service.

Predictable, recurring revenues play a useful role in smoothing investment results, an important quality for organizations like pension funds, which need reliable revenues to fulfill obligations to their pensioners. That smoothing effect is widely considered to be one reason Morgan Stanley decided to hold on to, and grow, its Discover Financial Co. unit, even if its performance trails its competitors.

This year’s deals may be largely emerging from private equity firms, but that’s hardly to say all those deals will be small; last year, a consortium of private equity groups bought IT giant SunGard for a reported $10.8 billion. Also last year, Texas Pacific Group and Thomas H. Lee Partners, both private equity investors, invested $500 million in Fidelity National Financial Inc.’s Fidelity Information Services unit, following a failed attempt to raise several billion dollars intended to buy the whole company. Later last year, Fidelity merged the unit with Certegy, effectively spinning off Information Services and, in what was widely viewed as a side-benefit, diluting the holdings of Texas Pacific and Lee, while giving them an exit if they wanted one.

Private equity-financed deals aside, expect some really big, traditional corporate M&A deals to make headlines this year, says Bove. Think J.P. Morgan Chase & Co. buying First Data Corp., he says, or Marshall & Ilsley Corp. spinning off Metavante.

First Data, thinks Bove, may sell itself off piece by piece and distribute the proceeds to its shareholders. There’s some indication this may occur: On March 7, First Data Inc. sold its unit to CyberSource for $1.8 million in cash—an admittedly tiny deal, but one that may promise more to come. But in his opinion, it’s more likely that Morgan/Chase will buy it.

“I’m convinced that Heidi Miller is going to do the next major acquisition—she took control of that operating division to prove she could run a company, and she’s proved it—and First Data would be right up her alley” because First Data would fit into Chase’s plans to dominate the payment processing space, says Bove.  Miller is a Morgan/Chase executive vice president, and ceo of its enormous Treasury & Securities Services unit. First Data and Morgan/Chase say they don’t comment on market speculation.

As for Metavante: Bove has long thought that Marshall & Ilsley needs to spin off its payments unit in order to realize its value. “M&I has reached the point where they can’t get the overall holding company stock to go higher, and I think the only rational solution is to spin out Metavante, which they tried to do before,” he says. Marshall & Ilsley says it has no plans to spin off the unit.

One other possibility for a big deal this year? Bove expects Mellon Financial Corp. to beef up its large and well-regarded payments business this year through acquisitions.
“I think Bob Kelly (Mellon’s new CEO) was put in place for the purpose of expanding that business through acquisitions,” says Bove. Mellon denies this, saying that “Bob Kelly’s focus at Mellon is on organic growth.”

Such headlines will be flashy if they appear, but the most disruptive force on day-to-day life in the payments space is more likely to be smaller, less ostentatious acquisitions by private equity firms or the companies they invest in, intended by those shops as the kernels of new businesses, built around newer technology and innovative business models.

“The whole idea is to make a small-margin business into a wide-margin business,” says Andrew Dresner of Mercer Oliver Wyman. “What (acquirers) are looking for is a scalable model, where if you add volume, you increase your margins.”

Payments has those characteristics, says Dresner, because the underlying payments sectors have high growth rates in and of themselves—whether individual companies are matching that growth or not—and because the areas with the highest growth rates are still the domain of relatively small, innovative companies.

“That offers opportunities to do rollups,” he says. “You buy a pretty good company, and use it as an acquisition engine to pick off a lot of small companies. So you turn a small company in a high-growth industry into a big company in a high-growth industry; they’re not looking at these companies for what they have on the table today.”

One such suspect: Pay By Touch, which has attracted $320 million in new investment capital since last September—much from private equity funds—for its biometrics-based payments model. The company says it’s using that money to, among other things, grow by buying customers.

Last year, for instance, Pay By Touch bought 120,000 merchants when it acquired the assets of CardSystems Solutions late last year for $47 million in cash and stock. And in January, it closed on an $82 million acquisition of Bio-Pay, a former competitor with more than 2 million customers.

Companies like Pay by Touch may be the beneficiaries of this phenomenon, but the companies they buy are not. “If it’s a vendor play, and they’re buying a smaller company with similar technology for its customer base, I certainly see people losing jobs,” says Bayri. Even in the case of a real merger, with both parties bringing something to the table, he adds, “You see engineering jobs being cut as they consolidate the R&D staff; then they beef up the sales staff.”

The companies doing the buying—or financing it—really shouldn’t be blamed for any job losses, though, even if they are the agents of it. It’s more in the nature of business:  The private equity companies, for instance, are under pressure to perform financially, so following an acquisition, they typically begin by claiming they are returning the acquired firm to its core competencies.

As a practical matter, however, they begin laying people off, avoiding new investment in areas like research and development, and selling off subsidiaries. “They strip down the company, eliminate the costs, and make it look profitable in the short term,” says Mercator’s Bayri.

Such activity isn’t common yet, but he expects it will, if more private equity firms enter the fray; in the last year, Bayri says most M&A activity was “mostly bigger players buying smaller players, or vendors buying specific products that target specific segments.” Likely sectors: Mobile payments, health care payments, micropayments, stored-value cards, and e-commerce generally, says Dresner.

When the dust settles, the result will be mushrooming companies apparently coming out of nowhere to dominate their niche and eventually get very big. “The forces for consolidation in payments are enormous,” says Dresner. “It’s a scale business with a heavy technology business, so they all go down that path, be it merchant acquiring or PIN debit or what have you.” (Contact: Punk, Ziegel & Co., Richard Bove, 727-545-0505; Mercator Advisory Group, Evren Bayri, 781-419-1700; Mercer Oliver & Wyman, Andrew Dresner, 646-364-8444)