Callahan Tech Study Shows Fiserv Dominates DP Market; DI Has Biggest Slice of Net Banking Pie

WASHINGTON – For the past 11 years, Callahan & Associates has published its Credit Union Technology Survey, a 250-page or so tome of numbers, tables and commentary, and one of the things folks flip to first is market share among the big vendors vying for the hearts and wallets of decision-makers across credit union land. The 2003 edition is now available, and while it shows the continuing effects of consolidation in the credit union vendor space, its authors already are looking forward to next year, when the pie charts could show much more dramatic changes than the usual year-to-year incremental shifts. “The biggest thing we’re seeing in the data processing market is consolidation and acquisitions, the larger guys trying to broaden their market penetration by acquiring smaller operators and clients, and that’s going to show up more next year,” says Niral Patel, a Callahan corporate associate who spearheaded the book’s number crunching. She says she got most her data from the vendors themselves, with some NCUA and other figures, while Jay Johnson, Callahan executive vice president, wrote much of the market share commentary. As for market share for core processing, it should be no surprise that the six Fiserv core processors continue to dominate, with 40.1% of the market for credit unions of $25 million in assets on up, according to this year’s newly released Callahan annual. That number is down slightly from the 42.4% Fiserv’s operating units had last year, but it will obviously change in next year’s book after Fiserv finalizes its purchase of EDS’ credit union group. (See story on page 4.) That would add another 10 percentage points to its market share in the core processing space. Symitar Systems is second on the list for 2003, with 10.3% of the core processing market, with Harland Financial Services (ULTRADATA) close behind at 8.5%. Of course, Harland has just purchased Premier Systems and its collection of generally smaller credit unions, and Symitar bought CU Solutions and its more than 100 credit union clients. Then there’s Aurum, an EDS spin-off which had about 10 credit union clients until it just bought Computer Consultants Corp. and its 600-plus generally small credit union clients spread across the country. And Open Solutions Inc., which is on a hot streak in attracting big CU clients, just picked up Liberty FiTECH’s core processing business. Of course, the book tried to be more than just who’s buying whom. The authors, for instance, discuss how core processors themselves have to increasingly consolidate their own services to meet the swiftly changing needs of their credit union clients of all sizes who need to offer an integrated set of services to their demanding member base. Indeed, integration of solutions is a theme heavily touched on in this year’s book. For instance, in a section titled, “Evolving the E-Experience”, Johnson and his editors write: “Credit unions’ current goals for Internet strategy are a far cry from their potential. Consumers’ assimilation of computers is growing constantly, making e-commerce an evolutionary process.” That includes integrating Internet activity into every channel and coaching the front-line staff to get involved. The Callahan analysts make no bones about what credit unions should do about this process: integrate the branch experience with the home banking experience and everything in between, involving the whole breadth of consumer transactions from simple deposits to the most complex of loans. “Continuing the evolution to the ultimate goal of completing entire transactions requires an evolutionary strategy and long-range planning, along with constant review along the way,” the Callahan authors write. “The current buy-and-wait approach is simply not cost effective. It wastes resources on incremental solutions that, in isolation, have little shelf life.” In other words integrate the technology into the daily work-life and attitudes of the people who wield those tools for the members. The numbers to justify that kind of emphasis are there. Credit union deposits industry-wide are growing, of course, while as of June, there are now 2,700 credit unions offering Internet banking, nearly double that of two years ago and more than 10 times than there were five years go. And there are a lot of companies involved, and a lot of competition. Third parties have a significance presence here, but core processors still provide a significant share of the functionality themselves. For instance, Digital Insight has 20% of that market in the CU space, up slightly from 19.1% in last year’s Callahan tech survey. However, core processors taken together account for more than 40% of the online banking market as they continue to integrate that functionality into their offerings. The numbers are pretty close, in fact, with Fiserv’s USERS at 7.7%, Symitar at 7.6% and HFS-Ultradata at 6.6%. Another 31.8% of online banking to credit unions is provided by “other”, including Online Resources, which last year accounted for 9.1% of the market, the most after DI. Bill pay is another area that demonstrates the growth of such services, and when Bank of America dropped its fee for the service, that sent many competitors off to do the same. “The implication is clear: bill pay is no longer an add-on service but has quickly become a standard offering,” the Callahan authors say. That’s because the growth here is particularly dramatic. Bill pay users nationally are expected to reach 40 million this year, a 38% increase over 2002, according to Gartner Inc. research figures. One area where there’s no clearly dominant player is e-statements, according to the Callahan book, and it’s an area that also is showing some remarkable growth. Last year, 141 credit unions offered e-statements. This year, it’s 567, according to Callahan research. “The adoption rate parallels that of Internet banking, which took a similar time period to reach the 500 credit union mark before adoption rates greatly accelerated, Callahan says. As for e-statement vendors, “other” is the big player here, at 43.7%. USERS was second at 11.6%, DI had 7.6% of the market, while specialists like Reed Data (6.9%) and Lasertec (6.7%) also were staking claims. In-house IT shops also were involved, making up 5.1% of the e-statement service market to credit unions, the Callahan figures say. E-statements also offer the ability to target messages and can be used to offer check images, as well, and their proven cost-cutting efficiencies also make them an attractive growth service, especially to members who like to “self-direct their transactional needs,” Callahan’s authors write. “In such a rapidly developing market, there are likely to be many changes among market leaders in the next few years,” the book observes. And, according to the many trends highlighted in this year’s Callahan Credit Union Technology Survey, that holds true for electronic offerings as a whole. -