Fidelity Jumps into Credit Union Processing Market with Acquisition of Aurum

PLANO, Texas and JACKSONVILLE, Fla. – With all the deals among data processing vendors, credit unions may soon need a PowerPoint presentation just to connect all the dots of who bought who and who is the parent company of which processors. The latest deal involves Aurum Technology. Aurum, based in Plano, Texas, is being acquired by Jacksonville, Florida-based Fidelity National, a mammoth Fortune 500 company that has transformed itself into one of the nation’s largest financial outsourcing providers of mortgage loan processing and bank core processing. Fidelity will pay $305 million in cash and stock for Aurum. Fidelity National made its name as the nation’s largest title insurance company, but it has undergone a fascinating transformation in recent years. “If you look at our history dating back to 1983 we’ve been very, very focused on the mortgage title insurance and mortgage related services. We made a significant strategic change in 2003 with the acquisition of Alltel to diversity the business and focus on the retail and commercial banking functions. Alltel gave us entry into the market,” said Gary Norcross, president of Fidelity’s Integrated Financial Solutions (IFS) division which is where Aurum will be folded into. Alltel also gave IFS the world’s largest CU as a client as Alltel was the core processor for Navy FCU. Alltel was just one of the deals that has helped transform Fidelity into an outsourcing player of tech services to financials. It also acquired Internet banking/cash management software firm Hamilton and Sullivan, the DASH ATM/EFT Network, and CRM provider WebTone Technologies – all in 2003. So far this year it has moved to the core processing arena with the acquisitions of core processor Sanchez Computer Associates and now Aurum. Its 2003 revenues were $7.7 billion. Norcross said the strength of the credit union industry was one of the reasons Aurum was so attractive. “It’s a flourishing market that tends to have a propensity to invest in technology. That’s exciting for us. While on the other hand the traditional retail banking market has been declining three to five percent a year,” said Norcross. Aurum brings Fidelity into the CU market as well as the community bank and thrift markets. Aurum, founded in 1999, is an interesting story in its own right. It was a spin-off of EDS’ community banking division. EDS for the last few years has been dumping businesses it dubbed non-core, including CUs (EDS’ CU business -now IntegraSys – was sold to Fiserv last year). The leaders of Aurum decided that its community banking roots would help it penetrate the CU market and they were proven right on the upper asset scale. Aurum was having success with large credit unions, especially because of its business banking capabilities, but it soon found that its product didn’t work well for smaller to mid-sized CUs. So just last May Aurum, in a deal that solidified its commitment to the CU marketplace, Aurum acquired credit union data processor Computer Consultants Corp. That deal brought it 600 credit union clients, mostly small CUs under $100 million in assets. The plan was to ramp up CCCorp’s Mercury system (a redesigned system built around Microsoft’s .net and SQL) to help move it up market to larger CUs. So why did Aurum do a deal now after making such a major acquisition of its own? Aurum President Paul Bourke said the company needed more money to grow the way it wanted. “One of our challenges as a private company in adding more business was always going to be our financials,” said Bourke. He said leaders from Fidelity and Aurum started talking last fall and at the time Aurum still had thoughts of staying independent, but the financial strength Fidelity brought to Aurum was too beneficial to pass up said Bourke. When the deal is done the Aurum name will likely go away said Norcross, but it will keep Aurum’s product names alive, such as its Miser core system. Burke said Aurum brought together its nine largest clients recently and found the clients were a bit disappointed in Aurum’s marketing of the company. “They didn’t think we were aggressive enough in building name recognition. The good news was our product names, such as Miser, were well known,” said Bourke. Unlike Fiserv, which takes a hands-off approach with companies it acquires, Norcross said Fidelity is very hands-on. “We like to understand the businesses we’re in. When we come into an industry we want to compete. We bring significant amounts of capital. We’re not going to enter into the credit union space and stop,” said Norcross. Aurum may be best known among credit unions for its core processing, but it’s also a force in item processing. It has 24 image-enabled item processing sites and processes eight million accounts for more than one billion items a year. Fidelity is also a large item processor, but Norcross said there wasn’t much overlap between the two with item processing and solutions in general. “If you look at the Aurum/Fidelity combination there is very little overlap between our two companies. As we did more due diligence there was really very, very little overlap even where we have common areas. Aurum has a national footprint on item processing check solutions, which is a geographic business. When we laid their footprint over ours there was no redundancy, except for one center,” said Norcross. Norcross said Fidelity plans to use Aurum to deliver other products, such as CRM and others, to credit unions. “That’s frankly one of the things well be evaluating; what are the opportunities we can bring to the credit union space, whether it’s ATM/EFT processing or CRM. There’s a lot of stuff we can bring just because of the size of Fidelity,” said Norcross. In the community bank processing market at least it’s looking more and more like a three-way race. “The big three in that market are Fiserv, Jack Henry and now Fidelity. Then you drop down to Harland, BISYS and Metavante. The big three are flexing muscles with acquisitions,” said Robert Hunt, TowerGroup, Senior Analyst. Hunt said he’s been impressed with Fidelity’s ability to round out its product line. “I think the WebTone acquisition showed they wanted to really compete with Fiserv and Jack Henry,” said Hunt. For credit unions the DP picture is a bit different. With the acquisition of the EDS division Fiserv has the most CU clients between its seven data processing subsidiaries – USERS, IntegraSys, Summit, XP Systems, GalaxyPlus, CUSA Technologies and AFTECH. Jack Henry is another major player as the parent company of Symitar Systems. Its other CU acquisitions include CU Solutions and Peerless Systems. With the Aurum deal, Fidelity moves into the CU market and given Aurum’s 600-plus CU clients it is a major factor in the market. But there are other forces in the CU space. Open Solutions has become a leader with large credit unions and corporate credit unions, and it picked up more small and mid-sized CUs when it acquired Liberty Online last year. Harland Financial Solutions is also a powerhouse. Its ULTRADATA unit now has almost 700 CU clients, and it added a service bureau system with the acquisition of Premier Systems Inc. last year. PSI’s system is basically the ULTRADATA system in a service bureau mode. [email protected]