Information technology (IT) services and systems provider Fiserv Inc. (FISV”>FISV) recently announced that two of its subsidiaries, CheckFree Corp and CashEdge Inc, have filed a patent infringement suit against Fidelity National Information Services Inc. (FIS”>FIS) and its subsidiary Metavante Corp.
As per the case filing, Fiserv subsidiaries complained that Fidelity and Metavante’s products and solutions violate Fiserv’s intellectual property that processes inter-bank account-to-account fund transfers, payment instructions and electronic biller notifications.
Fidelity acquired Metavante in 2009, thereby merging two of the largest core transaction processing service providers together, resulting in significant cross selling opportunities. Metavante acquisition expanded the scale of Fidelity’s core processing and payment capabilities, and added comprehensive trust and wealth management processing services as well as the NYCE Network to the company’s existing electronic fund transfer (EFT) offerings.
The acquisition catapulted Fidelity to the position of leader in the bill-pay processing market traditionally served by a handful of players including CheckFree (acquired by Fiserv in 2007), Online Resources and iPay Technologies. The acquisition made Fiserv a direct competitor of Fidelity.
We believe that the lawsuits reflect increasing rivalry between Fidelity and Fiserv. Over the last 12 months, Fidelity and Metavante have developed a strong track record of serving regional banks, community banks and credit unions. On the other hand, Fiserv continued to expand its consumer payment footprint by signing 114 electronic bill payment clients and 48 debit clients during the third quarter, which reflects its strong product portfolio, in our view.
However, we believe that enhanced operating efficiency has been the primary reason for Fidelity’s ever-growing banking clientele. Currently, increasing consolidation, tightened regulations, lower interest rates and liquidity crunch have forced the U.S. banks, particularly small banks, to look for ways of diversifying their operations in a cost effective way. Fidelity’s low-cost platform has emerged as a messiah for these institutions in recent times.
Over the last few months, a number of banks from different parts of the country have chosen Fidelity’s solutions. Recently, Fidelity’s banking and payments technology solutions were chosen by more than 80 financial institutions. Banking institutions such as CoreFirst Bank & Trust, First National Bank of Omaha, People’s United Bank and Marquette Bank also opted for Fidelity solutions. We believe that a steady flow of new banking customers will boost Fidelity’s top-line growth going forward.
We also believe that the widening client base will improve Fidelity’s competitive edge against Fiserv Inc. in the financial and payment solutions segments going forward. However, the uncertainty surrounding the outcome of the lawsuit will remain an overhang on Fidelity in the near term.
We maintain our Neutral recommendation on Fidelity over the long term (for the next 6 to 12 months). Currently, Fidelity has a Zacks #3 Rank, which implies a short-term Hold rating (for the next 1-3 months).
FIDELITY NAT IN (FIS): Free Stock Analysis Report
FISERV INC (FISV): Free Stock Analysis Report
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