First Annapolis Survey Provides Insight into Community Bank Processor Relationships
Analysis of the outsourced processing market has generally focused on the processing vendors of the largest financial institutions given their share of total card volume. This segment of the market is primarily served by the largest providers, including First Data, TSYS and Visa DPS. Processing relationships at community banks1; however, are more difficult to track. While these institutions represent more than 90% of banks in the U.S., they account for approximately 20% of debit volume and only 1% credit card purchase volume2.
First Annapolis recently conducted a primary research survey of debit, credit, and core banking processor relationships among the community bank segment in 2012. The telephone survey, which included 50 community banks with assets between $250 million and $3 billion, examined debit, credit, and core banking processing relationships.
Of the banks surveyed, FIS was the leading provider of debit processing services with a 35% share across respondents. Rounding out the top three were Fiserv at 23% and Jack Henry at 19%. FIS, Fiserv, and Jack Henry also claimed the top spots in both credit and core bank processing services. These results are indicative of the movement towards consolidation in the industry. There has been significant consolidation through acquisitions as FIS (Certegy, E-Funds, and Metavante), Jack Henry (Pemco), and most recently Fiserv (Open Solutions) completed major M&A transactions since the mid 2000s.
Of the survey participants, 39% of banks reported using the same provider for credit, debit, and core bank processing services. Anecdotally, some banks indicated that the debit processing selection is closely linked to the bank’s core processor relationship. This phenomenon is generally driven by discounts for multiple services, improved customer service, and reduced vendor and contract management overhead. However, 29% of banks surveyed use different providers for core banking and debit processing services, and each of the top core banking processors maintained larger shares of core processing than debit processing. These observations suggest that while using the same provider for both core and debit processing may be convenient, many community banks are willing to work with multiple providers for reasons such as functionality, cost, and service.
Processing relationships with the top financial institutions are difficult to displace and limited in number. As a result, processors have announced that they will target the more fragmented community bank segment to help achieve growth targets. First Annapolis expects competition for these relationships to intensify as processors look to solidify their positions and increase revenue within the community bank segment.
1 This study defined community banks as those with assets below $3B and excludes subsidiaries of foreign institutions. N=50.
2 Source: SNL data, Nilson Report, and First Annapolis Consulting analysis.
For more information, please contact Casey Merolla, Senior Manager, email@example.com; or David Abraham, Consultant, firstname.lastname@example.org. Both specialize in Deposit Access and Prepaid Strategy.
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