DEALTALK-Electronic payment processing may lure tech giants

By Supantha Mukherjee

BANGALORE, April 13 (Reuters) - Fidelity National Information Services Inc's (FIS.N) recent bid to buy Metavante Technologies Inc (MV.N) could spark a wave of consolidations in the electronic payment processing business, and technology behemoths may join in.

The highly revenue-recurring nature of the business and a chance for technology firms to cross sell their products could lure companies such as IBM (IBM.N) and Intuit Inc (INTU.O) to jump into the space.

While discussing its $2.94 billion bid with analysts on April 1, Fidelity said, along with peers Jack Henry & Associates Inc (JKHY.O) and Fiserv Inc (FISV.O), it "is conscious and aware of the future competition from the IBMs, the Oracles, the HPs and others."

"IBM is looking at this space as we speak," Fidelity CEO Lee Kennedy said in the conference call.

In the same call, Metavante CEO Frank Martire said: "If you look at the IBMs and the Oracles and maybe others, they have the resources. They have the capital to quickly become very competitive."

IBM, Oracle Corp (ORCL.O) and Intuit declined to comment.

Fidelity's view was backed by another company in the sector, Online Resources Corp (ORCC.O).

"IBM and Oracle are already major players in banking technology software and services. It's hard not to see them get into payments and other processing in the next couple of years," Online Resources' Chief Executive Matthew Lawlor said in an e-mail.

And one of the possible ways to enter the market is by buying an existing core processor.

Analysts think if IBM or Oracle wants to make an entry they will most likely buy a bigger company than try to jam a whole bunch of systems together.

David Koning, an analyst at Robert W Baird, said the technology companies will be attracted by the highly recurring revenue of close to 90 percent the payment processors generate, and as banks generally tend to buy a lot of technology, they can cross sell their products over time.

Another potential lure for the big firms is the global presence of payment processors. Fidelity, for example, has offices in 27 countries and does business in 90 countries.

But analysts believe that the bigger companies may take some time to enter the space.

"You hear rumblings from those guys that they want to move in the financial services sector though we haven't seen a lot," DA Davidson & Co analyst John Kraft said.

Oracle and IBM will get more aggressive in the big banks space before moving down market, he added.