By Art Gillis
www.artgillis.com

Two key drivers influence the financial services tech world these days: 1) vendor consolidation and 2) integration of applications. In my opinion, both make sense and they are very beneficial no matter on which side of the fence one resides.

Vendor consolidation has been happening for at least the past twenty years. In 1987 there were 113 core applications companies. Today (4/25/07, 10:15 AM Central Time) there are 29, with 4 at the top and 25 wannabes.

Integration of applications should have been occurring in the late fifties (which I call Day 1), but who knew then. Integration is still going on today, and the 128 largest banks are the worst offenders. Their systems look like patchwork quilts with one vendor doing one application. “Interface” is a euphemism for the Elmer’s Glue of large bank systems. “Integration” is a word that comes up only during their sweetest dreams.

Consolidation and Integration play very well together for one practical business reason: If you own the company, you can integrate the applications. Best of Breed works at a dog show, but in the world of technology, it’s like trying to make Iraq look like Iowa.

CheckFree and Certegy are two very good specialist companies at what they do. CheckFree is No. 1 in the Electronic Bill Presentment and Payments business. Certegy is either No.1, No. 2 or No. 3 in the credit card business, depending on who the judges are in this “American Idol” contest.

Another common characteristic they share(d) is they are two very good tails looking for a good dog. Certegy found its dog (Fidelity) and both are doing very nicely one year later. According to Wall Street, CheckFree is licking its wounds, and according to me, needs to find a good dog. But that right dog is taking too many naps and won’t hunt. Give it time. It’s bound to happen.

Disclaimer: Art Gillis does not do M&A work, and he doesn’t know the first thing about investing. He doesn’t own stock in any of the 24 public companies included in Automation in Banking - 2007.

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