What Banks Need To Know About Vendor M&As
The Need to Simplify
Christine Barry (pictured to the right), Research Director, Aite Group
There definitely has been another surge in vendor mergers in recent months, a trend I expect to continue. This most recent wave of activity is being driven largely by bank desires to limit their number of vendor relationships and the need for vendors to fill gaps and/or further strengthen their competitive positioning. Banks are looking to consolidate vendor relationships in an effort to enjoy better pricing (as a result of bundled offerings). Many are also telling us that regulators are making it almost impossible for them to have multiple vendor relationships. This desire by banks is resulting in the second driver of M&A described above.
Those vendors best positioned to succeed will be the ones capable of meeting most, if not all, of a bank's technology needs. Vendors are reexamining the depth of their product portfolios and their ability to offer those products most demanded by financial institutions. For example, while FIS already had a mobile offering and partial ownership of mFoundry, its acquisition of the vendor better positioned it to be a leader in this key area of bank focus and investment. Further, Fiserv's acquisition of Open Solutions better positions the vendor to see significantly more success among credit unions.
These trends are making it increasingly difficult for smaller technology providers with narrow product portfolios to succeed, even though their niche focus and more nimble organizational structures often lead to greater innovation. The implications of this industry consolidation for banks will likely be more one-stop shopping, tighter integration across products, and more bundled pricing opportunities. Of course there will also be fewer options in the market and less vendor competition, which is never a good thing.