A Thin Field for More Deals like FIS’s Acquisition of mFoundry

When the FIS acquisition of mFoundry was announced last week — along with ACI Worldwide’s acquisition of Online Resources — analysts nodded, not surprised. FIS already held a stake in mFoundry and re-sold its solution. The deal made sense for both sides. So we should expect more of this, right?

Mark Schwanhausser, director of multichannel financial services at Javelin Strategy & Research, said, “This is absolutely no surprise to me,” adding, “Consolidation in the vendor space reflects consolidation among banks, and especially larger banks acquiring smaller banks or outright stealing their best customers due to advanced capabilities in mobile, online or what we call the Customer-Driven Architecture.”

At Javelin, Customer-Driven Architecture is a seven-phase road map that is based on consumers and business customers increasingly seeking real-time, always-on, transparent capabilities.

“Expect this to continue,”  Schwanhausser said. “It’s essential in order for forward-focused community banks and credit unions to survive.”

Schwanhausser went on to describe the necessity of having skin in the mobile game.

This acquisition is another reflection that companies like FIS realize that banking without strong mobile is like being a human with a nervous system. Mobile will play an essential role in delivering the real-time, always-on experience consumers demand. It will initiate conversations with consumers by delivering the financial alerts that help consumers monitor and manage their money more smartly. It will deliver [and] assist consumers in everyday activities and transactions as they shop and pay, and so forth.

Jeff Crawford, an analyst at First Annapolis Consulting, pointed out that the acquisition made sense for FIS because “it is easier to acquire than to develop new solutions in-house, particularly from a user-experience point of view.”

That make sense for FIS, but what does mFoundry get from the deal?

“They did a good job getting share from the Top 100 providers, but those players eventually looked into in-house solutions to differentiate more from the rest of the market,” Crawford said. “There are 10,000 different financial institutions out there.”

There were many opportunities for mFoundry to acquire clients from among this 10,000, but the company didn’t have the sales and distribution strategy of an FIS, so they eventually hit a ceiling.

“FIS has the distribution to smaller institutions,” Crawford said.

mFoundry already benefited from FIS’s distribtution network before the transaction, since FIS was re-selling mFoundry’s solution, said David Albertazzi, a senior analyst at Aite Group, another consultancy.

“There are benefits to being fully incorporated for both parties,” Albertazzi said. “FIS has the R&D budget to help mFoundry’s platform develop. And this re-emphasizes FIS’s focus on the mobile channel. At the end of the day, it’s better to own the assets.”

As for the acquisition itself, Albertazzi said, “As long as there are point solutions providers out there, there will be acquisitions by the larger guys. But there are not that many opportunities like this, if you take a look at the landscape of who is left as an independent company.”

He singled out mobile solutions provider Malauzai as one of the few examples of companies with a proven mobile platform that remains independent.

So where should bank service providers look for the next round of acquisitions? First Annapolis’s Crawford agrees with Albertazzi that the field of mobile acquisition targets is thin.

It made sense to add mobile, but there’s just not that many mobile banking providers left. What is left are wallet offerings, integrated marketing such as offers and rewards. FIS works with Paydiant for its cloud wallet offering. The next step could be things like this. But the problem is wallet adoption lags so far behind mobile banking adoption. 81 of the Top 100 banks offer mobile banking. But wallet adoption is very low.

We are not so sure the field of targets is so thin, however. Companies like Geezeo, Prosper, Q2EBanking, and Solstice Mobile seem like viable potential targets.

Mobile banking adoption is skyrocketing today, while mobile wallet adoption is stagnant as standards are still being sorted out in the crowded space. If mobile wallet adoption takes as long as some say — perhaps five or ten years — the round of mobile-wallet acquisitions by players such as Fiserv and FIS could take just as long.

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