Monday , November 18, 2019

As the Fiserv-First Data Behemoth Looms, Jack Henry Issues a Subtle Warning

With the proposed merger of processing giants First Data Corp. and Fiserv Inc. looming over the payments landscape, players that both work and compete with the two companies are in a potentially ticklish position. But the chief executive of one such company made it clear Wednesday morning that First Data and Fiserv may have to tread carefully.

“We will become a significant customer for Fiserv. It’s in their interest to see we’re happy and successful,” warned David Foss, CEO of Jack Henry & Associates Inc., a Monett, Mo.-based provider of core processing and payments software for small banks and credit unions. Under the terms of the merger deal announced Jan. 16, Fiserv will acquire First Data in an all-stock transaction valued at $22 billion. If the deal clears regulatory hurdles, it is expected to close in the third quarter.

Foss: “It’s in [Fiserv’s] interest to see we’re happy and successful.”
Jack Henry competes directly with Fiserv in core processing for banks and has worked in the past with the Brookfield, Wis.-based financial-technology provider on managing person-to-person payments. “We have worked in a co-opetition partnership [with Fiserv] for years,” Foss said during a conference call to discuss Jack Henry’s results for its second fiscal quarter, which ended Dec. 31.

Meanwhile, a card-processing agreement Jack Henry has with Atlanta-based First Data and the credit union processor PSCU, announced less than two years ago, will also presumably be absorbed into the new, expanded Fiserv. Under that agreement, Foss explained Wednesday, “the role of First Data is to process transactions. We expect they will continue to process transactions for us.”

While warning twice during the call that the newly expanded Fiserv will have to reckon with the business Jack Henry generates, Foss gave no indication that current business arrangements will be changed in response to the merger. Indeed, he said “the platform we have with First Data is a terrific platform for Jack Henry.”

Foss also argued Jack Henry historically has been an effective rival to both Fiserv and Jacksonville, Fla.-based Fidelity National Information Services Inc. (FIS), another giant in core processing and payments. “We have a long track record of winning against them,” he said. “It’s business as usual competing with them.”

Foss discussed the impact of the Fiserv-First Data announcement in reply to questions from stock analysts during the call.

As for Jack Henry itself, Foss said he is pleased with a solid book of expected business and pointed to it as a bulwark against any potential economic slowdown. “Our sales pipeline is up 26% compared to where we were at the end of June. Frankly, I’m shocked we’re up 26%,” he said. “Right now, the spending environment is very strong. We don’t see any impact so far as spending is concerned.” While Jack Henry had been losing clients for payments services “because they weren’t happy with the Jack Henry solution,” he added, “that has virtually come to a stop now.”

For the quarter, Jack Henry logged $386.3 million in revenue, up 8% year-over-year. For the six months ended Dec. 31, revenue came to $778.8 million, also an 8% increase versus the year before. As with many other companies, the federal Tax Cuts & Jobs Act temporarily impacted the company’s net income, a figure that dropped to $68 million for the quarter, down from $161.2 million.

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