And then there were four…Fiserv acquires Open Solutions

On January 14 Fiserv announced that it closed the acquisition of the equity of Open Solutions for $55 million.  At this size the deal was not subject to regulatory review.  The result: there are now only four major U.S. based Core Solutions providers: Fiserv, FIS, Jack Henry and Harland. Fiserv touted three key strategic benefits to the transaction:
  1. An expanded base of account processing clients,
  2. The “high quality and innovative technology” of Open Solutions’ DNA platform, and
  3. The wise use of Fiserv’s capital.
Overall, Celent views this as a win-win transaction for the firms. Celent  sees two key benefits for Open Solutions customers, existing and potential.  First, questions about the company’s staying power are moot: under Fiserv’s umbrella, Open Solutions is now financially viable. Second, Open Solutions, at least theoretically, gains access to Fiserv’s proprietary  complementary products such as Corillian and Mobiliti.  If Fiserv executes to its historical standards, the implementation will go well. As for Fiserv, it gets access to a real-time relational database structured to be charter- and geography- agnostic, together with multi-currency capability.  This gives the company technology to accelerate its international expansion, particularly with smaller community-based banks (Fiserv estimates there to be 40,000 such institutions globally). Questions that we’re interested in:
  1. How much did defense factor into Fiserv’s strategic calculus – that is, did it pursue this acquisition to prevent a foreign entity from purchasing Open Solutions?
  2. How well will Fiserv be able to integrate DNA into its current Acumen offering, and will it meet its 24-month target?
  3. Fiserv spent a lot of time discussing the implications for Credit Unions; what should banks currently running on DNA expect to come out of this?
  4. What will happen with DNA vis a vis Fiserv Premier, Precision and Cleartouch?  Might DNA customers be encouraged to move to Premier or Precision?  And might Cleartouch users be migrated to DNA?
  5. What must Jack Henry and Harland be thinking?
Overall, this lifts a potential cloud for any potential Open Solutions customers worried about the firm’s long-term viability and creates new international opportunities for Fiserv.

Open Solutions Creates an App Store

Open Solutions is taking a page out of Apple’s playbook and creating a development platform, DNA creator, and DNA appstore. This is interesting on a couple of fronts. First, let’s discuss what is the same as Apple iTunes?
  • There are reviews of each app.
  • There is a community forum for developers.
  • There are free and paid apps.
  • Third parties can and do develop apps.
  • Apps are approved by the Open Solutions.
  • Open Solutions takes a 30% share of revenues generated, the same as Apple.
But what’s different?
  • Apps are rigorously tested for compliance, security and functionality.
  • Even paid apps can be downloaded for a free trial in the test environment.
Why I think this is a good move and can work for Open Solutions: 1. Their clients are small. They are unlikely to view each other as competitors. Wells Fargo and Bank of America are unlikely to share development applications. If they do they form a JV such as Pariter. Most, but not all Open Solutions customers are much smaller and are unlikely to be geographic competitors. 2. Open Solutions has about half of their clients as credit unions, which will play strongly to a spirit of cooperation. 3. They will take advantage of a growing trend in small app development. 4. They have a clean way for distribution partners to customize and localize. 5. About 10% of Open Solution customers are banks and credit unions of over $1 billion. These guys have a large enough development shop to create apps. 6. Open Solutions has a modern architecture. As I stated in a recent blog, banks don’t buy architecture; they buy features and functionality. This allows Open Solutions to translate their more modern architecture into features and functionality. Why I think this is a challenge: 1. Many clients are small and are unlikely to have development capabilities. They will be app buyers, but not app producers. 2. Banks might not be as likely to share code as credit unions. They will buy, but will they create? Overall I think this is a win for Open Solutions and its customers. Customers can get faster enhancements cheaper through the app store. Open solutions gets more developers to help them improve functionality, which is what banks and credit unions really buy. It is also something that competitors with legacy systems will have some difficult emulating, given the architecture of their systems. Will it change the world? Perhaps, but perhaps not. If we look at the roughly 600 customers of Open Solutions and take 10% of that (institutions > $1 billion), we find 60 banks and credit unions. If each devotes 2 developers to apps, that’s 120 extra people, assuming 100% participation. Will it help improve the platform. Absolutely. Will 120 developers change the world of core banking? Perhaps.