Vendor relationships are an essential requirement of managing a credit union. All credit unions contract with an external vendor for their core processing operations and many ancillay addons.
Only one or two of these vendors are credit union owned CUSO’s. The others are for profit companies some privately owned and others public. Some serve primarily credit unions; others the entire financial market.
Credit Union DP’s Market Share
The largest market share for critical back office operations is Fiserv. In a 2024 survey, they served 1,264 credit unions or 27% of the total market. This share is provided through almost a dozen core options. This variety reflects FiServ’s business model of growth through acquisitions of independent credit union dp providers.
The next highest dp vendor’s share is Jack Henry with 544 credit union clients on a single platform.
A $30 Billion Loss in Market Cap Creating a Decline of 42-44% in Share Price
Yesterday Fiserv announced its operating results for the third quarter. The surprise result stunned the market. From Bloomberg’s Evening Briefing:
Fiserv stock suffered a record plunge after the fintech slashed its outlook for full-year earnings and unveiled third-quarter results that confounded Wall Street analysts. Chief Executive Officer Mike Lyons, who took the reins in February, said he discovered that Fiserv wasn’t going to be able to deliver on its previous promises after a broad-based review of the business in recent months. Lyons’ predecessor running Fiserv was Frank Bisignano, who left to join the Trump administration.
“More financial surprises emerged in the start of Q3,” Lyons told analysts on a conference call. “That prompted not just the annual strategic planning process, but this much more rigorous review into our financials. And that was also driven by some of the stuff we’re hearing from our clients.” (emphasis added)
Analysts expressed surprise at how quickly the business appears to have soured. Trevor Williams at Jefferies said the magnitude of the earnings miss and forecast cut “is difficult to comprehend.”
“To be frank, we are struggling to recall a miss and guide down to this degree in any of the sub-sectors we have covered during our time on the Street,” Matthew Coad, an analyst at Truist Financial, said in a note to clients.
What’s Next for Fiserv? For its Credit Union Clients?
The most revealing phrase in Fiserv CEO Lyons call was the reference to some of the stuff we’re hearing from our clients. That is pretty frank talk from a CEO facing a market confidence meltdown.
What’s next for credit unions? With up to twelve different core solutions and serous earnings pressures, some consolidation forgreater efficien would seem inevitable.
In addition to being aware of what changes may be coming, the next important question is what are my options? For the short run? And the longer run when my dp contract is up?
This uncertainty will put the focus on other credit union dp providers, especially those who may be credit union owned. Or credit union focused vendors who would appear to be financially stable, and not positioning for an eventual windfall sale to an outside party.
With all the public focus on new technology, it is important to remember the value of long term reliable relationships. The unique credit union solutions of creating CUSO’s to serve common tasks becomes more promising than ever. While CUSO’s must compete with for profit alternatives, often with greater resources, they do not confront the prospect of market sell offs driving business decisions.
Whatever the outcome of Fiserv’s fall from market grace, it should prompt a greater awareness and examination of each credit union’s core provider. What do you know about the company’s financial circumstances and client satisfaction?
A couple of key verbatims from the analyst call (courtesy of Cleveland Research):
-Over the past few years we have deferred certain strategic investments and cut costs for short-term improvement and this is now limiting our ability to serve clients, execute product launches, and grow revenue.
-Our recent results have emphasized short-term quarterly outcomes as opposed to long-term relationships.
Anyone interacting with the firm was aware of these “revelations” years ago.
That said, I don’t see yesterday’s stock meltdown as reason to reevaluate a vendor relationship, if a CU hadn’t already reached that conclusion. For instance, I don’t believe it calls Fiserv’s viability as a going concern into question.
If anything, the firm’s mea culpa- and acknowledgement that further cost cutting is not the path to prosperity- offers some hope of an improved service environment. One may not believe them, but I’m not seeing how a customer’s outlook is any worse than last week/month.
During my active participation as President and Board Member of NACUSO I often talked of the importance that credit unions control the ownership of member data, most often accomplished using the CUSO business model. This strategy applied in particular to data which could be found in their core transactional platform, their lending platform and their off balance sheet member investment products (brokerage services). This FISERV issue is just the tip of the iceberg.