Bank Tech Vendor Consolidation Will React to the Times

I am happy that I have never been called a visionary. The "cover boys" of past bank tech trade journals expressed their visions, only to later disappear off the leading edge of technology. It's a lot safer, and longevity is assured, if you report what you can see, hear, touch, taste and smell.What I'm sensing right now as I compile the 2010 Edition of Automation in Banking is reality. And reality is a euphemism for "don't exaggerate self-serving expectations." Believing the wish is like a drug-induced euphoria. In my opinion, 2010 will be the hope that didn't occur. 2011 will be the year to cure the hangover. And 2012 will be the beginning of a new banking industry based on fundamentals and closely-tied technologies.

The old paradigm for tech vendor growth was a simple one. In 1987, there were 113 companies delivering bank core processing services and software to U.S. financial institutions. The script was not exactly like the one in the Godfather movie when Michael Corleone approached Moe Greene to buy his casino. But some say it was close. In the no-glamour business of bank IT, an acquirer would approach an acquiree and say, "We like your company because you do the same things we do and you share our values. We're bigger than you are, but together we will be even bigger and more profitable. Join us and we'll grow together." Today, I know of only one company that refused the offer, and they still have both knee caps.

These days, the script is different; it isn't happening in Las Vegas; the new DOJ is granting its approval; and no one's wearing a Giorgio Armani suit. The initiators' script says, "It's a whole new ball game that we didn't see coming, and we don't control it. We do the same things for the same customers, so let's build market share to a point where an IBM and some other giants will notice and buy us out."

If that scenario stings, here's a milder one. Large bank tech companies will continue to do a good job servicing thousands of financial institutions. Their native (aka organic and internal) revenue growth will be 2 to 4%. Maintaining a low cost base will be the way gold cups are earned. And earnings call presentations will put Wall Street analysts to sleep. The best label I can put on this situation is "stability."

At the same time, small tech companies will be rising to the occasion with a few good ideas (not many) that no one has addressed yet because the tech entrepreneurs see things that the Congressional Budget Office sees also - there are no real solutions in place to prevent another 2007-8.

And this from a guy who can't even tell you which shirt he's going to wear tomorrow.