IBM and other tech giants looking to enter payment processing industry

A recent announcement of Fidelity National Information Services Inc. to acquire Metavante Technologies Inc. is expected to spur even more consolidations within the industry, says Reuters. Some observers believe that this trend could be joined by technology players like IBM, Oracles, HP, Intuit Inc. and others.

Key factors that can drive tech giants enter the payment processing market are high revenues and an opportunity to cross sell their products to financial institutions. According to David Koning, an analyst at Robert W Baird, the technology companies will be attracted by the highly recurring revenue of close to 90 percent the payment processors generate, and as banks generally tend to buy a lot of technology, they can cross sell their products over time.

"IBM is looking at this space as we speak," Fidelity CEO Lee Kennedy said in the conference call.

"If you look at the IBMs and the Oracles and maybe others, they have the resources. They have the capital to quickly become very competitive," Metavante CEO Frank Martire said in the same call.

Online Resources Corp also supported Fidelity's view.

"IBM and Oracle are already major players in banking technology software and services. It's hard not to see them get into payments and other processing in the next couple of years," Online Resources' Chief Executive Matthew Lawlor said.

As analysts think IBM and other technology companies will likely buy a bigger processor than try to build up the whole system themselves. Still experts believe it will take some for the bigger companies to enter the space.

"You hear rumblings from those guys that they want to move in the financial services sector though we haven't seen a lot," DA Davidson & Co analyst John Kraft said.