Electronic Banking’s New Behemoth

Want to know the hottest technology stock in the financial services arena? It’s not any of the profitless Internet high flyers. It’s not payment system trailblazers like CheckFree, and it’s not even the ever-consistent Fiserv and Jack Henry.

No, no, no! The hottest financial tech stock is Concord EFS. “Who?” you might say. (I said the same thing six months ago.) Concord is an ATM and debit card processor that is the conglomeration of these very famous names in banking: Star Systems, Honor, MAC and Cash Station.

I guess I took my eye off the ball, but it’s amazing how fast the Memphis-based Concord has become a dominant player in the EFT business. Concord now has 6,5000 financial institution customers and 5 billion transactions a year. Concord is now pushing to provide universal access across all these acquired networks, which would give cardholders access to 180,000 ATMs nationally.

Full disclosure here: I don’t own Concord stock. I don’t consult to them. I’ve never met the guys and haven’t heard yet how Concord is treating their newly acquired customers. But you have to give some credit to this company in terms of value creation:

• Concord’s stock is up almost 200% in the past year ? one of the worst years ever for technology stocks. Annual revenues are approaching $1.5 billion.
• $10,000 worth of Concord stock five years ago would be worth $55,000 today. That beats the extremely well-managed Fiserv ($40,000), as well as famous tech companies like Microsoft ($40,000). It also blew away new payment innovators like CheckFree ($21,000).
• Concord’s market cap is now hovering around $10 billion. That’s 75% larger than Fiserv, 260% the size of CheckFree, and more than 25 times the market cap of players like S1 and Digital Insight.

What’s the lesson here? While new Web delivery and electronic payment systems are having stops and starts, the boring old ATM and debit card business still has big fat legs. In addition, the electronic banking world still carries a reputation for growth much higher than core data processing.

Like any company, Concord is going to face revenue growth issues as it tries to grow new e?commerce products. But if the ultimate migration path to e?commerce and smart cards becomes today’s simple debit card, Concord will prove to be a very influential player in the banker’s future.
-sw