Sales: $1.4 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: FISV
NAIC: 51421 Data Processing Services; 541611 Administrative Management and General Management Consulting Services
Fiserv, Inc. is one of the three largest data processing firms in the United States and the nation’s largest independent processor of checks. From its Brookfield, Wisconsin, base, the company offers a broad mix of integrated data processing and information management systems, including proprietary and off-the-shelf software solutions to approximately 10,000 financial institutions in more than 90 countries. The company continues to expand by providing alternative services to its customers in Australia, Canada, Indonesia, Poland, Singapore, and the United Kingdom.
Backgrounds of the Founders
Fiserv is the progeny of George Dalton and Leslie Muma, who together founded the company in 1984. Dalton and Muma, who each operated his own data processing company, had been trying to merge their operations since the late 1970s. The friends realized early on that to excel in their competitive industry they would need to form a large, national network of clients and service offerings. After purchasing their firms through management buyouts—Dalton and Muma had both been operating as subsidiaries of well-heeled parent companies—the partners joined forces in what would quickly become the fastest growing financial data processing firm in the country.
Dalton, who became CEO of the newly formed Fiserv, was experienced and well respected in the data processing industry. Although peers described him as a visionary, Dalton attributed much of his success to meticulous planning and old-fashioned hard work. One of Dalton’s first jobs, for example, was at a Kroger grocery store. Between the ages of 14 and 16 he advanced from stock boy to butcher to journeyman, outpacing his peers. “I worked nights, weekends, and during the summers,” recalled Dalton in a March 1993 issue of Business Journal of Milwaukee, he explained, adding, “The lesson I learned: Hard work produces results.”
As evidence of his penchant for planning, Dalton began learning German as a junior in high school in 1944 in anticipation of serving his country in World War II; to his chagrin, he was sent to the Spanish-speaking Panama Canal Zone. It was also during his high school years, however, that Dalton “fell in love with data processing” and began preparing for his future career. After the war, he returned home and attended Northwestern University from 1947 to 1948. He then dropped out of college to accept a position with Bell & Ho well Co.’s data processing department, or tabulating department, as it was called in those days.
Dalton’s three eye-opening years at Bell and Howell confirmed his enthusiasm for data processing, which was evidenced by his quick mastery of the equipment with which he worked. Despite a dearth of banking knowledge, Dalton’s enthusiasm helped him to land a position as head of Marine Bank’s data processing division. It was during his 12 years at Marine that computers were introduced to the banking industry on a large scale. Dalton grasped the technology immediately.
Dalton’s move to the head of Midland National Bank’s data processing department in 1965 cemented the foundation for his future enterprise. Midland wanted Dalton to run the department as a separate profit center, a concept that remained untested. He quickly grew the business by expanding its services into non-banking areas, particularly retail, and establishing a healthy contracting business. When First Bank Systems Inc., of Minneapolis, acquired Midland in 1977 it was not sure how to treat Dalton’s unique operation. It eventually established First Data Processing Inc. as a subsidiary in 1982, with Dalton at the helm.
Having established an in-depth understanding of the fledgling financial data processing industry, by the late 1970s Dalton was ready to branch out on his own and begin testing his new ideas about information processing. His ally would be Leslie Muma, of Freedom Savings and Loan in Tampa, Florida. Muma had befriended Dalton in the 1970s when Dalton was looking for fellow bank data processing department heads to share software development costs. By pooling their resources, Dalton reasoned, he and his industry cohorts could reduce data processing bills by as much as 60 percent. Muma was the only one who initially bought into the novel experiment.
Although Muma was only in his mid-30s when he and Dalton began working together, he was extremely knowledgeable of data processing systems and services. Before acquiring his master’s degree in business administration from the University of South Florida, in fact, Muma had majored in theoretical mathematics. He worked as a data processing consultant at an accounting firm for a few years before joining Freedom Savings and Loan Association in Florida in 1971. Freedom developed a subsidiary, Sunshine State Systems, similar to that operated by Dalton, with Muma as president of that division in 1972.
Dalton and Muma Found Fiserv in 1984
By 1984, the subsidiaries headed by Dalton and Muma were serving more than 100 clients and generating annual revenues in excess of $22 million. Frustrated by their inability to get the two subsidiaries merged under one corporate umbrella, they struck out on their own in a risky venture. With venture capital backing, Muma and Dalton purchased their companies from their parent corporations and formed a single entity called Fiserv. To accomplish this feat, they were forced to surrender 89 percent of the equity in their venture to the financiers. “Eleven percent of something is worth more than 100 percent of nothing,” noted Dalton in an April 1992 issue of Forbes.
Dalton and Muma, who was president of the start-up, planned to build a national data processing company based on the concept the two had been implementing since the late 1970s: increased efficiency through economies of scale. Up to that time, most companies developed and operated a separate data processing system in-house. They created their own software and managed their own systems, often at an enormous and constantly escalating cost. Fiserv would save money for these companies by contracting to handle some or most of their data processing activities. Because Fiserv could essentially use the same software and systems for its entire base of clients, it could significantly reduce their expenses. The partners planned to quickly grow their customer base by acquiring regional processing firms similar to Fiserv but smaller in size.
To finance Fiserv’s strategy of purchasing companies with cash, rather than debt, the company began selling shares publicly in 1986. Although this strategy reduced the founder’s ownership interest to only two percent each by the early 1990s, it allowed them to reduce their debt burden and sustain aggressive expansion efforts. As Dalton went searching for new acquisition candidates during the 1980s, Muma focused on developing a high-tech, efficient, customer-oriented operation that could smoothly integrate new acquisitions and the clients that accompanied them.
Rapid Growth Through Acquisition: 1984-89
Fiserv’s success at purchasing good companies and providing top-notch service soon paid off. Between 1984 and 1989 Fiserv acquired 16 companies, boosting annual company sales more than 3,000 percent to $700 million. Likewise, Fiserv’s work force swelled from just 300 in 1984 to a whopping 2,300 by 1989. Going into the 1990s, Fiserv was processing data in 36 states through 20 data centers. It served more than 800 financial institutions representing 19 million individual accounts. Furthermore, in the few years since its inception the company had expanded its operations internationally to include clients in Europe, Australia, and Canada.
Fiserv’s rapid growth during the 1980s was largely a corollary of a metamorphosis of U.S. financial markets. Indeed, as a result new technologies, tax laws (such as the Tax Reform Act of 1986), increased competition, an easing of interstate banking regulations, and other factors, prospective Fiserv customers were increasingly seeking reduced costs associated with centralized, automated data processing. As a result, the data processing industry, in general, experienced growth and consolidation throughout the 1980s and early 1990s.
Fiserv ’s mission is to be the leading provider of data processing and information management products and services to the financial industry by providing the technology-based information processing systems essential for the automation of the financial services industry; to deliver the products and services that help our clients grow their businesses and enhance service to their customers by offering the financial services industry the technology resources necessary for them to compete successfully in today’s market; to enable people to achieve outstanding job performance and personal growth by focusing on one of our most important assets —our people —through strong benefit programs, competitive compensation packages, ongoing training and the encouragement to grow professionally; to produce a favorable level of earnings and consistent earnings growth for our Company, and increased value for our shareholders by understanding the changing needs of the financial services industry, positioning our Company as the industry’s technology provider of choice and prudently managing the pursuit of our business goals.
In addition to favorable industry trends, however, much of Fiserv’s prosperity and dominance was attributable to its savvy management style. For example, Fiserv practiced extreme caution when it purchased new companies; of 600 acquisition candidates that it considered in 1992, it purchased only six. Besides examining a candidate’s information systems, financial condition, and customer base, Dalton carefully considered the quality of its employees. When he finally decided to purchase a company, he did so with the intent of keeping the company’s top management on board for at least three years. Furthermore, Dalton allowed the company’s management to continue operating with a relatively high degree of autonomy.
Muma and other members of Fiserv’s operations team complemented Dalton’s prudent growth strategy with a near obsession with customer service. “Fiserv is very professional, very current, and up-to-date on all the new advances in the computer and financial services industry,” extolled a Fiserv client in a November 1989 issue of Business Journal of Milwaukee, adding, “They are extremely responsive to our concerns and to incorporating our direction into the system.” Indeed, Fiserv was credited with maintaining a range of specialized products and services unmatched in the industry.
Another element of Fiserv’s quest for market share was flexibility. Unlike many of its competitors, for instance, Fiserv did not push its new customers to utilize its software. Instead, Fiserv adapted its services to work with the institution’s existing systems. Fiserv also worked with a range of account sizes; whereas industry leaders Electronic Data Systems (EDS) and Systematics Inc. concentrated on larger customers, Fiserv was willing to work with credit unions and other small institutions.
Although EDS and Systematics both served a broader customer base than that assisted by Fiserv, the latter’s focused management style allowed it to assume the leading growth position (among established competitors) in the data processing industry during the late 1980s and early 1990s. Of the three leaders, in fact, Fiserv was the only one that concentrated solely on serving financial institutions. “It’s the best managed company of its kind because it’s got a clear focus on what its business actually is,” explained investment analyst Paul Shain in a July 1992 issue of Business Journal of Milwaukee. “It’s a simple strategy of offering banks more sophisticated financial services and better customer service than they could otherwise afford,” he maintained.
A Larger Client Base in the Early 1990s
Fiserv’s strategy benefited shareholders during the early 1990s, as assets, revenues, and clients ballooned. Indeed, after ingesting its first 16 companies between 1984 and 1989, Fiserv stepped up its growth plans with 15 additional purchases during 1990 and 1991. New buys included a major acquisition of a Citicorp data processing division for $49 million; the new subsidiary brought an additional 400 clients to Fiserv.
The Citicorp purchase reflected the growing size of the companies in Fiserv’s client base. Although the company had targeted smaller and mid-size companies prior to 1990, it began serving several customers with sales of $1 billion-plus in the early 1990s. By 1991, Fiserv was serving more than 1,400 banks, savings and loans, and credit unions of all sizes. Its sales, moreover, vaulted to a whopping $281 million, from which $18.3 million in profit was gleaned.
In addition to continued acquisition and client growth during 1992 and 1993, Fiserv also shifted its operational focus. It had previously served most of its customers via modem through mainframes connected to its clients’ terminals. To serve its larger customers, however, Fiserv in the early 1990s began literally taking over entire data processing departments at large companies. It hired much of the existing staff and operated the data processing facility on-site using Fiserv technical know-how. This strategy, combined with continued increases in its number of smaller clients, helped the company to grow its customer base to more than 5,400 in 1992 as its workforce swelled to 4,800. Likewise, revenues shot up an impressive 15 percent to $332 million, and earnings grew 27 percent, to $23 million.
Fiserv sustained its aggressive growth tactics in 1993. Among its acquisitions early in that year were two data processing businesses owned by Mellon Bank. This purchase brought about 200 new clients to Fiserv worth an estimated $70 million per year in revenues. Furthermore, most of these new clients had assets of more than $300 million, much more than the average for Fiserv’s existing client base. Most notable during 1993, however, was Fiserv’s addition of its largest buyout ever, Basis Information Technologies, Inc., which added 1,000 new workers to Fiserv’s payroll.
Although Dalton and Muma were aging going into the mid-1990s, their zeal for continued growth and innovation was reflected in pursuits outside their business. To prepare for his 12-hour workday that began at 6:30 a.m., Muma jogged six miles. An avid runner since the age of 32, he began competing in marathons to overcome a smoking habit. Also a hard worker, Dalton filled his free hours by cruising on his 1990 Harley-Davidson motorcycle. He was an avid automobile enthusiast, as well. Despite outside interests, however, both men were admitted workaholics. “We don’t bowl on Saturdays,” said Muma, in the April 27, 1992, issue of Forbes, “We come to work.”
- George Dalton and Leslie Muma found Fiserv.
- The company goes public.
- Fiserv accomplishes its largest buyout, that of Basis Information Technologies, Inc.
- Fiserv signs strategic alliances with Chase Manhattan bank and with State Street Bank in Boston.
- Dalton retires and Muma becomes CEO.
Fiserv posted record growth in 1993; sales ballooned an impressive 38 percent, as income spiraled to more than $30 million, and the company was poised for healthy expansion. Dalton and Muma reflected on the Fiserv’s rampant rise in the company’s 1993 annual report: “With the dedication and hard work of Fiserv people, we have grown this organization from two data processing centers in Milwaukee and Tampa employing less than 300 professionals to a company with locations in 61 cities supported by more than 6,300 industry professionals. We’ve grown from providing full-service processing for 170 clients in 1984 to over 2,500 clients in 1993. ..... We’ve built a strong foundation on which to base our future, and have in place a focused plan to direct that future.”
Steady Growth Through the Late 1990s
Steady and impressive growth continued throughout the rest of the 1990s as continued downsizing, consolidation, and pressure to boost revenue prompted banks to hand over back-office functions to external providers. Bankers were beginning to “view their business not as transaction processing, but as information management and distribution,” according to one consultant in the May 1996 issue of ABA Banking. “The third party performs processing, but channels the information back to the bank, so that the information becomes the primary currency,” he noted. Fiserv, whose income was up another 25 percent to $51 million in 1994, was there to benefit from the intensified interest in outsourcing. By the end of 1995, the year in which Fiserv signed a multi-million dollar, 12-year strategic alliance with Chase Manhattan bank and a second alliance with State Street Bank in Boston, Fiserv was providing customer account processing to more than 3,000 financial institutions and had an annual income of almost $64 million. While the Chase contract ended when the bank merged a short while later with Chemical Bank, Fiserv rebounded by landing a ten-year $1.6 billion deal to handle back-office processing for two leading Canadian banks in 1996. Moreover, in 1998, it signed on to a five-year contract with First Federal of California.
From 1996 to 1998, Fiserv went from almost $900 million in sales to more than $1 billion and increased its customer base to 5,000, all the while maintaining its tried and true formula for success—choosing and integrating its acquisitions carefully, allowing them a large degree of autonomy, and solidly focusing on customer service. Company policy included surveying clients twice a year for feedback on their working relationship with Fiserv and tying the compensation of business-unit directors to customer satisfaction. At the same time, Fiserv was branching out into other areas of the financial information services processing sector. Six of the company’s ten acquisitions in 1997 were related to the brokerage industry, ranging from a deep-discount brokerage house to a manufacturer of software that enabled customers to enter trade orders via the Internet or touch-tone phone. Fiserv also acquired businesses that provided marketing, seminar, and training materials for the financial industry. In 1998, it added a provider of administrative software systems to insurance companies and a provider of automotive leasing software. In all, Fiserv acquired 11 new businesses in 1998, bringing its total number of acquisitions since 1984 to 73.
In the late 1990s, Fiserv began a cross-selling strategy, lessening its dependence on acquisitions to stimulate growth in favor of adding new products that accommodated its customers’ expansion into new markets. These included brokering, insurance, auto loan processing, and indirect lending. A Web product for banks, for example, allowed customers access to their bank-branded insurance accounts from the bank’s home page. In 1999, Fiserv launched a subscription Internet service called [email protected], which bundled online banking, bill payment, investment and insurance products, cash management automation, back-office processing, and core-account processing into one solution. Fiserv also introduced TheLendingSite.com, which provided the technological backbone for Internet-based lending, such as loan approval and credit card authorization. To complement its new strategy, Fiserv implemented a national television advertising campaign, a branding effort making use of the tag line “Where money and technology meet.” Another part of Fiserv’s branding effort was its own company Web site launched in December 1998.
Overseas Expansion at the Turn of the Century
With 400 customers in 60 countries in late 1999, Fiserv began looking to expand overseas at the turn of the century. The domestic financial services market was still healthy with an annual growth of about 20 percent for the industry’s top three competitors—Fiserv, M&I, and Deluxe—but bank mergers were drying up the pool of potential customers. In addition, the privatization of banks in foreign countries and the European Union’s conversion to a single currency in 1999, had opened new doors for data processing companies. In some countries, such as Mexico, Brazil, and Argentina, growth for financial services providers was estimated at 30 to 35 percent in the coming years.
By the time George Dalton retired in 1999 and Leslie Muma took over as chief executive, Fiserv was averaging 28 percent annual growth in revenue, 20 percent growth in earnings per share, and 31 percent growth in net income. A share of Fiserv stock valued at $2.74 in 1986 had increased in value nearly 20 times to $52.68. Those who knew the hard-working Dalton were surprised by his decision to retire, but Muma expected to continue Fiserv’s aggressive growth pace. As financial services increasingly converged under one umbrella, Fiserv intended to provide more and better services to customers, believing that continued growth through acquisitions, steady internal growth, and providing data services to financial institutions would carry it into the future.
First Trust Corporation; Fiserv Correspondents Services Inc.; Fiserv Investor Services, Inc.; Fiserv LeMans, Inc.; Fiserv Solutions Inc.; Fiserv Securities Inc.; Information Technology, Inc.; The Freedom Group, Inc.
Affiliated Computer Services, Inc.; Alltel Information Services, Inc.; BISYS Group, Inc.; Computer Sciences Corporation; First Data Corporation; Deluxe Corporation; Electronic Data Systems Corporation; Integrated System Solutions Corp.; M&I Data Services.
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—updated by Carrie Rothburd