Technology vendors are expecting tempered demand for their products, even as banks begin to turn the corner toward financial improvement.
The Technology, Data and Analytics division of Lender Processing Services reported revenue of $201.1 million in 4Q10, up 6.1% from 4Q09 and up 2.1% from 3Q10. Annual revenue for TD&A was $762.6 million, up 7.8% from 2009.
The TD&A unit provides mortgage servicing software like its flagship system of record platform called Mortgage Servicing Package and origination software like the loan origination system Empower. Annual TD&A operating income was $246.5 million in 2010, up 5.2% from $234.4 million 2009. But the LPS unit closed out the year on the decline—$60.4 million in 4Q10, down 4.9% from $63.5 million in 4Q09 and down 10.4% from 3Q10.
LPS projected that the total revenue potential for TD&A if it had every possible customer using its services—called core addressable market—will remain steady at $2.3 billion from 2010 to 2012. When asked if the projections mean LPS isn’t expecting lenders to procure new mortgage technology, an LPS spokesperson said there are limited conditions for lender appetite.
“We believe that the primary drivers of demand for mortgage technology will be regulatory requirements, risk mitigation and demand for increased efficiencies, and of course ongoing servicing,” Michelle Kersch, an LPS senior vice president, said via e-mail.
“As regulators continue to implement new rules, originators and servicers will be looking to either implement or upgrade technology to help them comply with these changes. Additionally, originators and servicers continually look for technology, data and analytics that will assist them mitigating the risk in their portfolios and operations."
“Lenders and servicers will continue to invest in technology; thought the mix may change and be more focused on the areas I mentioned,” Kersch added.
Executives at Fiserv expect much of the same. Fiserv provides technology to multiple branches of the financial services industry, including a mortgage servicing system of record and LOS that compete with LPS and paperless and electronic signature technology for e-mortgage origination.
Fiserv president and CEO Jeff Yabuki cited an “undefined regulatory landscape” as well as economic challenges as reasons its bank and credit union customers are hesitant to commit to major projects.
“The outlook for predicted IT spending has become slightly more positive over the last quarter,” Yabuki said on the Brookfield, Wis., vendor's earnings conference call last week.
Yabuki said banks' and credit unions' spending appetite will be “incrementally better” this year than in 2010 “but still not at the average rate of growth we expect to see over the next three years.”
Fiserv, considered a bellwether for financial technology spending, reported fourth-quarter revenue rose 1.5% to $1.08 billion from a year earlier. The results were just shy of analysts' estimates, which pegged the figure at $1.09 billion. The company does not break down its results by business line or type of technology.
LPS, which discloses its revenue streams by business line, said Mortgage Processing, the servicing segment within its Technology, Data and Analytics division, reported revenue of $100.3 million in 4Q10, down 3.7% from nearly $104.2 million in 4Q09 and down 2% from $102.4 million in 3Q10. The segment includes LPS’s Mortgage Servicing Package and other servicing and default technology. Mortgage Processing revenue was $402.7 million in 2010, up 3.8% from $387.9 million in 2009.
LPS’s “Other TD&A” segment that includes its loan origination system, automated valuation model and various analytics and modeling technologies had revenue of $100.7 million in 4Q10, up 18.1% from $85.2 million in 4Q09 and up 6.5% from $94.6 million in 3Q10.
The Jacksonville, Fla.-based company said the increased revenue in its Other TD&A segment was attributed to higher revenue from its Desktop technology, a Web-based workflow management and vendor invoicing software. Annual revenue for Other TD&A was $359.9 million in 2010, up 12.6% from $319.6 million in 2009.
Andrew Johnson contributed to this report.
