When reviewing Earnings Reports for Fiserv, FIS, and JHA , there is a lot to interpret, particularly when comparing previous year results. We’ll leave the deep analysis to the Wall Street Analysts and focus on one number: de-conversion fees.
De-conversion fees are important to clients that are considering either choosing that provider, or leaving that provider. Conversion fees are one of the few places where you can interpret whether a core is gaining or losing clients. At a minimum, you can make an educated guess.
Focus on the De-Conversions
A decrease in deconversion fee revenue, on a year-over-year basis, is a decent indicator of which companies are losing more customers than they did the year before. They can also potentially help you understand if a core provider is losing more clients then they are gaining. Net gain or loss of customers is a good indicator of client loyalty.
Internally for these organizations, deconversion fee revenue may help them patch some short term earnings holes. In the long term, more client’s de-converting than in previous years means that the recurring revenue that comes with the long-term bank and credit union contracts will not be there in future years.
Number of Conversions vs. De-Conversions
Looking at the JHA quarterly report, and using an average of $250,000 in deconversion fees per client, the $2.66M decrease over the quarter would mean that roughly 11 fewer clients de-converted in that period than the same period in the previous year for JHA.
JHA mentions that they picked up 13 new core clients in the quarter, so the only item open to interpretation is the total remaining de-conversion fees. The $2.66M noted above represents the reduction in de-conversion fees vs. same quarter in 2017.
Lower in the JHA financials, we see that total deconversion fees for the quarter was $6.34M. Dividing $6.34M/$250K/customer would yield ~25 customers de-converted in the quarter.
You can see where we are going with this…if the $250K per customer de-conversion fee is accurate, then JHA is losing less customers than they did last year, but still losing more customers than they are gaining in new sales. It all depends on the de-conversion fee per customer.
The bottom line is that based on JHA’s report, they appear to be making traction from 2017 when it comes to client turnover. Client loss associated with mergers and acquisitions needs to be figured in as well, and a percentage of the losses may not just be clients lost in a typical systems selection. A portion of those deconversion fees were likely from bank or credit union merger activity.
If you don’t know what we mean by a bank or credit union core systems selection, see the Remedy site:
Final note: All of the estimates above go out the window if JHA (or Fiserv, or FIS) means a combination of early termination (aka liquidated damages) fees and de-conversion fees when they use the term “deconversion” fees.
Deconversion fees are typically the professional services rates a client charges to move a client off their system. In the industry vernacular, early termination fees are the contractual fees a client pays when they end their contract early, for whatever reason.
A combination of early termination fees and de-conversion fees would likely be a number that averages much more than $250K per de-converting client.
BY not publishing lost client numbers, they leave it to people like us to read between the lines……