GLASTONBURY, Conn. and INDIANAPOLIS – Last week credit union and bank core processor Open Solutions Inc., which went public late last year, acquired privately-owned re:Member Data Systems (RDS) for $20 million in cash. RDS has approximately 100 credit union clients and two bank clients. Its revenues were $13 million last year. Comparatively, OSI had annual revenues of $64 million in 2003. RDS recently finished a major rewrite of its core system. Its new cuStar21 utilizes XML and Microsoft’s .NET to ease system interfaces with third-parties. It is a Windows-based system that can be run either in-house or as an ASP. RDS was founded in 1981 by David Becker, an entrepreneur who even after the sale of RDS still runs five companies. Becker, who said he’s known as a “serial entrepreneur” was also the founder of credit union Internet banking provider Virtual Financial Services, which was a very popular vendor choice for credit unions in the mid-`90s. Becker eventually sold that company to Digital Insight. Having seen RDS grow for over 20-plus years, this deal was a lot tougher for Becker. “RDS has been very near and dear to my heart. It was an emotional decision to step aside after 23 years. It’s really the best decision. It’s a very, very good time; the synergies of the two companies are there,” said Becker, who noted that he’s had plenty of opportunities to sell over the years. “I’ve been approached every three to six months over the past 20 years. This is the first time it just felt right,” said Becker. RDS has 100 employees, most of who will remain in their positions. There will be some cuts in corporate overlap areas like accounting. OSI will maintain RDS’ facility in Indianapolis. Becker stepped down and does not hold any official position with RDS. How’d the deal get started? Interestingly, credit cards played a factor. RDS has developed a credit card module, known as RDSNet that utilizes Microsoft’s .NET so it’s compatible with other systems. OSI was looking at integrating with the product since it doesn’t offer a standalone credit card module. RDSNet is designed to help financials compete with the big card companies. It offers the ability to offer reward programs, flexible pricing and APRs, real-time card management, and other features. RDSNet has a tie to one of Becker’s other companies, AmeriCard Services, which provides gateway services between RDSNet and the Visa network. OSI and RDS started talking about the card module and realized with cuStar’s XML interface and the modular capabilities of .NET meant more of their products could mix well. “It’s an open, non-proprietary nature. They’re two systems designed to run on two different systems, but in the open world it’s relatively easy,” to mix products said Gary Daniel, OSI’s Senior Vice President & General Manager for the Credit Union Group. Another factor that helped cement the deal for Becker is OSI wants to keep the cuStar product and continue to support it for years to come. Becker said from a client standpoint this deal works because OSI had things that RDS was working on such as business banking services, check imaging, loan originations, integrated CRM and others. Becker said he had a long talk with one of his top managers, Jim Hutchins, and they decided that it would be tough to catch up with OSI from a development perspective, so merging would be the best way to get its clients what they need. Becker said R&D has been tougher in recent years because of the regulatory maze vendors must now navigate. “These days half of the work is in the realm of regulatory compliance. It’s the Patriot Act, it’s Sarbanes-Oxley. It’s a regulatory morass. We spend on average 15 to 20% of our annual revenues on R&D; half of that is going to the regulatory environment,” said Becker. For OSI, this deal displays how it is using its additional capital from going public (which it did late last year) to make strategic acquisitions. It raised approximately $86 million in last year’s initial public offering. This is its third deal this year, having already acquired voice telephony firm Maxxar for $6.5 million and banking processor EastPoint Technologies for $7 million. RDS is its second acquisition in the credit union core processing space. Last year it acquired FiTech from Liberty. Like it did with FiTech, OSI plans on keeping the RDS name prominent. It will market the division as Open Solutions RDS Technologies, just as it markets FiTech as Open Solutions FiTech Systems. Daniel said OSI wants to give RDS and FiTech client credit unions a choice, so it doesn’t believe in pulling their products. Daniel noted that with FiTech for example, some CUs have chosen to move to OSI, but many have stayed on FiTech. Daniel said OSI isn’t under the misconception that all credit unions want to get all their tech solutions from one vendor. “There are two types of credit unions today. One is a credit union which would prefer to get as many products as possible from one vendor. Then another type, usually the larger ones, want to go out and look for the very best solution. Because of our openness we’re trying to accommodate both types,” said Daniel. Daniel said the acquisition of RDS further show’s OSI’s commitment to the credit union industry. Last year it divided the company into basically two divisions, one serving credit unions and one banks. OSI wanted to give each segment their own sales force and leadership team and not make either feel like second banana. Daniel said the credit union market is exciting, and OSI is well positioned because he believes many competitors are offering out-dated technology. “For the most part, those other systems are legacy systems with proprietary hardware, proprietary operating systems. As we look around, we just don’t see anybody else with the architecture we have and the openness,” said Daniel, he also cited OSI’s banking experience as a plus as CUs get more interested in serving business. Interestingly, Becker is also the principal owner of First Internet Bank of Indiana, a $400 million online bank that is and will remain an RDS client. This merger continues the trend of consolidation in the credit union core processing space and furthers the trend of the disappearance of the privately-held independent credit union core processing company. This deal is reminiscent of many in recent years in which large, publicly owned companies have gobbled up privately held processors in an effort to gain marketshare in an industry which most core processing vendors says is just much hotter than the banking industry from a business perspective. Some of the bigger deals include Jack Henry acquiring Symitar Systems and later CU Solutions, Fidelity National acquiring Aurum Technology which itself had acquired Computer Consultants, Harland acquiring ULTRADATA as well as Premier Systems, Inc., and of course Fiserv acquiring all of its seven core processing subsidiaries. The examples abound and what’s left is Fiserv, Jack Henry, Fidelity National, Harland and now Open Solutions – all publicly held companies and some with subsidiaries in varying industries – controlling the credit union core processing space. There are still some privately-held independents, but not many, and none that serve large credit unions. Some of the stronger independents include FedComp, RC Olmstead, Sharetec, and Enhanced Software Products. And of course there are some CUSO DP players such as CU*Answers and EPL. Becker described the consolidation in the credit union data processing space as mirroring what’s happening with credit union consolidation. As for this latest sell-off of one of his companies, Becker says at 50 he’s not ready to retire and he still has two companies tied to the financial services industry. [email protected]

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