Regulus Sale Just The Start?

By Mark Brousseau

The sale of Regulus Group LLC earlier this week to 3i Infotech, a global information technology company (see TAWPI Top Stories), could be the start of a wave of consolidation among lockbox providers.

Regulus is the largest independent remittance provider and one of the leading providers of document processing services in the United States – addressing the full document lifecycle from print and electronic bill presentment to remittance. Under the terms of agreement, 3i Infotech has proposed to acquire 100 percent of Regulus, including the company’s products, trademarks and product brands.

John Mintzer, vice president at Citizens Bank, expects more consolidation among lockbox providers, some of it simply as a result of mergers and acquisitions among regional banks.

But the real driving factor, in Mintzer’s view, is the declining number of consumer checks. “The ability for lockbox processors to meet their fixed costs gets increasingly difficult as check volumes decline,” Mintzer told me. “The single biggest challenge that lockbox processors face is the cost of labor, including benefits. This is a significant expense, and one that harder and harder to cover as customers require more exceptions-type processing.”

Serena Smith, senior vice president, Fidelity National Information Services, agrees with Mintzer. “All of us our facing economic pressures as volumes decline,” Smith told me, adding that consolidation among lockbox providers will be biggest story in the market over the next 12 months. “Providers will need an aggressive approach to the market, which means expanding their product offerings or exiting the business altogether. Providers who have not embraced a complete payments offering will miss the boat.”

Smith said that many in-house processors already are looking to outsource, to find the best mix of price, quality and functionality. “Processors have to be creative to differentiate themselves on something other than price,” she noted.

Mintzer believes that survivors of the coming lockbox market shakeout will need to have significant automation that makes their operations less dependent on heads-down labor. “Surviving processors also will require the ability to combine inputs of information received from multiple sources into one concise file or report, essentially providing the customer with an information dashboard.”

Smith said survivors would need to demonstrate robust product offerings, a commitment to the business, sustainable market share, and ready capital for investment.

With consolidation on the horizon, the obvious question is why companies like 3i Infotech are entering the lockbox space. Smith said the trend of in-house processors outsourcing their volume is very compelling, and can offer successful providers a large amount of volume.

But Mintzer warns that the financials don’t seem to support new entrants: “The significant investment in plant and equipment is extremely hard to make up in this ‘penny’ business, and this is before factoring costs associated with disaster recovery.”

Do foresee more consolidation in the lockbox market? Post your comments below.