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Leading analyst examines the e-Finance software sector in this special e-Finance Software Companies report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info534.htm.

TWST: What kind of solutions do the e-finance software companies that you cover provide? What are the services that they enable their customers to provide?

Mr. Baker: It runs the gamut, but the main services involve core processing applications, where essentially you’re talking about bank backoffice systems, general ledger systems and things like that. Other companies in the space provide Internet banking applications, cash management applications, branch automation systems, call center, IVR. Really, if you think about a financial institution, it’s any technology service that they offer their clients. On the card side, as a merchant acquiror or card issuer, all those services are typically outsourced by banks, so there are a lot of services that financial institutions look to outsource.

TWST: To what extent are consumers doing their banking over the Internet?

Mr. Baker: Well, it’s quickly accelerating. As a percentage it’s probably 15%-18% of potential DDA accounts out there in aggregate. However, there are some financial institutions that have penetration rates north of 40%. Late in the 1990s we saw banks really getting aggressive in trying to find a third-party service provider, and now we’re starting to see them aggressively push the service. Essentially what’s driving adoption is that the pricing has come down to such a level that it is now attractive. Additionally, studies have found that a financial institution’s Internet banking users are typically their best customers. They keep higher account balances, use more services, and use more automated channels, which obviously lowers the cost of service for financial institutions. At the very least, a financial institution can redeploy those assets to other areas of the organization to help lower overall costs. To put things into perspective, at the end of the day, Internet banking is very similar to the ATM. Ten years ago the ATM was a very new idea, and today every bank offers multiple ATMs, and we believe the same thing is in the process of happening with Internet banking. Ten years from today pretty much everybody, or a good number of people, will have Internet banking capabilities.

TWST: What’s the case for First Data (NYSE:FDC)?

Mr. Baker: First Data is similar. They own NYCE, which is a regional ATM network in the Northeast, so they’re going to see a similar benefit that Concord is seeing with the debit card transactions. But where First Data differs from Concord is they own Western Union, and we still see a lot of migration from various countries, especially from Mexico into the US, or over in the Middle East. Anytime there are military conflicts or wars, we typically see heavy migration of people out of a country, but they end up having to send money back to relatives who might not have made it out of the country. So Western Union is a business that is more than 100 years old that continues to click along in what has really been a money transfer business. The chances are 60% of the time you charge or make a payment with your credit card, First Data is doing the processing. So it’s just a good, stable company. There is a new CEO there, Charles Fote, who has a good reputation as far as delivering results. We think it’s a good company.

This special report includes:

1) e-Finance Software Companies - In an in-depth (3,200 words) Analyst Interview, Jeffrey B. Baker, Principal at U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector including and shares specific stock recommendations.