This category encompasses establishments primarily engaged in providing computer processing and data preparation services. The service may consist of complete processing and preparation of reports from data supplied by the customer or a specialized service, such as data entry or making data processing equipment available on an hourly or time-sharing basis. Subgroups within this entry include computer calculating services, computer service bureaus, computer tabulating services, computer time-sharing, data entry services, data processing services, data verification services, keypunch services, leasing of computer time, optical scanning data services, and rental of computer time.
Data Processing Services
Serving a diverse array of industries, data processing services allow companies to outsource some or all of a data management process, be it payroll, electronic transaction processing, or some other task. Data processing firms offer specialized knowledge and technologies as well as economies of scale, making them efficient and often cost-effective alternatives to handling such data in-house. The industry, therefore, is relatively stable. For example, Automatic Data Processing, Inc., the world's largest payroll processor, was able to achieve double-digit earnings growth for 41 years until 2003, when its growth slowed to the single-digit range.
The largest segments of the industry include payroll processing, employer tax reporting and filing, credit card transaction processing, billing services, insurance claims processing, and general data-center services. Many of these functions have been outsourced since the 1990s, but market penetration was still relatively low for some, leaving considerable room for growth. Small companies, for example, have been a target for payroll-processing firms because that market is the least saturated for such services. However, recent advances in payroll software have slowed growth in this area somewhat, making it more cost effective for small and medium-sized companies to handle payroll themselves.
One of the most important growth trends affecting the industry has been a shift toward Internet-based bill payment and presentment. Under these services, a third-party processor packages billing information for another company, such as an electric utility or a long distance carrier, and presents it to the customer, often a consumer or small business, in a unified environment.
Growth continued into the mid-2000s with nearly a third of all U.S. consumers conducting their banking online, according to research firm Tower Group Inc. In fact, an estimated 85 percent of all households utilized electronic bill payment in 2004. One bank, Wells Fargo, indicated that its online banking customers numbered 6.5 million in August of 2005, an increase of 24 percent from early in 2004. Wells Fargo also noted that 2 million of those 6.5 million bankers used electronic bill payment. Bank of America reported positive results as well, with a 20 percent increase of year over year growth of online banking, and a 45 percent increase in electronic bill payment customers. By 2011, according to statistics from Forrester Research, 21.2 million households were projected to use online bill payment services. New IT services, such as security features and personal financial management capabilities could provide additional growth of online banking. Security features were considered especially important in the late 2000s, due to the rise in breaches and sophisticated scams.
According to industry statistics, there were an estimated 23,600 firms primarily engaged in providing computer processing and data preparation services with industry revenues of $77.97 billion in 2006. The industry employed approximately 314,700 people, with the average firm employing 14 people and earning $3.6 million. Data processing services, data processing and preparation, and computer graphics services were the three largest employers in this industry.
The data processing services industry has evolved greatly since the 1950s, as computers became more prevalent in business. The computer services industry developed when companies purchased systems and needed assistance to use them effectively. Other niches developed as other firms saw the benefits of computerizing certain business functions but could not afford to install and operate systems. Computer time-sharing developed as an alternative to purchasing and maintaining an expensive system, and allowed clients to purchase time on a computer as needed, avoiding personnel and equipment costs. Calculating, keypunch, optical scanning, and tabulating services were used by corporations that saw the value of automating large batch jobs but could not maintain these systems in-house.
Many computer service companies became successful because they could offer useful services at lower prices than it would cost companies to install and maintain similar systems. The costs were divided among all users, making data processing services an attractive option. Often costs were determined by the number of transactions, instead of simply a flat rate.
Many of the segments of the industry, such as keypunch service and computer time-sharing, decreased substantially since the 1970s. Keypunch services became outmoded for general applications when computer disks and magnetic tape were developed. Disks and magnetic tapes, the storage materials of choice, are less sensitive than cards and contain thousands of bytes of memory capacity. Computer time-sharing decreased as an industry segment when hardware prices decreased in the 1970s and 1980s, and software became more...