TransPay Perspectives

I was in San Diego this week to attend the Bank Administration Institute annual TransPay conference. This conference which has its roots in check processing has been gradually repositioned as a venue addressing a broader payments ambit. As someone who spends a lot of time advising companies on positioning and alignment, I understand the challenge of balancing legacy wealth with future promise. I will say that BAI has made partial gains on its journey. The conference sessions had a mix of topics that included ACH, pre-paid, mobile, gen-Y and other subjects, along with check processing, while the exhibit floor was dominated by image based check products and services.

Debbie Bianucci, BAI's president and chief executive officer, aptly set the tone for the times we live in by evoking the memorable opening lines from Dicken's Tale of Two Cities, "It was the best of times, it was the worst of times/ it was the epoch of belief, it was the epoch of incredulity/ it was the season of Light, it was the season of Darkness/ it was the spirit of hope, it was the winter of despair/...in short, the period was so far like the present period".

Dr. James Canton, the futurist emphasized how consumers drive adoption, and enterprises follow later. He shared interesting facts- 2 billion Internet users, 4 billion cell phones, total world population 6.5 billion, 5 billion You Tube videos per month, 150 million active Facebook users, 900% growth in Twitter users in one year etc.. You do the math- somewhere in that mind boggling array of statistics is a case for a collaborative, device independent future where payments will play a part.

Dave Stewart from McKinsey & Company had a more earthbound perspective on the $282 billion payments industry, suggesting that the winning financial institutions will be those who proactively focus on competitive advantage, using the capital base from the historic growth in deposits as consumers flee from risk.

The eminent author and business expert Ram Charan painted a picture of our descent into madness from the repealing of the Glass-Steagall act to facilitate the Citibank-Traveller's merger, through the secured derivative hall of mirrors, to the deft transfer of risk from financial institutions to investors. His take was to cut costs deeply now to create cash reserves to fuel the innovation that is imperative to pave the way out of this crisis.

FiServ had two interesting takes on payment convergence. Denny Carreker and Dave Robertson presented a vision of a "silo-busting" platform that spanned from transaction initiation to settlement for multiple payment vehicles. Mike Reagan came at it from the perspective of exceptions management through common case tools and data repositories.

An engaging panel discussion on mobile banking with representatives from Amazon, Clairmail, and Wells Fargo addressed questions regarding revenue sharing between the wireless carriers, and banks. Notable quotes: "AT&T is the largest bill payment company in the world", and "What the carriers want is like saying, 'If you use the phone to order pizza, I want a piece of it!'" Other points included the need for relevant and personalized text alerts, like bill payment reminders as due dates approached.

Romina Abel and Beth Costa from Edgar Dunn presented insightful research on pre-paid cards use by the unbanked. I found it interesting that 25% of the unbanked had a standard credit card (High, I thought- versus 54% overall), and 18% had pre-paid cards (almost the same as 17% overall). The main reasons for pre-paid use were ease of use, wide acceptance, use of own money, safety and security, and control over finances. Notable quote: "Pre-paid as an alternative to The National Bank of the Mattress!"

Putting formal research and industry perspectives in sharp relief was an enjoyable dialogue between four 'generation Y' youngsters, and the audience of (significantly older!) conference attendees. For me, the defining moment was this interchange: Question, "Do you have Direct Deposit?"... Answer, "I don't know what that is". As you create tomorrow's systems, keep in mind that this is what you're up against.

On the exhibit floor, there were a few vendors that caught my attention...

At the top of my list is Clear 2 Pay. This is the first transformation that I have seen of payment convergence from an idea to a product. While convergence is a journey and not an event, these folks have cut their teeth on SEPA (Single European Payments Area) integration in Europe and are getting set to penetrate the Americas. The white papers on their website spell out an intriguing vision. As they say in the billboard business, watch this space.

In the vein of convergence, Mitek had their mobile check image capture application in view. While the jury is still out on how widespread adoption might be, their announced integration with mFoundry's mobile banking application, and their relationships with J&B Software and RDM Corporation for remote deposit capture suggest promise. There was also research recently from FiServ that indicated that one third of their financial institution survey respondents showed interest in offering mobile deposit capture to their business customers. Taking pictures of checks with cell phones, and sending them for deposit...who would have thought?

The folks from Alogent, now part of Goldleaf, have an approach to tailoring the user experience to match the needs of various market segments for remote deposit capture. Their Payment Web Services toolkit allows financial institutions to offer user experiences appropriate to the needs of consumers, merchants of varying size, and corporations. "Yes, so what's new in having different products suited for markets?" you say. But that is precisely where the uniqueness lies; this is a single infrastructure that can be configured to effect flexibility. It should help the total cost of ownership in not having to manage multiple products- each with its set of features, and product release calendar. With this toolkit that also allows integration with cash management systems, Goldleaf may have a compelling case for a look under the hood.

In the days prior to the passage of Check 21 in 2004, exhibitors at this show used to bring reader/sorters, which were electro-mechanical monsters that took up much space, and made a lot of noise. While those sorters have gone the way of the buggy whip, their place has been taken by desktop scanners. Panini launched their latest Ideal scanner at this conference. It is targeted for small businesses at a low MSRP of $299, and has a compact form factor that would fit a crowded point-of-sale counter. I found the automatic alignment capability where a check could be fed in at odd angles, and yet have the sensors and feed rollers line up the document for a good image scan an eye-catcher.

I'll go back to how Debbie opened the conference, "It was the best of times, it was the worst of times...". Given the ideas I saw and heard, and the will to prevail that I sensed from many, I am inclined towards the former disposition.

Payments Technology Adoption by Consumers

This last week I was told twice that the biggest challenge faced by technology companies offering new payment alternatives was technology adoption by consumers. The first comment came from an executive at a mobile payments company, and the second from an individual at an organization with a new take on alternate online payments. They both felt that they had to "move the needle" in getting more consumers to use their vehicles.

While I understand the need to get market traction in order to get emerging technology going, the fact remains that technology companies in the payments space do not control the consumer franchise. The ones that do are the banks, merchants, and to an extent- merchant acquirers. If past history is an indication, the ability of these entities to jump start technology adoption is middling at best.

There is the oft repeated example of ATMs having taken decades before consumers embraced them, and that too for cash dispensing, not deposits. The adoption ramp rate of check imaging has been one of the fastest in recent memory, and even there the widespread use by small business had to await the re-engineering of the check clearing infrastructure- propelled by the external legislative push of Check 21.

"So, what of PayPal™?" you say. The secret to moving needles, I believe, lies in this success story. Whether it was part of an overt strategy, or a fortuitous perfect storm, the coming together of PayPal with a technology, and eBay with a new and rapidly growing consumer franchise was at least one secret sauce in this story. The "viral" adoption that is talked about was at least in part due to the clear and present access to a large group of consumers.

Thus, my take on a strategy for payments technology providers trying to get consumers and small businesses to embrace the "new and different" centers on not trying to engender "viral" growth on one's own. It is unlikely that technology providers will have either the reach, or the muscle to change behavior. It is also difficult to get a major part of a market segment like banks, merchants, or acquirers of a certain type to sign up for something untested regardless of the co-marketing programs one might put in front of them.

I submit that it is better to narrow the focus significantly to find the one, two or three entities with the broad consumer franchise, receptivity to new paradigms, and the wherewithal to execute the shared vision. In other words, spend the energy in finding the rare horse that can get you there, and then hang on for the wild ride!

How does one find that rare horse? Well, they don't call it a "secret sauce" for nothing!

Welcome to StratEx Insights!

Thank you for visiting StratEx Insights.

This blog is a vehicle for sharing perspectives on the challenges of aligning technology strategy and execution. While much of the content will deal with banking and payments technology, the insights should be relevant in other industries as well.

My perspectives are based on the thirty odd years I have spent in technology ranging from work on the Space Shuttle, to the remote capture and transmission of check images. I have found repeatedly that once you cut through industry specific jargon, the problems are similar. How do you go from what your market wants, to what you can do in a time frame and at a cost you can afford? How do you then keep your customers happy and let a lot of people know about it, so that you can make money by getting many people to to buy what you have, again and again?

Easier said than done- especially when companies grow large and lose sight of these fundamental premises that should drive all action!

I welcome you to share your thoughts as we go forward. I invite you to participate and have fun. I know I will!

Vijay Balakrishnan
President
StratEx LLC