tag:blogger.com,1999:blog-39333285336802332222023-06-20T08:34:02.810-04:00StratEx InsightsObservations on Technology Strategy and ExecutionVijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-3933328533680233222.post-75541393691657537322012-10-04T14:27:00.001-04:002012-10-04T14:29:39.113-04:00Deconstructed Check Processing?<div dir="ltr" style="text-align: left;" trbidi="on">
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I just got back from an excellent Remote Deposit Capture
Summit organized by RDC.com. It is fast shaping up to be <i style="mso-bidi-font-style: normal;">the</i> place to gain knowledge and network with key players in the
check processing industry. Not so long ago, there were several events a year
devoted to, or with a major emphasis on check processing. Most have fallen by
the wayside- perhaps driven by the assumption that check processing is mature
and uninteresting. That this was from true was attested to by many at the
Summit who presented business and consumer adoption figures showing a vast, yet
untapped market.</div>
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<br /></div>
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Whether adoption has been glacial or spectacular depends on
perspective. Celent’s Bob Meara had done a study a while back showing that
check imaging has had a faster uptake than most other technology introductions
in the banking space. Yet, the impatience to drive distributed capture into
every office, shop and home is understandable. There was continued debate at
the Summit between risk perception and the need to drive customer convenience.
It is my take that while the risk folks ruled the roost in the early years, the
convenience advocates are beginning to scale the ramparts. </div>
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<br /></div>
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Yes, mobile RDC is cool and growing, check scanners are
growing smaller and more accurate, but what caught my eye at the Summit is a
possible shift in industry tectonics. Remember the early days of distributed
capture? The focus was on branch back counter and teller capture back then. The
technology players in the marketplace were those that had a pedigree in
traditional check processing- the people who could make documents fly down the
track on a 3890 high speed sorter. You had to earn spurs in centralized, sorter-based processing
to get a seat at the distributed capture table. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The push to capture checks from outside a financial
institution’s infrastructure through merchant capture, and the slow evolution
of the X9 and image quality standards began the tear away from the
“sorter-on-a-rope” paradigm, as an industry wag uncharitably put it. New players entered
the field, and some leading names disappeared from the industry. Fast forward (yes,
an obsolete term in the MP3 era) to 2012, and we have technology suppliers
specializing in particular channels of capture. Clearing and settlement? Oh
well, that’s something that someone does with the X9 file we give them. Now,
toss in the down-loadable app, and we are perhaps set for more deconstruction
of the check processing chain.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I am tempted to draw a parallel with the evolution of card
processing. During the paper draft days, there were “paper factories”
processing card transactions. Electronic Draft Capture (EDC), and the
introduction of specialized terminals by Verifone , Hypercom and others changed
the nature of the industry. Today, there are those that specialize in the acquiring
front end and others who drive scale through the switch. Substitute the words
“capture” for “acquire” and “clear” for “switch” and you may have a template
for where check processing may go.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I know past is not always prologue, and checks are very
different from cards. Draw the picture out nevertheless and contemplate the
shape of the check processing industry in five years. Fascinating, right?</div>
</div>
Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-28482165452933716682012-03-20T15:15:00.005-04:002012-03-20T16:46:08.433-04:00Analytics- The Ignition KeyThe challenge for those attempting to launch new payment alternatives has always been the need for an "ignition strategy". Simply put, it means making sure that there is a critical mass of payers and payees at the same time for the new payment vehicle. Attempts at achieving a payments "big bang" have often fizzled due to a basic circular conundrum. Users are reluctant to embrace a payment method, unless they are sure there is a critical mass of entities that will accept it. At the other end of the telescope, potential acceptors need to be convinced that the new alternative will have a large number of users. Many ideas have fallen between this chicken and egg.<br /><br />Financial institutions are best positioned to break this deadlock. They have access to enormous amounts of data on the purchasing habits of their customers. Nevertheless, institutions have been slow, if not reluctant, to convert that data into useful insight through Analytics. The barrier is not technological. Powerful models exist that can sift through vast amounts of information to predict behavior, while keeping false positives to a minimum. Technology is available to bridge data silos through transaction hubs. The impediment to greater use of Analytics by financial institutions is driven for the most part, by concerns about consumer privacy.<br /><br />While it is important to safeguard the trust equation that consumers have with banks, there are low hanging fruit that can be picked. Take P2P (person-to-person or peer-to-peer) payments for example. PayPal has been the runaway leader in this category, but banks are in position to ignite a P2P revolution. Most P2P payments replace cash or check transactions- paying friends, children, relatives, gardeners, babysitters etc.. Many of these are recurring payments that take place on or about the same date for similar amounts. In many cases, payers use their online bill pay systems to schedule payments which are sent as paper checks by financial institutions, because the receiving entities are not bonafide billers. In other cases, payers write checks and put them in the mail. In both cases, financial institutions bear the cost of paper handling. Checks also get lost in the mail, leaving the payer scrambling to get the money to someone in urgent need- I can attest to the latter, having had it happen repeatedly through "automated" bill pay.<br /><br />It is possible to reduce cost and improve customer retention or "stickiness' with a little bit of analytical deftness. Technology exists to recognize payee names from check images. It is not difficult to analyze consumer payment histories to identify recurring payments to individuals. Similarly, an examination of online bill pay behavior can identify those consumers that are using checks to bridge the "last mile". These are consumers that may be receptive to P2P. Once target consumers are identified, financial institutions need to put incentive marketing in place to get them to enroll their payees into the P2P program. The payees are likely to react positively to overtures from someone they know. Handled properly, the targeting and enrollment of both payers and payees can be effected without raising privacy concerns.<br /><br />This is but one simple example of using analytics as an ignition key to start emerging payments engines. There is more gold in them thar data mountains. What it requires, though, is a paradigm shift by financial institutions.Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-50324891366871949612011-10-20T14:57:00.006-04:002011-10-20T15:40:46.340-04:00Through Thick and Thin- Branch and Teller Deposit Automation Redux?Just when you thought branch and teller deposit automation was done and dusted, a new interesting development is slowly making waves. Early forms of both types of deposit automation were thick client applications that resided on PCs at the branch. In previous posts, I have touched upon the headed and headless versions of teller deposit automation. And there the technology sat until merchant capture hit the scene (I say capture deliberately, because that is what most of them were- remote capture with the rest of the work-flow centralized upstream).<br /><br />The question was asked, "If a merchant can capture and send relatively large deposits using thin client technology, why can't the same thing be done from the branch?" Why not, indeed? The thin client approach minimizes the challenge associated with initially deploying and updating applications deployed across a branch network. Do it once centrally, and the entire network is current.<br /><br />Not so fast, say some. What about the network latency in performing the entire capture-correct-balance continuum using thin clients? Will that not slow things down, and affect branch efficiency? After all, a merchant does not have to worry about people waiting in queue to make the next deposit. What if connectivity goes down? What are the offline recovery alternatives? How do deal with exceptions- missing checks and data?<br /><br />While the battle is being fought, here are some perspectives on the issue. I think the cases for automating deposits at the teller and branch back counter will are driven by different imperatives. As discussed in previous posts, teller deposit automation (TDA) is increasingly getting bundled with teller systems. Teller systems are headed in a thin client direction. Therefore, I think it will be difficult for thick client TDA systems to survive when the mother ship is headed elsewhere. Deposits made at teller stations typically small, and it is likely that network latency will not significantly affect queue length at the teller. This, of course, makes sense for brand new teller deployments. Keep in mind, nevertheless, that there are many thick client teller desktops out there that can be retrofitted with traditional thick client TDA.<br /><br />The branch back counter is a different kettle of fish. As observed previously, the landscape ranges from very large institutions that capture at the branch and perform data perfection and balancing centrally, to smaller banks and credit unions that perform the entire work-flow at the branch level. The deposits dealt with at the branch back counter tend to be larger, and therein lie the seeds of an interesting trade-off. If the paradigm is to only capture at the branch, and defer correction and balancing to centralized operations, a thin client front end for capture may make sense. If, on the other hand, the entire process of item correction, amount entry and balancing is to be done at the branch level, network latency and offline recovery considerations may be an issue in a thin client environment. We may perhaps see a hybrid work-flow evolve, a la merchant capture, where items are captured using thin clients, transactions nominally balanced against a control total from a teller tape, and sent to central operations for downstream operations. Yes, this will add work at the branch, but it may reduce workload centrally- particularly in smaller institutions that do not have complex balancing rules.<br /><br />Interesting how technologies considered ready for benign neglect have a habit of asserting themselves when you least expect it. Thoughts?Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-73752193699935682502011-06-29T19:10:00.000-04:002011-06-29T19:13:54.453-04:00Teller Capture- Myths and Realities: Part III<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:donotshowcomments/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-US</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> <w:splitpgbreakandparamark/> <w:dontvertaligncellwithsp/> 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mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal">Teller Deposit Automation (TDA) is where retail banking meets payment processing. The imperatives that drive these worlds are profoundly different. The previous installments dealt with some of the business case aspects of TDA. This post touches on systems integration and related business implications. </p> <p class="MsoNormal">Retail banking and payment processing- shotgun wedding, a bridge too far? Let us see.</p> <p class="MsoNormal">A common solution, seen mostly in the credit union world, is a check capture system interfaced with a receipt printer. That’s right, I did say “capture” not “deposit automation”, because that is exactly what this approach offers. Check images are captured after the teller has processed and posted the deposit. The benefits of keystroke reduction, and automated proofing and balancing at entry are absent. The approach adds the capture of check images on top of the original teller workflow- whatever that happens to be. Many solution providers offer this option, because of the challenges- both technical and political- associated with integrating deposit automation modules with teller platforms. So, if you opt for this solution, be aware that it is limited to image capture for archival and does not bring workflow efficiencies to the table.</p> <p class="MsoNormal">Integrating deposit automation with teller platforms sparked a battle royale in the early days of Check 21. Providers of teller platforms saw anything that has to do with teller operations as their turf, while check imaging solution vendors viewed payment processing as their unique expertise. Often, this was reflected into political tension between the retail banking and payment operations groups within financial institutions. Some of the business case arguments I shared in the previous posts had their genesis in this departmental face-off.</p> <p class="MsoNormal">There are two general alternatives for integration between teller platforms and deposit automation systems. An early approach, that is still in use widely, is a “toggle hand-off” between the teller host and the deposit automation system. When the teller is ready to accept deposits, she clicks on a button that brings up the deposit automation screens. All operations thereafter are conducted within the deposit automation system. After the deposit is proofed and balanced, the teller clicks another button that yields control back to the teller platform. As you can imagine, this sparked a firestorm of turf battles, as nothing seems to elicit emotion more than the ownership of the user interface.</p> <p class="MsoNormal">An alternative, partly spurred by the politics, is the “headless API”. This approach leaves the user interface firmly in the hands of the teller system, while the heavy lifting of payment processing is performed, “behind the scenes”, by the deposit automation system. As teller platform providers have come up to speed on the nuances of check deposit processing, this alternative has gained more traction. </p> <p class="MsoNormal">Both approaches work well, and are transparent to the depositing customer. There are marginal benefits in teller training with the headless approach. Once trained, however, I have not seen a marked difference in teller efficiency between the alternatives. It comes down to your institution’s operational philosophy. That said, my take is that the owner of the dominant platform will eventually control the interface. For example, I believe mobile banking applications will eventually subsume separate mobile remote deposit solutions…but more on that another day.</p> <p class="MsoNormal">An important trend in the TDA world is the acquisition of check imaging companies or talent by teller and core system providers. Witness the Fidelity- Metavante (AFS, Bankware), Profit Stars- Alogent, Fiserv- Checkfree (Carreker) acquisitions to name a few. ARGO Data that dominates the very large bank teller space, has preferred to hire talent over buying a check imaging company. The upshot is that deposit automation is fast becoming a module that is already integrated with the teller platform. Nevertheless, there are independents who offer to integrate deposit automation with your teller system of choice, in lieu of the bundled alternative.</p> <p class="MsoNormal">There are a few issues to be considered when looking at bundled versus separately integrated options. If you are considering a separately integrated deposit automation module, look carefully at the application programming interface (API) between the TDA system and the teller platform. Whose API is it- the TDA provider or the teller vendor? How well defined, and how flexible is the API? What is the strategy for version control as each system proceeds on its release schedule? In many cases, the interface is built without the overt cooperation of the teller vendor (only natural as they would prefer to sell you their bundled version). In these situations, there is often proprietary “glueware” that sits between TDA and the teller system. Who owns the glueware? What is the strategy to ensure that this essential piece keeps pace with the evolution of the two systems it is sandwiched by?</p> <p class="MsoNormal">If you are considering bundled alternatives, ask the same questions as above. In many companies, divisions do not cooperate with each other as well as one might think, and sometimes behave like separate companies. Thus, “bundled” may not be as tightly integrated as one might think. There is also the issue of sort patterns to consider. In large institutions, the sort patterns that govern the business rules of deposit processing can be complex.<span style=""> </span>These are traditionally owned and maintained by the operations departments, and are resident on centralized check clearing platforms. Now, the TDA paradigm requires that these sort patterns be applied at the point of entry- the teller. In other words, the TDA system needs to have access to, and be capable of administering complex sort patterns in real time, at the teller station. Does the bundled TDA system have the capability to administer complex sort patterns? If the provider of the back end check clearing system is different, what is the strategy for accessing and maintaining the patterns within the TDA system?</p> <p class="MsoNormal">The early days of deposit automation saw different systems for TDA and back counter deposit automation. The back counter of the branch was used for bulk deposits and typically drove bulky scanners of higher speeds. TDA and back counter systems were not integrated, and lived in silo’d worlds. Today’s small footprint scanners are capable of variable speed including high speed capture. Thus, the rationale for separate TDA and back counter systems no longer exists. The need is for a deposit automation system that can be configured for teller or back counter operation. In other words, what is needed is a comprehensive Branch Deposit Automation (BDA) system that can be configured to work at the teller station or the back counter of the branch. Why deal with silos if you don’t have to?</p> <p class="MsoNormal">As you can imagine, a blog post only touches the tip of the iceberg.<span style=""> </span>There are many more nuances that need to be considered. Nevertheless, I trust these points help frame the decision process. In my next post, I’ll summarize the posts with a check list that might be of help.</p>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com2tag:blogger.com,1999:blog-3933328533680233222.post-10781583410469518052011-05-18T14:59:00.001-04:002011-05-18T15:01:01.816-04:00Teller Capture Myths and Realities- Part II<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:donotshowcomments/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-US</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> 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<w:lsdexception locked="false" priority="19" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Emphasis"> <w:lsdexception locked="false" priority="21" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Emphasis"> <w:lsdexception locked="false" priority="31" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Reference"> <w:lsdexception locked="false" priority="32" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Reference"> <w:lsdexception locked="false" priority="33" semihidden="false" unhidewhenused="false" qformat="true" name="Book Title"> <w:lsdexception locked="false" priority="37" name="Bibliography"> <w:lsdexception locked="false" priority="39" qformat="true" name="TOC Heading"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal">The business case for Teller Deposit Automation (TDA) rests on the hard benefits of central proof elimination, reduced transportation and float, and the softer advantages of improved customer service, error elimination and early risk detection.<span style=""> </span>Let’s take a closer look.</p> <p class="MsoNormal">If you have a ready-to-post transaction at the teller station, clearly there is no need for any further proofing and balancing. This was a no-brainer benefit in the early days of Check 21 when branch alternatives were compared to centralized processing centers. The headcount reduction in central proofing alone could underwrite the business case for either teller or back counter deposit automation (BDA). In a strange way, the case is more complex now because trade-offs are made, not against central processing, but between TDA and BDA. An added twist in the tale is the financial institution’s workflow preference. The US is made up of institutions that prefer to proof and balance at the branch, and those that like to proof at the branch, but balance centrally. Not surprisingly, most small institutions exhibit a branch balancing preference, while larger ones opt for centralized balancing.</p> <p class="MsoNormal">The actual business case analysis involves running scenarios that are unique to the institution. Nevertheless, it is relevant to make a few broad observations. Those that object to TDA actually increasing teller workload and queue length have a point when it comes to large commercial deposits. Thus TDA is not right for <i style="">all </i>deposits. Many institutions limit TDA to deposits containing, say, ten items. The rest are either dealt with through a separate BDA system, or set aside for tellers to process during slow periods.</p> <p class="MsoNormal">Does TDA reduce keystrokes, or does it actually imply more work for the teller? I am one of those strange people that actually counts keystrokes whenever I go to make a deposit at a branch (yes, I still visit branches). I have accounts at institutions that use TDA, and those that do not. My experience is that TDA drastically cuts down keystrokes. Contrary to the claim that TDA makes tellers into proof operators, I find similar deposits taking about half the time in TDA institutions.<span style=""> </span>I have deliberately made deposits with addition errors on the deposit slip, and I find that TDA institutions catch them faster. The key is that with improved recognition software, and vastly better MICR readers, technology is doing the heavy lifting, leaving little as a teller burden. The keystroke reduction is borne out by statistics including one from a large institution that observed a reduction from 75 to 5 keystrokes (what were they doing previously with 75 strokes??). Now, the theory is that reduced keystrokes allow more teller “face time”, to allow cross selling. Not once in my informal mystery shopping did I experience the “selling teller”. The institutions I visited seem to use the reduction in keystrokes to drive efficiency over cross-selling.</p> <p class="MsoNormal">While the back counter versus teller trade-off requires more space than a blog post, there are key (no pun) considerations for BDA in larger institutions. Typically, these are environments where items are scanned at the branch but corrected and balanced at the center. If an item needs to be rescanned, or an operator needs access to the original paper, the fact that the check item is at a branch many miles away presents challenges. There are systems with instant messaging capability back to the branch, butthe DRIFT principle (DO IT Right the First Time) that TDA offers is compelling.</p> <p class="MsoNormal">Transportation savings are trickier. While check truncation does eliminate the need to move paper, there is still a lot more paper that needs to be moved daily from the branch- not the least of which is cash, the only paper that cannot be truncated. There is an emerging move towards “the paperless branch”- an interesting convergence between check truncation and document management. It will be interesting to watch how this scenario pans out in the absence of a legislative catalyst like Check 21. Nevertheless, with careful analysis it is possible to quantify transportation savings due to TDA.</p> <p class="MsoNormal">An aspect that is often overlooked is the potential to identify risky deposits at the very outset through TDA. We have accelerated the movement of money to the speed of light. Both inadvertent errors and outright fraud have kept pace. Yet, our industry still chooses to address risk on a batch basis on “Day Two”- a hold over to the old centralized mechanical capture days. It is my take that TDA and Day Zero Risk Management make perfect bedfellows. More on this in another post. </p> <p class="MsoNormal">I know no one looks at float anymore because we are about as close to “free money” as one can get. While I don’t have a crystal ball, it doesn’t take rocket science to know that the sizeable national debt will push inflation and drive rates northwards in the not too distant future.</p> <p class="MsoNormal">Lastly, the single biggest barrier to TDA is the difficulty in integrating deposit automation with teller platforms. With many core vendors having acquired check imaging companies, this should become easier. This, however, is not as straightforward as it might appear. Not all integrations are equal and, like everything else, there are trade-offs here as well. More on that in Part III.</p>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-10878181019767944862011-04-22T09:52:00.002-04:002011-04-22T09:55:43.548-04:00Teller Capture- Myths and Realities- Part I<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:donotshowcomments/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-US</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> <w:splitpgbreakandparamark/> <w:dontvertaligncellwithsp/> 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unhidewhenused="false" qformat="true" name="Subtle Emphasis"> <w:lsdexception locked="false" priority="21" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Emphasis"> <w:lsdexception locked="false" priority="31" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Reference"> <w:lsdexception locked="false" priority="32" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Reference"> <w:lsdexception locked="false" priority="33" semihidden="false" unhidewhenused="false" qformat="true" name="Book Title"> <w:lsdexception locked="false" priority="37" name="Bibliography"> <w:lsdexception locked="false" priority="39" qformat="true" name="TOC Heading"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Calibri","sans-serif";} </style> <![endif]--> <p class="MsoNormal">While the U.S. check payments industry has seen a dramatic transformation from being awash in oceans of paper, to an almost all-image environment in less than a decade, there is debate about where images are best captured. The alternatives are many- teller stations, branch back offices, ATMs, central processing centers, offices, stores, homes and mobile phones, to name a few.</p> <p class="MsoNormal">Capture points of entry can be broadly divided into two categories:</p> <p class="MsoListParagraphCxSpFirst" style="text-indent: -0.25in;"><span style=""><span style="">1.<span style="font: 7pt "Times New Roman";"> </span></span></span>Interior points, within a bank’s infrastructure like tellers, branches and ATMs, where the driving imperative is one of cost reduction and efficiency.</p> <p class="MsoListParagraphCxSpLast" style="text-indent: -0.25in;"><span style=""><span style="">2.<span style="font: 7pt "Times New Roman";"> </span></span></span>Exterior points, like offices, stores, homes and mobile phones, where the drivers are combinations of revenue uplift, customer convenience and efficiency.</p> <p class="MsoNormal">This is the first of a series of posts on the pluses and minuses of various capture strategies. We begin with Teller Capture.</p> <p class="MsoNormal">Let me begin by saying that I have never liked the term “Capture”. It is a holdover from the times when MICR (and later image) data were read and “captured” on electro-mechanical reader/ sorters. While sorters have been relegated to museums and the odd eBay page, the term lingers. I find the term limiting because it tries to describe a workflow which is far more comprehensive than the mere capture of information. I submit that the capture-correct-balance continuum that is typical of the many “capture” processes in use today is better referred to as Deposit Automation.</p> <p class="MsoNormal">Now that I have my pet peeve out of the way, let us look at Teller Deposit Automation (TDA). The quick take on TDA is to have a proofed, balanced, and ready-to-post deposit, before the customer making the deposit has left the teller station.</p> <p class="MsoNormal">That last statement sometimes lets loose a flurry of concerns:</p> <ul style="margin-top: 0in;" type="disc"><li class="MsoNormal" style="margin-bottom: 0.0001pt;">I don’t want to make sorter operators out of my tellers</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Error rates will go up because tellers aren’t trained to be proof and balancing operators</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Queue length will go through the roof because each deposit is going to take much longer</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Tellers (and perhaps customers) will not accept this new and different process</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">A scanner, computer and software at each station will be tough to justify<br /> <br /> </li></ul> <p class="MsoNormal" style="margin-bottom: 0.0001pt;">To be honest, there are also issues of a political nature that can rise to the top. TDA lies in that No-Man’s-Land between Retail Banking and Operations. In some institutions, particularly larger ones, TDA can be a lightning rod for turf battles. Nevertheless, let us look at the other end of the telescope and examine the benefits touted by proponents of TDA. </p> <p class="MsoNormal" style="margin-bottom: 0.0001pt;"> The hard benefits that drive the business case are:</p> <ul style="margin-top: 0in;" type="disc"><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Truncation and reduction of transportation</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Central proofing and balancing elimination</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Float gains through early capture (yes, I know…but interest rates will not always remain subterranean)</li></ul> <p class="MsoNormal" style="margin-bottom: 0.0001pt;"> The soft benefits that supplement and sometimes drive the decision (depending on the institution’s strategic priorities) are:</p> <ul style="margin-top: 0in;" type="disc"><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Keystroke reduction freeing up more teller time for customer service</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Error reduction through lower keyboard data entry</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Potential risk reduction through integration of TDA with risk management systems</li><li class="MsoNormal" style="margin-bottom: 0.0001pt;">Potential for enhanced service through integration of TDA with Customer Relationship Management (CRM) systems</li></ul> <p class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style=""> </span>The business case battles are fought on multiple fronts with hard and soft benefits challenged, defended and examined from many angles. My next post will take you through some of the battlefields (I’ll admit I have a few scars from these skirmishes).</p>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com1tag:blogger.com,1999:blog-3933328533680233222.post-34903823120881669652011-03-17T21:39:00.005-04:002011-03-17T23:56:54.544-04:00Payment Hub RealitiesAt BAI's Payments Connect conference in Phoenix last week, I moderated a panel discussion on "Getting the Technology War Elephant to Dance". One of the avenues explored was to "extend" the reach of legacy systems through Payment Hubs.<br /><br />The panelists were Taylor Vaughan, Director Treasury Services at First Tennessee Bank, Dave Shipka, Senior Vice President Enterprise Payments at Comerica Bank, and Elizabeth Cronenweth, Product Line Manager at Sterling Commerce (now a part of IBM). There were interesting perspectives from two bankers who were in the midst of implementing hubs, and a technology solution provider with a handle on industry trends. Here are some take aways:<br /><br /><ul><li>Financial institutions are being buffeted by strong headwinds in the form of potential lost revenue (aka the Durbinator), heightened compliance regimes (one bank- not represented on the panel- stated at the conference that they project 30% of their IT budget to be spent on compliance), polarized demographics with Boomers and technology savvy Gen Nexters demanding very different services, explosions in channels and payment alternatives, increasing non-bank competition and globalization.</li><li>Some of the imperatives driving technology infrastructure planning are:<br /><ol><li>Comprehensive customer view across all relationships. Most systems in place are transaction centric and don't offer a customer view- let alone a 360 degree view across relationships.</li><li>Multi-channel and multi-payment capability as opposed to the silo'd legacy environment.</li><li>Real-time operations to enhance customer service and reduce risk.</li><li>High up-time availability and ubiquity- anytime, anywhere.</li><li>Nimble operating environment lending itself to agile change management.</li></ol></li><li>Existing infrastructures present barriers to the imperatives through silo'd architectures and organizations, batch operating environments, old and poorly documented code, hard coded interfaces and long lead-times for change management.</li><li>There are two broad approaches to deal with the challenge- "extend" the reach of legacy systems, or replace them altogether.</li><li>It is very early in the evolution of Payment Hubs and there is considerable debate as to what it is, and is not.</li><li>A vision of a Payment Hub- a single platform that operates across all customer relationships, channels of interaction and payment alternatives.</li><li>Payment Hubs can be data centric where data and business rules reside at the hub, or message centric where the hub is a traffic cop. The reality is that evolving hubs include combinations of both approaches.</li><li>The main driver for hubs is the "spaghetti" environment in most institutions, with one-to-one paths from every channel to multiple legacy systems.</li><li>A challenge that should not be overlooked is political pushbacks from the owners of various legacy turfdoms. Some see the implementation of a hub as a direct threat to their jobs.</li><li>It is absolutely essential to have an executive sponsor who will stay the course, as the hub can and will touch many parts of an institution.</li><li>Both revenue and cost perspectives should be carefully looked at. Clearly, the cost of an increasingly expensive and unwieldy status quo needs to be compared with the expense of implementing hubs. Often, the cost of the status quo can be untenable. What is needed then, is the will to take on the risk of transformation through enabling technologies like hubs.</li><li>Another perspective is to "sell" the hub on the back of one or two revenue opportunities. This view suggests that it is difficult to get consensus on implementing a hub on a cost reduction play alone. Integrated Payables can be one such revenue opportunity. Eliminating silo'd payables and multiple files not only enhances customer service, but presents an opportunity for value-added pricing. A follow on can be the other side of the mirror- Integrated Receivables. This view recommends building the case based on the revenue opportunity, and having the transformational foundation for the enterprise pulled along by a growing topline.</li><li>The option to replace legacy systems as opposed to the "extend" paradigm was examined, but discarded due to the complexity of "legacy spaghetti". An interesting observation shared was that if much of the intelligence ended up in the hub, there was no need for a legacy system, except for settlement. Can a hub be a Trojan Horse that eventually eliminates legacy infrastructure? Intriguing concept indeed!<br /></li><li>A perspective on batch versus real-time was that both capabilities were needed in the hub as the batch based legacy systems were not going away overnight. This implies a careful definition of the Target Operating Model and a well defined Change Management Program to get there.</li><li>Lastly, a challenging note to the hub concept was raised, in that an attempt to over-centralize can end up in a potential single point of failure. Clearly, thought needs to be given at the design and architecture stage to safeguard against the hub bringing down the whole ship.</li><li>It was a fascinating dialog, and one that I enjoyed moderating. My take is that we will see more hub implementations in larger institutions in the U.S. and other older economies that do not have the benefit of leap-frogging from manual or poorly automated environments to the latest and greatest.</li></ul>Watch this space as we evolve into a post Great Recession society!Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-6721826001557182772011-02-27T17:44:00.008-05:002011-02-27T18:09:43.063-05:00StratEx at BAI Payments ConnectIn the post Dodd-Frank-Durbin world, the mantra chanted by many is that banks have to be more innovative and nimble. They have to provide differentiated value in the face of fierce competition from non-banks. Customers want to interact 24/7, through multiple channels, and using varied payment methods. The holy grail is a real-time, 360 degree view of the customer that includes all relationship types (deposit, loan, investment etc. etc.), channels of interaction (online and brick and mortar) , and all payment vehicles from check to card to wire.<br /><br />Easy, right? Wrong!<br /><br />Most financial institutions are saddled with systems that are decades old, and impossibly silo'd. The choices in front of financial institutions are to:<br /><br />(a) Extend the reach of legacy systems through systems like payment hubs, or<br />(b) Rip out old technology completely and replace them with new systems.<br /><br />The Bank Administration Institute (BAI) will address this choice between the devil and the deep blue sea, among many other interesting topics, at Payments Connect in Phoenix, March 7 through 9.<br /><br />I will be providing an overview of the topic and moderating discussion on the topic at a session, aptly entitled, <a href="http://www.bai.org/paymentsconnect/agenda/tracks/dda-under-siege/dda-under-siege-sessions/Technology-Process-En-Route-to-Payments-Profitability-Getting-the-War-Elephant-to-Dance-Session.aspx">"Technology and Process En Route to Payments Profitability: Getting the War Elephant to Dance."</a><br /><br />If you're planning to be at the conference, you may want to put this session on your agenda. It should be informative and interesting. If you don't plan to be in Phoenix, watch this space, I'll post a summary in the near future.Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-22420710406194277382011-01-08T13:33:00.007-05:002011-01-10T22:25:35.594-05:00The Branch is Dead, Long Live the BranchThat we live in a wired (or perhaps more appropriately, a wireless) world is an oft repeated truism. As I work on this post, I am using the Internet. My mobile phone just beeped with a text message. An intrepid bunch of schoolmates are using Facebook to organize a high school reunion half a planet away. Reunion after how many years, you say? Well, let's just say it is enough for many grey hairs.<div><br /></div><div>If the drumbeat of news is to be believed, consumers are leaping en masse to interacting with their financial institutions through mobile phones and other remote channels. You can now snap a picture of a check with your phone and deposit it in your bank from anywhere in the world. Remote Deposit Capture (RDC) allows businesses and consumers to scan checks from the comfort of their offices or family rooms, and zap across images for deposit. The perfect storm of convenience and technology should mean that very few people visit their neighborhood branch anymore, right? Wrong!</div><div><br /></div><div>An item (no pun, honest!) in <a href="http://www.frbservices.org/files/communications/pdf/press/2010_payments_study.pdf">The 2010 Federal Reserve Payments Study</a> caught my eye. Yes, the number of checks written has declined from about 30 billion to 24.4 billion. However, only 13% of checks deposited were received by financial institutions as images. That means a respectable 87% of checks were deposited physically. So, despite all the noise about check deposits getting virtualized, there still is a healthy number of people walking into branches to make deposits.</div><div><br /></div><div>Now, your take on the physical branch versus self-service debate will dictate whether you see this glass half full or half empty of your beverage of choice. Proponents of RDC will point to the enormous growth potential in the remaining 87%. The same percentage will be looked at by some retail bankers as rationale to invest in branches.</div><div><br /></div><div>At the risk of being a fence sitter (come to think of it, sitting on an actual fence can be acutely uncomfortable), let me say that both views are correct. RDC will continue its growth, albeit at its present course and speed- I don't see a "big bang" transformation in that direction. I do, however, see an opportunity for investment in technologies like teller capture and enhanced training for tellers to go beyond their current role as deposit takers. Teller capture uses technology to capture images, proof, and balance deposits at the teller station. It reduces keystrokes and data entry errors. It also provides more "heads up" time for tellers to interact with customers, where additional training can enhance the customer experience.</div><div><br /></div><div>Transformation is a funny thing. Just when you think the new and different will swamp the world, something from the hoary past reaches out to remind us of its existence. Success will go to those who craft strategies to leverage both.</div>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com1tag:blogger.com,1999:blog-3933328533680233222.post-20327727529089231232010-07-31T13:43:00.000-04:002010-07-31T13:44:52.122-04:00Tricks with Clicks and Bricks<span class="Apple-style-span" style="font-family: Verdana, Helvetica, Geneva, sans-serif; font-size: 12px; line-height: 16px; -webkit-border-horizontal-spacing: 2px; -webkit-border-vertical-spacing: 2px; ">Akin to the many-headed Hydra of yore, banks present many faces to consumers and businesses. There are branches, call centers, mail centers, ATMs, online banking sites, remote deposit options, mobile applications, and others that are perhaps being crafted by the merchants of finesse in our institutions.<div><br /></div><div>The quest for a cohesive multi-channel strategy has been an odyssey almost as long as Homer's celebrated voyage. Yet, one hopes that, unlike Odysseus, we don't end up alone, washed up on a beach in Ithaca! A lot has been written on the barriers to the holy grail- old systems, failed CRM initiatives, inadequate employee training, missing incentives, ad nauseam. I wonder, though, whether the fundamental issue is a tussle between two important strategic imperatives.</div><div><br /></div><div>In their excellent, but slightly dated book, The Discipline of Market Leaders, Tracy and Wiersma define value as the intersection of three imperatives:</div><div>Operational Excellence, Customer Intimacy and Product Leadership. There are few organizations (perhaps none) that are excellent in all three dimensions. They generally tilt in one dominant direction, with the others playing supporting roles.</div><div><br /></div><div>In retail banking, Operational Excellence and Customer Intimacy pull in opposite directions. Many institutions built branches to be points of high-touch service, driven by a Customer Intimacy paradigm. But branches are expensive to build and maintain. When viewed through an Operational Excellence lens, the fully loaded cost per branch transaction is significantly higher than ATM, online, and remote deposit transactions. Thus, the soft benefits of personalized service (assuming that it exists in branches in the first place) are unlikely to win spreadsheet wars in institutions driven by an Operational Excellence mindset. It is not clear whether institutions really want customers to visit branches, or whether they would be happy if all interaction moved magically from bricks to clicks.</div><div><br /></div><div>The challenge is not unlike that faced by retailers that also have an online presence. Yet, many of them seem to maintain the balance between driving foot traffic to their stores and maintaining an online presence. To realize how effective cross selling can be, think of the last time you walked into a store to buy shoes and came out with that tie you really did not need. However, we struggle with cross selling in banking. Is it because these retailers are clear in their driving imperative, while financial institutions are torn between efficiency and service?</div><div><br /></div><div>Odysseus filled his crew's ears with beeswax so that they would not be lured by the sirens' songs to certain death. We do not have the luxury of simple avenues to clarity. How do you think retail bankers should reconcile the tension between Operational Efficiency and Customer Intimacy? Let me know what you think.</div><div><br /></div></span>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-35106016363804741222010-05-18T21:05:00.001-04:002010-05-18T21:05:35.386-04:00(Fr)agile Software DevelopmentMuch of our world is made possible by software. There are myriad software systems that manage and move our money, keep track of our health histories, light our homes and offices, and indeed even enable you to read this post. While the sheer scale of accomplishment from zeros and ones flitting about at the speed of light is astounding, the manner in which some of these systems are developed, tested, and delivered raises a few questions.<br /><br /><strong>Over the falls in a barrel</strong>. The early years of evolution in software development owed much to needs of the defense and aerospace industries. These were highly mission-critical systems that had to work correctly almost ten times out of ten. A linear process that involved detailed specifications, technical designs, strict coding discipline, reviews, and rigorous testing ensured the delivery of many high performance systems.<br /><br />A version of this made its way into the commercial marketplace under the broad "waterfall process" moniker. The series of hand-offs, from product management, to architecture, design, development and testing, with intermediate review cycles, hearkened a series of waterfalls as in a cataract. While the process worked well for the most part, it lacked speed. The many steps limited organizations to one or two releases to the marketplace a year. It was difficult to nimbly respond to competitive and regulatory changes. If changes were not included early enough in the cycle, it was tantamount to missing an exit on a tollway, and waiting for the next one.<br /><br /><strong>Sprints around the racetrack.</strong> In the 1970's, the automotive industry introduced the concept of "simultaneous engineering", where design engineers, manufacturing engineers, and quality control worked together in teams. As opposed to the linear, "throw it over the transom" model, this engendered both speed and sharing of ideas. That germ of an idea made its way into software as Agile Development. While there are many agile methodologies, the general concept is that specifiers, programmers, and testers work together in short, iterative, "sprints" to produce executable software. Over multiple sprints, complete, ready-to-release applications can be built.<div><br /></div><div><b>Lost in translation.</b> While agile development has made it possible to release software more frequently, a few challenges have appeared on the way to nirvana. To the agile purists, I will grant that many of these have to do with incorrect interpretation and implementation, and perhaps not because of fundamental drawbacks in the methodologies. The challenges are amplified when you add offshore development where the advantage of co-located teams disappears. They are also most acute when software is developed for General Availability to a large and varied customer base, as opposed to internal use within an enterprise. Here are some of the pitfalls I have observed over the years:</div><div><br /></div><div><b>What we have here is a failure to communicate. </b>With apologies to "Cool Hand Luke", one of the main complaints I have seen is, "We don't know what is coming, and when!" We have moved from exhaustive, written requirements to writing nothing down. The refrain is that the sprint teams communicate with each other, and are on top of release content. Some will add that everything can be discerned from documentation within the code. The problem is that there are many stakeholders outside the sprint team, such as sales, marketing, professional services, and support. These people are not adept at reading code, and think in terms of functions and applications, as opposed to individual features. The result often is that market facing groups either oversell or undersell the product (more often the former!).</div><div><br /></div><div><b>Who's on first?</b> While sprint teams are cohesive and democratic, the flip side is that it can result in no one at the helm. While the methodologies call for a "function customer" who signs off on software content and quality, this role is often missing in action. Either the role is completely absent, or it is relegated to a Product Manager who is more of a Product Marketer than someone who can go head-to-head with a technician. In the absence of this key role, many cooks jump in to influence the software broth in one direction or the other, resulting in content churn. The process is agile yes, but highly unstable.</div><div><br /></div><div><b>Tried and tested.</b> Agile methodologies like test driven development put testing and quality at the center of the process. In practice, however, quality often ends up getting the short end of the stick. The very expectation of agility can compress timelines due to unrealistic promises made to customers. In the rush to "get it out of the door", thorough testing is skipped, and some vendors essentially do their quality assurance on the customer's dime, by continuously band-aiding software at the customer site until it works. In extreme cases, this becomes a license to hack with little regard to version control, belying the very concept of "General Availability". While poor quality is not limited to agile methods, the less rigid process restrictions can exacerbate the tendency in organizations that already have a culture of treating quality lightly.</div><div><br /></div><div><b>Customs and traditions.</b> In organizations that cater to customers of varied sizes, the concept of General Availability can be turned on its head. There is often the case of a large customer that wants software customized to meet a unique need. There are very few vendors that have the discipline to examine whether that particular capability warrants inclusion in the software delivered to the general marketplace. The path of least resistance is to include it as a base capability that is "configurable". Over time, the preponderance of configurable customizations makes the software incredibly difficult to implement and support. Again, the lack of a process to adjudicate the "base versus custom" question can result in a multi-headed Hydra, with hidden heads that can appear to bite you when you least expect it.</div><div><br /></div><div><b>Distant shores.</b> Every one of the problems discussed explode in complexity when offshore development is involved. The communication challenge now includes time zones, national cultures, and language. The concept of sprint teams working in iterations is predicated on the concept of co-located personnel who can discuss, white-board, and resolve questions face-to-face. Getting this done with people somewhere else on the planet is very difficult, and contributes to hidden costs in offshore development that can obliterate the wage differential in the early stages of the offshore journey. The challenge can be overcome, but it takes special focus and attention to drive out the inefficiencies.</div><div><br /></div><div><b>Brave new world.</b> The benefits of agile development have ensured that it is here to stay in most environments. The word to the wise is that getting it to work right involves recognizing the pitfalls, and addressing them involving the right stakeholders. I would not be surprised if many of you recognized your organizations in some of the challenges I have outlined. It is important to recognize that getting software development to work is not just the purview of the programmers alone. Someone said, "War is too important to be left to the generals". If you'll allow the stretch, let me end by saying, "Software is too important to be left to programmers, and methodologies".</div>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-23631915154842081892010-03-21T11:01:00.000-04:002010-03-22T11:02:19.780-04:00Why can't Tellers be Sellers?Stepping into a debate that is as old as retail banking is perhaps unwise. There are passionate adherents ranged on both sides of the question. To some, the issue is not <em>whether</em>, but <em>should</em> tellers be sellers?<br /><br />The question brings the raison d'etre of the retail branch network into sharp relief. Are branches retail storefronts with the primary mission to enhance customer relationships, or are they collection points for myriad transactions processed by centralized back office operations centers? Is the driving imperative one of customer intimacy, or does operational efficiency rule the roost?<br />A tilt towards operational efficiency has traditionally driven retail banking, with occasional overtures to the selling side of the equation. These overtures, however, tend to be fleeting, and with few exceptions, have not survived beyond some concerted marketing and employee incentive programs.<br /><br />To understand why the push towards serving and selling the customer has not been sustainable, consider a few points. Making check deposits is by far the main reason customers visit a branch. When they do visit, the teller is the person they most often interact with. Regardless of all the training and incentives that may have been put in place, consider what tellers actually do. They are heads down punching numbers into keyboards (try counting the number of teller keystrokes the next time you're in a branch). They have barely enough time to complete the data entry and squeeze out a quick thank you before the next customer is at their window. Imagine a Neimann Marcus salesperson wordlessly packing what you've picked out and intently ensuring that the bow on the package is just right! Yes, the analogy is not quite right- but you get the picture.<br />So despite many a marketing push, it is the fundamental transaction tether that yanks the teller back into the role of a frontline operations clerk- the first cog in the vast infrastructure that we put in place to process paper checks, featuring planes, trains, automobiles and giant "paper factories".<br /><br />There is an alternative, courtesy the legislative cover of Check 21 and advances in imaging and recognition technology. Teller Capture allows the teller to drop the entire deposit into a small foot print scanner and interact heads up with the customer, while an imaging application reads all the necessary information, ensures the transaction is balanced, and prints out a receipt when done. Teller Capture eliminates teller induced data entry errors, and also catches math errors up front. This "ready-to-post" transaction at the very beginning of the deposit stream results in major efficiency savings further down the value chain. It is as close to straight-through-processing as one can get in the check world.<br /><br />"Not so fast," say some. "You want to make my tellers into check operators?" The reality is that the opposite is true. There is now evidence of major savings in teller time per deposit, including data from a Top 5 U.S. bank of having reduced keystrokes from 75 to 5!<br /><br />"What about the cost of a scanner and software at every station?" challenge others. "It is really difficult to integrate these capture applications with teller systems." The cost per node for both hardware and software is steadily declining, making it well worth the while to examine the return on investment. The hard numbers on transportation savings, back office labor elimination, and funds availability make it interesting- leave alone the soft benefits in customer service and added sales. Capture systems are also increasingly being integrated into teller systems, both by teller vendors that have acquired check-capture technology, and pure play check imaging vendors that have certified their applications with leading teller vendors.<br /><br />Coming back to the tellers-to-sellers paradigm, what do you do with the saved time? Do you use it to push even more transactions through? Do you have tellers refer customers to other branch personnel based on prompts from an integrated CRM system? Or do you have tellers take on more of a sales and service role themselves? Those are decisions that will be driven by your overarching strategic intent. Do you <em>want</em> tellers to be sellers in the first place? As you ponder that question, you may want to look at teller capture as an opportunity to cut the transaction tether that keeps pulling you back, yo-yo-like, to the paper factory of another era.Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-74958420661280148832010-02-05T12:01:00.019-05:002010-02-07T20:59:28.082-05:00India- the new mobile frontier?I just returned from India. The contrast between frenetic growth in the subcontinent and recession blues in the West is palpable. To be sure, India went through a mild downturn late last year. There was a slowdown in retailing, real estate prices came down a bit from speculatory madness, food prices skyrocketed and annual salary increases in the IT services sector came <em>down </em>to 7% and 10% from the 20's, 30's and beyond. But it is back to growth again for a billion plus Indians- in the number of automobiles, new highways and metros under construction, high rise buildings, and mobile phones.<br /><br />With 500 million hand sets in use, India has more mobile phones than any country except China. It is adding to that base at a rate of around 35 million phones per quarter! Significantly, 92% of all phones are wireless- a clear indication that the country is leap-frogging the land line era. This in a country where in the not so distant past, a land line required a deposit payment and a waiting period of months (sometimes years) to get!<br /><br />The phenomenon has benefited from a policy decision to open the industry to private sector competition, as opposed to domination by state owned monopolies as was the case with the wireline industry at the outset. Fierce competition has driven prices down to the point where many at the "bottom of the pyramid" can afford the service (BTW, <a href="http://knowledge.wharton.upenn.edu/article.cfm?articleid=1020">C.K. Prahalad's book </a>on the fortune at the bottom of the pyramid is a great read). Incoming calls and texts are free, encouraging consumer use, as well as businesses hawking all manner of products and services direct to the handset. <a href="http://www.tatadocomo.com/">Tata Docomo </a>recently introduced a pay by second model at one paisa (about 0.022 cents) per second, which is bound to boost call volume.<br /><br />In addition to mobile marketing, there are other mobile services that are poised to avail of the critical mass and growth in teledensity. Mobile banking is one area where we may very well see India leap-frog other countries. While only 1% to 2% of mobile subscribers use mobile banking services today, there is an enormous upside. Some of the common uses today are bill payments, insurance premiums, charitable donations, pre-paid mobile telephone recharging, and travel ticketing.<br /><br />The Reserve Bank of India (RBI) has been both aggressive and strategic in building a regulatory framework to enable the growth of mobile banking. It issued guidelines for Mobile Banking Transactions in October 2008 addressing banking, money transfer, payments and commerce. RBI has since moved to swiftly revise some aspects of this guideline based on feedback over 12 months.<br /><br />Arguably, the most well known example of mobile banking in the developing world is <a href="http://en.wikipedia.org/wiki/M-Pesa">M-PESA </a>in Kenya. It is widely used for money transfer by the unbanked and is run by the mobile operator <a href="http://www.safaricom.com/">Safaricom</a> through a nationwide agent network. The RBI, however, wants banks firmly ensconced in the transaction stream, but with a twist. While funds have to be deposited at a bank branch, the disbursement of cash at the receiving end can be through an ATM or a bank-appointed agent. The RBI is thus ensuring the need for oversight through Know Your Customer (KYC) norms and the regulated banking system to address money laundering concerns in a part of the world where informal networks like <a href="http://en.wikipedia.org/wiki/Hawala">"hawala"</a> are rampant. It is also addressing the need for "last mile convenience" in a country with an evolving physical infrastructure. The not so invisible hand here is that of the RBI, nudging banks, mobile operators, and others with agent networks to partner to facilitate ubiquity and security.<br /><br />Other RBI modifications include raising the daily cap on transactions from Rs. 10,000 (~$218) to Rs. 50,000 (~$1087), enabling larger purchases, such as airline tickets. At the other end of the spectrum, it also removed the need for end-to-end encryption for transaction below Rs.1000 (~$22) to remove the cost overhead on small transactions.<br /><br />While the stage appears set for an upsurge in mobile transactions, led perhaps by funds transfers from banked urban workers to families living in villages, it is not easy to pick early winners in the race. Of the 32 RBI approved mobile service provider banks, 21 have launched services. The partnerships between banks and mobile service providers are yet to materialize. While India is known for its information technology prowess, most well known names are services companies. There are very few true product companies in the country that have embraced product management, development and delivery for general availability, and streamlined delivery and support of versioned products across large customer bases. That would spell opportunity for the many battle tested mobile banking product vendors in the U.S. and Europe, right?<br /><br />Well, before you pack your bags for Mumbai, keep in mind that selling software into India is extremely challenging. Markets at the bottom of the pyramid are very price sensitive. They call for innovative price packaging like the one paisa per second model from Tata Docomo. In addition, while attitudes are changing, justifying value for software products in India is difficult. Races to the price bottom, regardless of other value attributes, are common. If your business model dictates recovery of Dollar or Euro based cost from Rupee sales, you can end up in a bind if you are not careful.<br /><br />Despite the cautionary note, mobile services in general and mobile banking in particular are poised for explosive growth in India. We will see innovative services offered there before we see them in the West. It is a transformational journey of a billion people that will be exciting to watch and participate in. Mumbai, anyone?Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-42842412595595416902009-11-05T08:15:00.004-05:002009-11-05T08:30:05.676-05:00Marketing Best PracticesIt is difficult perhaps, to shed light on an often misunderstood discipline like marketing. In the minds of many, it is equated with advertising and promotion. In others, it plays a supportive role to sales as an administrative resource. When approached strategically, however, marketing can be a powerful source of sustainable competitive advantage.<br /><br />Click on the link below to hear a webinar I did on the subject with the folks at <a href="http://www.remotedepositcapture.com/">Remote Deposit Capture. Com</a>. While the presentation is geared towards financial institutions looking to offer remote deposit capture, the broad framework can be used in any business endeavor. Framework is really the key word here, as each of the bullet points can be expanded upon to drive tactical plans.<br /><br />Enjoy!<br /><br /><a href="http://www.remotedepositcapture.com/webinars/webinar.20091023.aspx">http://www.remotedepositcapture.com/webinars/webinar.20091023.aspx</a>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-45426767815927886562009-10-23T11:10:00.004-04:002009-10-23T11:15:42.411-04:00Changing Face of Check FraudCheck fraud has morphed to adapt itself to the digital world. Here's an interesting article by Karen Hoffman in Banking Strategies that has insights from several industry insiders, including me.<br /><br />Enjoy!<br /><br /><a href="http://www.bai.org/bankingstrategies/risk-management-and-fraud/security-and-fraud/the-changing-face-of-check-fraud">http://www.bai.org/bankingstrategies/risk-management-and-fraud/security-and-fraud/the-changing-face-of-check-fraud</a>#Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-67498833375896741092009-08-19T14:41:00.015-04:002009-08-19T19:11:05.323-04:00ET Phone Home (and zap up a check)Mobile phone cameras have captured images of everything from election protests in Iran to the recent tragic collision of a helicopter and a small plane over the Hudson River. So, what could one possibly add to the list of things that would intrigue mobile shutterbugs? With apologies to Mr.McGuire in the movie <u>The Graduate</u>, "I have just one word for you. Just one word.....checks."<br /><br />The recent announcement from <a href="http://www.usaa.com/">USAA</a>, allowing its customers to make deposits by sending images of checks taken with their Apple iPhones, brings together technologies from the 19th and 21st centuries. Until the advent of Check 21, the movement of deposited funds depended on the physical transport of paper. An extensive retail branch network was developed to act as collection points for deposited paper. USAA, which serves 7.2 million active and retired members of the U.S. military and their families from one branch in San Antonio, has consistently used technology to turn conventional wisdom on its head. Three years ago, it announced its Deposit @Home service that allows customers to make deposits by sending images of checks scanned at home. Despite early scepticism from many, USAA claims 150,000 users. The addition of mobile smart phones takes the remote capture notion even further.<br /><br />In addition to this announcement, mobile deposit technology provider <a href="http://www.miteksystems.com/">Mitek Corporation </a>has announced relationships with <a href="http://www.fiserv.com/">Fiserv</a>, <a href="http://www.rdmcorp.com/">RDM</a>, <a href="http://www.ncr.com/">NCR</a>, and<a href="http://www.jbsoftware.com/"> J&B Software </a>to take the capability to their customers. As these formidable players get past their pilots and launch offerings, we will likely see more financial institutions make mobile deposit services available.<br /><br />What about fraud, you say? Doesn't Check 21 require account and transit information to be read magnetically to ensure security? While I admit that the prospect of sensitive check images flying through the air can be unnerving, and there are issues of authentication, privacy and data integrity that need to considered (another post, another day), the fact is that there is no regulation that requires that the magnetic ink character recognition (MICR) information be read magnetically. In fact, Check 21 is silent on the subject. Thus absent regulation, it falls to the individual financial institution's tolerance for risk, versus the obvious convenience of the service.<br /><br />There are two factors that can mitigate risk to some extent: the old dictum of knowing your customer (KYC), and the option to delay funds availability until the check has cleared. I believe we will see the adoption of mobile deposit capture in defined communities such as the USAA customer franchise, where the financial institution has a very good idea of risk exposure. Credit unions with well defined memberships are more likely to offer this service than banks (and like USAA, most credit unions are also not extensively branched allowing them to make virtue out of necessity). We will likely see the service offered to the "safest" customers first, based on their deposit history, followed by a gradual expansion using funds availability agreements as a tool to calibrate exposure.<br /><br />The banking community at large has a different challenge. Deposit acceptance is arguably the raison d'etre for large retail branch networks. Remote capture in general, and mobile deposit in particular, poses an interesting channel conflict paradox (see BAI Insights for a <a href="http://www.bai.org/nl/v3/tp/n1/articles/V3_TP_N1_01.asp">summary of a presentation </a>I did with Bob Meara from <a href="http://www.celent.com/">Celent </a>on the RDC/Branch paradox). Thus, my take is that banks (particularly the larger ones) will perceive mobile deposit as a bridge over troubled waters and be reluctant to put their branch network at risk.<br /><br />While I don't see the airways saturated with check images from mass deployment, I believe mobile deposit will do well through niche (not necessarily small) adoption. Technology providers, transaction processors, and financial institutions all have different but related niche marketing challenges ahead. Astute target market selection will likely govern success. The alignment of factors like service and product features, pricing (ex: who pays for the data plan for zapping all those images, and what's the payback?), as well as path-to-market partnerships, are imperatives to be carefully considered.Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-35162658469861983562009-06-29T18:46:00.012-04:002009-06-30T22:55:43.135-04:00Image Payments- Commoditization Redux?<p>The payments industry has seen the uncanny repetition of a pattern. It starts with innovation driven by software companies, followed by ambitious "hockey stick" adoption predictions, fits and starts a la <a href="http://www.americanbanker.com/printthis.html?id=20070129FT8F3TD8">Geoffrey Moore's "chasm" model</a>, an initial trickle followed by a torrent towards outsourced processing and a brutal race to scale and commoditization.<br /><br />Not all that long ago, there were around thirty U.S. providers of in-house credit card processing software, addressing both the issuing and acquiring ends of the spectrum. Today, there are none that I can think of. A few providers remain, serving niche international markets which are yet to be served by giant multi-national transaction processors. The card processing market is otherwise dominated by transaction processors(or should we call them Software as a Service(SaaS) providers in keeping with contemporary monikers?).<br /><br />The early years of both credit and debit card payments were characterized by battles for recognition by relatively unknown players, using innovation as a weapon of differentiation. The now distant introductions of electronic draft capture (EDC) and even the automated teller machine (ATM) were ground breaking and transformational. With the move to outsourced processing, however, the overarching imperative shifted from innovation to operational efficiency. Efficiency allowed scale, which in turn drove ever lower costs, resulting in tremendous operating leverage.<br /><br />A few factors accompanied the shift to outsourced processing. There was massive consolidation in the rush to scale- independent software vendors were elbowed out in the melee. Banks exited the business, and allowed third parties to soon dominate the landscape, despite dire warnings from some that disintermediation could result in banks surrendering access to strategically important customer franchises. The rules of governance and the interchange system created by <a href="http://www.mastercard.com/">Mastercard</a> and <a href="http://www.visa.com/">Visa </a>provided the ideal platform for global acceleration. The availability of inexpensive telecommunications bandwidth and distributed terminal technologies has given us a world in which a card issued in Minneapolis can be swiped in Manila, and then processed by a switch in Melbourne, Australia.<br /><br />Great, you say, but what does this have to do with imaged check payments? It is true that check images originate at more varied points, including branch back offices, teller stations, image-enabled ATMs, corporate offices, retail points of sale, and even people's homes. In contrast, card transactions are limited to points of sale and ATMs (not counting card-not-present transactions). The need to capture images of a certain quality, recognize amounts, correct errors, and balance transactions involving multiple checks makes this a more complex cat to skin.<br /><br />Nevertheless, there are early indicators that check image payments are following a path similar to their plastic cousins. There has been significant consolidation in the industry with independent software vendors having been acquired by transaction processors- witness <a href="http://www.metavante.com/">Metavante </a>(AFS, Vectorsgi), <a href="http://www.fiserv.com/">Fiserv</a> (Carreker), <a href="http://www.fidelityonfoservices.com/">Fidelity </a>(Bankware), to name a few. There is an acceleration of images being exchanged between banks through networks like <a href="http://www.endpointexchange.com/">Endpoint Exchange</a>, The Federal Reserve, <a href="http://www.svpco.com/">SvpCo</a>, and <a href="http://www.viewpointe.com/">Viewpointe</a>. Independent Sales Organizations (ISOs) are adding check capture to their kit bag of offerings to the merchant community. While the so-called X9.37 standard for image exchange still exhibits Babel like inconsistency, it is markedly less opaque than it was a few years ago. The check scanner vendors are gingerly feeling their way towards including more check processing workflow capability in their devices, lest they fall afoul of their software provider partners.<br /><br />So then, is the past necessarily prologue? Are we on a one way track to a <a href="http://www.firstdata.com/">First Data </a>type transaction processing behemoth covering the span from capture to settlement?<br /><br />Based on observation of industry evolution, StratEx, LLC predicts the following: </p><p>In the next five years,</p><ul><li>There will be no independent check imaging software vendors in the U.S. </li><li>Core processors will convert acquired software companies into captive suppliers to assist outsourced item processing </li><li>Severe price pressure on transaction fees will be the norm as core processors bundle (and perhaps give way) item processing with core deals </li><li>The outsourced processing market will have several players serving niche markets dictated by institution size, and geography (dictated by sales coverage not technology) </li><li>The commoditization will be most pronounced in consumer and merchant capture </li><li>Branch capture (particularly teller capture) will not see as drastic an erosion in value </li><li>Teller capture will increasingly be combined with teller systems as teller platform providers either make or buy their own capture applications </li><li>ATM capture will continue on its very slow adoption curve </li></ul><p>In ten years,<br /></p><ul><li>There will be a significant consolidation of transaction processors for item processing as scale becomes all important </li><li>This will include a few "bank agnostic" processors representing a replay of the disintermediation seen in card acquiring </li><li>Merchant and consumer capture applications will become part of scanner firmware, resulting in a "terminal-to-switch" path typical of card processing today </li><li>Merchant and consumer capture will also be widely available as embedded applications in home banking and accounting software packages (the latter facilitating the "bank agnostic" processing referred to earlier) </li><li>ISOs will dominate the sale of merchant capture to businesses, with capture application enabled scanners being their flagship "plug and play" products </li><li>There will be no interchange fee system for check transactions; rather there will be risk adjusted transaction fees depending on transaction type and source<br /><br />Whether or not these predictions are borne out exactly, providers and buyers of item processing software and services will be well advised to factor these possibilities into their strategic scenario planning.<br /><br />After all, it is always better to ask "what if" as opposed to "now what?" </li></ul>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com2tag:blogger.com,1999:blog-3933328533680233222.post-39558583630866283762009-05-09T16:39:00.014-04:002009-05-10T18:06:57.925-04:00Risk and Image PaymentsIt occurs to me that payment security, like beauty, may rest in the eye of the beholder. Societal norms on beauty have ranged over the years from Raphaelesque abundance to Twiggy-like minimalism. With payments transformed in ever larger numbers from pieces of paper to electronic images, the debate du jour centers on the risk of image payments. Does the transformation of checks to images and data for onward transmission through an evolving electronic infrastructure introduce additional risk? The answer perhaps depends on one's perspective.<br /><br />The proponents on either side have aligned themselves into sharply defined camps. There are those who attest that technology provides the ability to check for fraud at a scale never before possible, and that business processes need to step up to avail of new avenues. There are others who turn the argument on its head and assert that technology allows the propagation of fraud at the speed of light; the paper check, after all, was bound by the limitations of planes, trains, and automobiles.<br /><br />Lending more uncertainty to the dialog is a regulatory black hole that allows many degrees of interpretive freedom. Check 21, which is widely touted as the legislative parent of the image revolution in U.S. check processing, is noticeably silent on image exchange. All Check 21 says is that a paper "substitute check" meeting certain requirements can be created from an image of a paper check, and that this new piece of paper has the same legal standing as the original item. It says nothing about the image itself, or its transmission within or between financial institutions. While this delights and provides opportunity to those in the legal profession, it does little to shore up the basic argument- is the new image infrastructure riskier than the paper based one it is replacing?<br /><br />The central issue is not whether image payments are risky (all payments arguably are risky at some level), but whether they pose <em>additional</em> risk. Those in the no-additional-risk camp question whether every paper item is checked for signature and check stock viability, and whether every deposit is reviewed based on business rules. They assert that technology can automatically examine every item and deposit (or a subset thereof) using rule based filters, and identify those that need manual intervention. They further point out at this can be done on "Day Zero" at initial capture, instead of on "Day Two and Beyond" in the paper world. If anything, they claim, the automated image world is less risky than its paper predecessor.<br /><br />"Not so fast," say the others. The lack of robust duplicate detection systems across payment channels (branches, ATMs, other remote capture locations), and between institutions make the electronic equivalent of check kiting a real threat. With access to the right software, images can be altered with greater ease than paper items. They also point out that this risk can emanate from within financial institutions, as opposed to "the other side of the firewall". While it is theoretically possible for technology to check all items, few institutions have this capability in place. The regulatory framework is playing catch-up to the reality of billions of image payments zapping their way across the nation (and indeed the world with the international remote capture of U.S. dollar deposits), making for a Jello-like foundation.<br /><br />During the now distant past when the credit card world confronted similar issues, the card associations came up with rules of governance. They were also able to establish the interchange system, which shared revenue and risk between acquirers, processors, and issuers. Thus, their approach focused less on the presence or absence of risk, and more on a system that compensated entities in the chain for risk exposure. Interchange was established at a time when the power equation between banks and merchants was tilted heavily in favor of financial institutions. It is highly unlikely that an interchange system for image exchange will see light of day. This brings up another intriguing question- regardless of the outcome of the less versus more risk debate, will future years see risk adjusted transaction fees for image processing?<br /><br />The challenge with questions of this nature early in the life cycle of disruptive technology adoption is that answers cannot be based on empirical information. Like changing perspectives on beauty, there are myriad opinions. If you have a take on this, let me know. Speculating on a brave new world in itself is relatively risk free. It will be a while before your opinion is borne out one way or the other!Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-73266361352863730202009-04-07T12:56:00.015-04:002009-04-08T00:13:00.176-04:00Fidavante- Merger MusingsIn an era characterized by synthesized monikers a la "Brangelina" for famous couples, "Fidavante" is perhaps warranted for the entity to be created by <a href="http://www.fidelityinfoservices.com/">Fidelity National Information Services's </a>acquisition of <a href="http://www.metavante.com/">Metavante</a>. The combination promises to be a powerhouse to rival Metavante's cross-town rival <a href="http://www.fiserv.com/">Fiserv</a>. With over 2200 core banking customers and 220 million cards processed, Fidavante's potential operating leverage is nothing short of phenomenal. The road to fruition, however, is dependent on the successful integration of two complex organizations.<br /><br /><strong>At the core</strong>. The greatest payoff, arguably, is in the rationalization and rejuvenation of the combined core banking base. As the oft repeated watchword argues, "Core is King!" It is also the most difficult integration challenge ahead. Both companies have large customer bases with legacy systems. The Fidelity repertoire includes customers on systems as disparate as Systematics, Horizon, Mercury and Miser. The Metavante stable includes the Integrated Banking Suite (IBS) platform, as well as the Bankway products that came by way of the Kirchman acquisition- the latter marketed through both outsourced and in-house license models. In addition, Metavante has entered into an agreement with <a href="http://www.temenos.com/">Temenos</a> to produce a next-generation core banking solution for large U.S. banks. The Fidelity equivalent is its Profile product.<br /><br />There are myriad strategy alternatives. Does it make sense to focus the new technology from either Temenos or Profile on effecting a technology turn within the existing small-to-medium sized institution base? Notwithstanding the daunting number of conversions, it can be argued that this option is easier than the heart surgery of core replacement in a large bank. Or is it better to leave the legacy base as is for now, and use the next-generation platform to go after larger institutions? How does one pick a winner between Temenos and Profile, given the shots across the bow already being fired with the recent statement from Temenos that its agreement with Metavante is binding on post acquisition successor parties? If large banks are the target market, exactly how big is big?<br /><br /><strong>Whale hunting perils</strong>. I suggest the foremost prerequisite for success is to get a clearly articulated strategy for each core banking market segment. It can be argued that both companies have a predominantly small-to-medium financial institution footprint. Thus, execution of a strategy for that segment, regardless of what that ends up being, is likely to come naturally to the combined entity. Scaling the heights of large institutions, on the other hand, is a different matter. Selling to, and serving large, whale-like institutions is an art by itself, considering the long selling cycles, significant customization, and the volatility that large deals bring to the P&L lines. That said, there are elements within both companies that have come by way of acquisition that have a large-institution history. The trick will be to identify those skill sets, and allow them to succeed within an operating mileu that has long been used to the relative predictability of smaller institutions.<br /><br /><strong>Switch hitting</strong>. The payments side of the business offers major synergies. The NYCE network from Metavante and the debit switching operation from Fidelity's eFunds acquisition are natural fits. The synergies between these two entities stretch back in history to when eFunds was part of <a href="http://www.deluxe.com/">Deluxe Corporation</a>. If memory serves me right, Deluxe Data Systems provided debit switching processing services for NYCE based on the flagship CONNEX product. NYCE later took the processing in-house, based on a licensed version of CONNEX. Even today, CONNEX is a leader when it comes to very high volume switches like NYCE, and the synergy analysis should be straightforward. Looking ahead, the gap that has endured the Deluxe-eFunds-Fidelity chapters, is for a product that could compete effectively with ACI's Base 24 at smaller networks for switching and peripheral functions like ATM driving... another acquisition down the road?<br /><br /><strong>It's in the cards.</strong> Fidelity brings with it a strong card processing base aimed at predominantly issuance processing for credit unions. This business has preserved its dominance in the credit union space right from its inception as Telecredit, through its acquisition by <a href="http://www.equifax.com/">Equifax,</a> spin-off as Certegy, and subsequent purchase by Fidelity. This is a net plus, as there is nothing on the Metavante side that enjoys a leadership position in this segment.<br /><br /><p><strong>Striking the right image</strong>. Both companies moved into image based check, remittance and document processing through acquisitions. Metavante has a comprehensive offering from its purchases of AFS, Vectorsgi, Endpoint Exchange,Vicor and Treev. Its strategy has been to grow the medium sized institution AFS business base, while taking its image work-flow expertise up market to large institutions, leveraging account relationships and <a href="http://www.ibm.com/">IBM</a> CPCS based product knowledge from Vectorsgi. The Fidelity offering is primarily based on its acquisition of Bankware. There will likely be a need to rationalize offerings between the erstwhile Bankware and AFS product lines. </p><p>There has always been a gap in the old AFS line at the very low end (institutions of less than $100 million in assets). There may be a case for looking at the Fidelity (Bankware) line as an alternative. I suspect, however, that both companies will look at addressing the low end through outsourced item processing services. The choice of the right platform will depend on multi-institution capability. Both Bankware and AFS originally built products for in-house licensed use. It is often the case with products initially built for in-house licensed use that functions like partitioned databases and multi-customer billing (as opposed to operating a different instance of the product to serve each customer), are part of later redesign efforts. Both companies have been at the multi-institution outsourcing business for a while, and it is entirely possible that both platforms lend themselves adequately to the needs today. Metavante's Vicor acquisition brings a high end wholesale remittance product line which doesn't have an equivalent on the Fidelity side. The Endpoint Exchange check image exchange network is unique with the many thousand routing and transit points served, although it is still challenged in its ability to offer a convincing alternative to the Federal Reserve.</p><p><strong>Check it out</strong>. Fidelity has a check verification and guarantee business that includes the well known SCAN check verification system, courtesy eFunds. There could be interesting synergies between these check services, and Metavante's merchant capture products and services. Being able to assess payment risk at the point of check image capture can be a powerful combination, particularly if there are thoughts of launching "bank agnostic" merchant capture services. A broader approach to assessing debit risk- a debit bureau if you will- can also include Chex Systems from the erstwhile eFunds stable which is easily the most well established new account risk management system in the country.</p><p><strong>Across the oceans. </strong>While the two companies together will operate in 27 countries and serve customers in 90, the international presence comes mostly from Fidelity. The expansion overseas has its roots in a strategy on the part of what was then Equifax Card Services to take its card processing expertise beyond U.S. shores. This has grown into a viable global presence. Fidelity's eFunds acquisition also brought with it a large presence in India, which provides a base of lower cost, high quality technology development expertise. This operation has its roots in the joint venture established between Deluxe Corporation and India's <a href="http://www.hcl.in/">HCL Corporation </a>in the mid-1990s to tap into India's growing technology base (eFunds was later spun off from Deluxe). Metavante's international presence is more modest, comprising mostly of distributor based product sales and recent agreements with Temenos and <a href="http://www.monitise.com/">Monitise</a>. The future augurs well for Fidavante's international expansion, as it is not beset with the same scale of integration challenge as the home base.</p><p><strong>Cultural Exchange</strong>. In most mergers, getting different cultures to work together is more difficult than rationalizing products and technologies. At first glance, Fidelity and Metavante are similar in that they are both providers of banking and payment processing services to mostly mid-sized institutions. Processors tend to have a culture that is unique in that there is great emphasis on operational efficiency to keep pushing those "clicks" through. A closer examination yields a few differences. Metavante had its origins as the captive data processing center of the <a href="http://www.mibank.com/">Marshall and Ilsley </a>bank. Until the spin-off of a year or so ago, the company grew dramatically under the ownership of the large mid-western bank. The company prides itself on customer service, and was able to develop its culture in a relatively stable atmosphere. The Florida based Fidelity has grown through the acquisition and absorption of sizeable businesses with varied histories. As discussed previously, Fidelity is also more global in its footprint. While I don't see any "show-stoppers", it should be recognized that there will be varied perspectives at the table.</p><p><strong>A third pole? </strong>Almost more interesting than the Fidavante saga is the potential shift in the competitive landscape. The combined entity presents a formidable challenge to Fiserv. With the exception of not being able to match Fiserv's dominance in the ACH arena with its PEP+ product, it is arguably set to becoming the second pole in this business. Does this signal a rush for scale on the part of others? Like nascent planetary systems, there is the need for a center of mass around which alternate poles develop. Will it be <a href="http://www.firstdata.com/">First Data</a>, privatized now, and debit payment-centric in posture? Can an <a href="http://www.sap.com/">SAP</a> or an <a href="http://www.oracle.com/">Oracle</a> morph from being horizontal players to slugging it out in this vertical market? Where does <a href="http://www.intuit.com/">Intuit</a> go, post the Digital Insight acquisition- was that just a toe in the water or a harbinger of a more purposeful move into banking and payments? Where does this leave the many niche players in the marketplace? </p><p>It is possible that nimbleness and innovation will serve niche players while the big players sort out the integration challenges. They will do well, however, to heed the adage that the grass gets trampled when elephants quarrel. To take on the dominant players on their terms- especially those who can leverage their core banking business base- is suicide. The niche players only have two choices: Become a bigger fish, or find a smaller pond.</p><p>Predicting course and speed in choppy waters is difficult at best. Nevertheless, the observations offered here, as well as insights from those with other perspectives, makes this a fascinating development to watch. As to the question that I know some wag will ask, "Given the Brangelina analogy, which one of these companies is Angelina Jolie?".... Sorry folks, I am not going there....</p><br /><br /><p><br /></p><br /><br /><strong></strong>Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com1tag:blogger.com,1999:blog-3933328533680233222.post-23359967886897888522009-03-20T10:18:00.014-04:002009-03-21T10:27:28.749-04:00Payment Convergence- Vision or Hallucination?According to a recent study by <a href="http://www.mckinsey.com/">McKinsey</a>, the U.S. payments industry is a $282 billion business. In a report entitled "Weathering the Storm: Global Payments 2009", <a href="http://www.bcg.com/">The Boston Consulting Group </a>estimates the global payments business at $805 billion, ramping to $1.4 trillion by 2016. It goes without saying that payments is big business. But is big beautiful? It could be, if those that ascribe to a converging payments paradigm are right.<br /><br /><strong>Silo'd be thy name</strong>. Payment during early times was as simple as trading bartered goods or exchanging coins. The last two hundred years have seen an explosion in the many ways value can be transferred, including cash, checks, wire transfers, automated clearing houses (ACH), card payments in various hues, mobile- the list is endless. Each of these evolved separately to meet a specific need, creating distinct processing systems and organizations in their wake. Today's financial institutions have multiple systems, with separate rules of governance, and organizational fiefdoms that resist attempts to blur boundaries.<br /><br /><strong>Holy Grail anyone?</strong> The idea of a unified infrastructure to process all payment types has been mooted for decades. It is argued that, at a notional level, there is little difference between "capture-validate-clear-settle" in check-speak, and "acquire-authorize-switch-settle" in card-talk. So, would it not be simpler, as some would argue, to have one system that did it all? But given that we have spent the better part of a century perfecting these older systems, does it makes sense to go where angels fear to tread? If it is not broken, why fix it?<br /><br /><strong>Can I call you Sybil?</strong> The world, unfortunately, is not that simple. Checks can now be converted to ACH payments forcing an erosion of previously impervious walls. In an even more bizarre twist, checks can be imaged, transmitted, and reprinted as paper substitute checks. Newer forms of payment like mobile and prepaid use the debit or ACH rails as the basic underpinning for moving money. Automated bill payment is essentially an Internet front end to ACH transfers. With payments morphing from one to another with the skill of Dickens's artful dodger, financial institutions are pressed to ensure profitability across payment channels, adherence to disparate rule sets, and risk management that spans silos.<br /><br /><strong>Brave new world.</strong> The 21st century has ushered in the need for compliance with a dizzying array of legislation. There is the Patriot Act, Sarbanes-Oxley, Basel II, and OFAC- to name just a few. The post bailout era will likely herald significant new legislation, if I am reading the winds from Washington correctly. The cost and complexity of updating legacy systems one at a time to ensure compliance is prohibitive. Moreover, it is difficult to find skill sets to modify dated systems within an acceptable lead time.<br /><br />If there is one reason that trumps all others, it is the need for improved customer service. Customers are decidedly unsympathetic to the self-inflicted tribulations of their financial institutions. They need to be able to interact through branches, call centers and the Internet to get information across accounts and payment vehicles. The new "millenial" generation is not likely to have the patience to wait while an operator logs in and out of multiple systems.<br /><br /><strong>End or the beginning?</strong> While few would argue against the case for convergence, there are practical considerations to be addressed. Does one begin with the settlement end of the value chain and work one's way forward? The move towards Real Time Gross Settlement (RTGS) systems, particularly in emerging economies, suggests that "the end as a beginning" idea has some takers. Nevertheless, I suggest that the greater payoff is at the other end of the telescope. The conversions from one payment to another take place closer to the point of origination, and that is where the greatest benefits are to be garnered from a unified infrastructure. It is also where the functional and technical challenges are acute.<br /><br /><strong>Buckets or pipes?</strong> While there are varied perspectives on how to get there, all are agreed on one thing- do not try to redesign existing legacy systems. There are two approaches to a convergent payments platform. There is the data-centric model based on a central repository for all payments information, and customized one-to-one interfaces with the various payment and core processing systems. An alternate approach is message-centric with a central hub through which all communication between payment, core and other systems is routed. The nirvana is a combination of both, governed by versatile business rules engines that financial institutions can control.<br /><br /><strong>Does size matter?</strong> The technology vendors in this space are faced with an interesting choice. Does it make sense to target large financial institutions where the payoff from convergence is likely to be greatest? Or is it better to focus on smaller institutions, where implementations of this kind are not akin to open-heart surgery? The answer depends squarely on the vendor's positioning and business model. If the major contribution to profits is from systems integration and professional services, the high end segment suggests itself. On the other hand, if the model is tilted towards license sales with a modest service component, the lower end would make sense. Technology vendors would be well advised to pick their poison. It is a toss up as to whether it is harder to scale up or scale down. They are both incredibly difficult. This is an instance of clear positioning and alignment at the outset being critically important.<br /><br /><strong>Back to the future.</strong> It is perhaps counter-intuitive to suggest that the way forward involves re-engineering legacy processes with the introduction of new convergent systems. Nevertheless, evidence indicates that there is an emerging synthesis between checks and ACH to be followed by online debit. The path is fraught with challenges, some of which I have touched upon.<br /><br />A mentor of mine once told me that there is a very thin line separating a vision from a hallucination. Where do you think payment convergence lies? Let me know.Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com2tag:blogger.com,1999:blog-3933328533680233222.post-73167546497013508812009-02-26T19:42:00.014-05:002009-02-27T19:27:23.425-05:00TransPay PerspectivesI was in San Diego this week to attend the <a href="http://www.bai.org/">Bank Administration Institute </a><a href="http://www.bai.org/">annual</a> 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.<br /><br />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, "<em>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</em>".<br /><br />Dr. James Canton, the <a href="http://www.globalfuturist.com/">futurist</a> 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.<br /><br />Dave Stewart from <a href="http://www.mckinsey.com/">McKinsey & Company </a>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.<br /><br />The eminent author and business expert <a href="http://www.ram-charan.com/">Ram Charan </a>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.<br /><br /><a href="http://www.fiserv.com/">FiServ</a> 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.<br /><br />An engaging panel discussion on mobile banking with representatives from <a href="http://www.amazon.com/">Amazon</a>, <a href="http://www.clairmail.com/">Clairmail</a>, and <a href="http://www.wellsfargo.com/">Wells Fargo </a>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.<br /><br />Romina Abel and Beth Costa from <a href="http://www.edgardunn.com/">Edgar Dunn </a>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!"<br /><br />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.<br /><br />On the exhibit floor, there were a few vendors that caught my attention...<br /><br />At the top of my list is <a href="http://www.clear2pay.com/">Clear 2 Pay</a>. 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.<br /><br />In the vein of convergence, <a href="http://www.mitek.com/">Mitek</a> 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 <a href="http://www.mfoundry.com/">mFoundry's </a>mobile banking application, and their relationships with <a href="http://www.jbsoftware.com/">J&B Software </a>and <a href="http://www.rdmcorp.com/">RDM Corporation</a> 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?<br /><br />The folks from <a href="http://www.alogent.com/">Alogent</a>, now part of <a href="http://www.goldleaf.com/">Goldleaf</a>, 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.<br /><br />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. <a href="http://www.panini.com/">Panini </a>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.<br /><br />I'll go back to how Debbie opened the conference, "<em>It was the best of times, it was the worst of times</em>...". Given the ideas I saw and heard, and the will to prevail that I sensed from many, I am inclined towards the former disposition.Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com0tag:blogger.com,1999:blog-3933328533680233222.post-18978255110988911032009-02-11T13:29:00.002-05:002009-02-11T19:43:46.260-05:00Payments Technology Adoption by ConsumersThis 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.<br /><br />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.<br /><br />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.<br /><br />"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<span style="font-size:78%;"> </span>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.<br /><br />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.<br /><br />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!<br /><br />How does one find that rare horse? Well, they don't call it a "secret sauce" for nothing!Vijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com5tag:blogger.com,1999:blog-3933328533680233222.post-29660458934648798272009-02-07T18:00:00.000-05:002009-02-08T18:04:23.428-05:00Welcome to StratEx Insights!Thank you for visiting StratEx Insights.<br /><br />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.<br /><br />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?<br /><br />Easier said than done- especially when companies grow large and lose sight of these fundamental premises that should drive all action!<br /><br />I welcome you to share your thoughts as we go forward. I invite you to participate and have fun. I know I will!<br /><br />Vijay Balakrishnan<br />President<br />StratEx LLCVijayhttp://www.blogger.com/profile/09334361065503999307noreply@blogger.com5