It 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.
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.
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?
The central issue is not whether image payments are risky (all payments arguably are risky at some level), but whether they pose additional 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.
"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.
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?
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!
Saturday, May 9, 2009
Tuesday, April 7, 2009
Fidavante- Merger Musings
In an era characterized by synthesized monikers a la "Brangelina" for famous couples, "Fidavante" is perhaps warranted for the entity to be created by Fidelity National Information Services's acquisition of Metavante. The combination promises to be a powerhouse to rival Metavante's cross-town rival Fiserv. 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.
At the core. 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 Temenos to produce a next-generation core banking solution for large U.S. banks. The Fidelity equivalent is its Profile product.
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?
Whale hunting perils. 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.
Switch hitting. 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 Deluxe Corporation. 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?
It's in the cards. 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 Equifax, 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.
At the core. 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 Temenos to produce a next-generation core banking solution for large U.S. banks. The Fidelity equivalent is its Profile product.
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?
Whale hunting perils. 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.
Switch hitting. 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 Deluxe Corporation. 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?
It's in the cards. 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 Equifax, 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.
Striking the right image. 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 IBM 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.
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.
Check it out. 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.
Across the oceans. 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 HCL Corporation 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 Monitise. 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.
Cultural Exchange. 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 Marshall and Ilsley 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.
A third pole? 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 First Data, privatized now, and debit payment-centric in posture? Can an SAP or an Oracle morph from being horizontal players to slugging it out in this vertical market? Where does Intuit 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?
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.
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....
Friday, March 20, 2009
Payment Convergence- Vision or Hallucination?
According to a recent study by McKinsey, the U.S. payments industry is a $282 billion business. In a report entitled "Weathering the Storm: Global Payments 2009", The Boston Consulting Group 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.
Silo'd be thy name. 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.
Holy Grail anyone? 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?
Can I call you Sybil? 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.
Brave new world. 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.
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.
End or the beginning? 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.
Buckets or pipes? 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.
Does size matter? 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.
Back to the future. 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.
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.
Silo'd be thy name. 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.
Holy Grail anyone? 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?
Can I call you Sybil? 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.
Brave new world. 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.
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.
End or the beginning? 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.
Buckets or pipes? 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.
Does size matter? 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.
Back to the future. 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.
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.
Thursday, February 26, 2009
TransPay Perspectives
I was in San Diego this week to attend the Bank Administration Institute annual TransPay conference. This conference which has its roots in check processing has been gradually repositioned as a venue addressing a broader payments ambit. As someone who spends a lot of time advising companies on positioning and alignment, I understand the challenge of balancing legacy wealth with future promise. I will say that BAI has made partial gains on its journey. The conference sessions had a mix of topics that included ACH, pre-paid, mobile, gen-Y and other subjects, along with check processing, while the exhibit floor was dominated by image based check products and services.
Debbie Bianucci, BAI's president and chief executive officer, aptly set the tone for the times we live in by evoking the memorable opening lines from Dicken's Tale of Two Cities, "It was the best of times, it was the worst of times/ it was the epoch of belief, it was the epoch of incredulity/ it was the season of Light, it was the season of Darkness/ it was the spirit of hope, it was the winter of despair/...in short, the period was so far like the present period".
Dr. James Canton, the futurist emphasized how consumers drive adoption, and enterprises follow later. He shared interesting facts- 2 billion Internet users, 4 billion cell phones, total world population 6.5 billion, 5 billion You Tube videos per month, 150 million active Facebook users, 900% growth in Twitter users in one year etc.. You do the math- somewhere in that mind boggling array of statistics is a case for a collaborative, device independent future where payments will play a part.
Dave Stewart from McKinsey & Company had a more earthbound perspective on the $282 billion payments industry, suggesting that the winning financial institutions will be those who proactively focus on competitive advantage, using the capital base from the historic growth in deposits as consumers flee from risk.
The eminent author and business expert Ram Charan painted a picture of our descent into madness from the repealing of the Glass-Steagall act to facilitate the Citibank-Traveller's merger, through the secured derivative hall of mirrors, to the deft transfer of risk from financial institutions to investors. His take was to cut costs deeply now to create cash reserves to fuel the innovation that is imperative to pave the way out of this crisis.
FiServ had two interesting takes on payment convergence. Denny Carreker and Dave Robertson presented a vision of a "silo-busting" platform that spanned from transaction initiation to settlement for multiple payment vehicles. Mike Reagan came at it from the perspective of exceptions management through common case tools and data repositories.
An engaging panel discussion on mobile banking with representatives from Amazon, Clairmail, and Wells Fargo addressed questions regarding revenue sharing between the wireless carriers, and banks. Notable quotes: "AT&T is the largest bill payment company in the world", and "What the carriers want is like saying, 'If you use the phone to order pizza, I want a piece of it!'" Other points included the need for relevant and personalized text alerts, like bill payment reminders as due dates approached.
Romina Abel and Beth Costa from Edgar Dunn presented insightful research on pre-paid cards use by the unbanked. I found it interesting that 25% of the unbanked had a standard credit card (High, I thought- versus 54% overall), and 18% had pre-paid cards (almost the same as 17% overall). The main reasons for pre-paid use were ease of use, wide acceptance, use of own money, safety and security, and control over finances. Notable quote: "Pre-paid as an alternative to The National Bank of the Mattress!"
Putting formal research and industry perspectives in sharp relief was an enjoyable dialogue between four 'generation Y' youngsters, and the audience of (significantly older!) conference attendees. For me, the defining moment was this interchange: Question, "Do you have Direct Deposit?"... Answer, "I don't know what that is". As you create tomorrow's systems, keep in mind that this is what you're up against.
On the exhibit floor, there were a few vendors that caught my attention...
At the top of my list is Clear 2 Pay. This is the first transformation that I have seen of payment convergence from an idea to a product. While convergence is a journey and not an event, these folks have cut their teeth on SEPA (Single European Payments Area) integration in Europe and are getting set to penetrate the Americas. The white papers on their website spell out an intriguing vision. As they say in the billboard business, watch this space.
In the vein of convergence, Mitek had their mobile check image capture application in view. While the jury is still out on how widespread adoption might be, their announced integration with mFoundry's mobile banking application, and their relationships with J&B Software and RDM Corporation for remote deposit capture suggest promise. There was also research recently from FiServ that indicated that one third of their financial institution survey respondents showed interest in offering mobile deposit capture to their business customers. Taking pictures of checks with cell phones, and sending them for deposit...who would have thought?
The folks from Alogent, now part of Goldleaf, have an approach to tailoring the user experience to match the needs of various market segments for remote deposit capture. Their Payment Web Services toolkit allows financial institutions to offer user experiences appropriate to the needs of consumers, merchants of varying size, and corporations. "Yes, so what's new in having different products suited for markets?" you say. But that is precisely where the uniqueness lies; this is a single infrastructure that can be configured to effect flexibility. It should help the total cost of ownership in not having to manage multiple products- each with its set of features, and product release calendar. With this toolkit that also allows integration with cash management systems, Goldleaf may have a compelling case for a look under the hood.
In the days prior to the passage of Check 21 in 2004, exhibitors at this show used to bring reader/sorters, which were electro-mechanical monsters that took up much space, and made a lot of noise. While those sorters have gone the way of the buggy whip, their place has been taken by desktop scanners. Panini launched their latest Ideal scanner at this conference. It is targeted for small businesses at a low MSRP of $299, and has a compact form factor that would fit a crowded point-of-sale counter. I found the automatic alignment capability where a check could be fed in at odd angles, and yet have the sensors and feed rollers line up the document for a good image scan an eye-catcher.
I'll go back to how Debbie opened the conference, "It was the best of times, it was the worst of times...". Given the ideas I saw and heard, and the will to prevail that I sensed from many, I am inclined towards the former disposition.
Debbie Bianucci, BAI's president and chief executive officer, aptly set the tone for the times we live in by evoking the memorable opening lines from Dicken's Tale of Two Cities, "It was the best of times, it was the worst of times/ it was the epoch of belief, it was the epoch of incredulity/ it was the season of Light, it was the season of Darkness/ it was the spirit of hope, it was the winter of despair/...in short, the period was so far like the present period".
Dr. James Canton, the futurist emphasized how consumers drive adoption, and enterprises follow later. He shared interesting facts- 2 billion Internet users, 4 billion cell phones, total world population 6.5 billion, 5 billion You Tube videos per month, 150 million active Facebook users, 900% growth in Twitter users in one year etc.. You do the math- somewhere in that mind boggling array of statistics is a case for a collaborative, device independent future where payments will play a part.
Dave Stewart from McKinsey & Company had a more earthbound perspective on the $282 billion payments industry, suggesting that the winning financial institutions will be those who proactively focus on competitive advantage, using the capital base from the historic growth in deposits as consumers flee from risk.
The eminent author and business expert Ram Charan painted a picture of our descent into madness from the repealing of the Glass-Steagall act to facilitate the Citibank-Traveller's merger, through the secured derivative hall of mirrors, to the deft transfer of risk from financial institutions to investors. His take was to cut costs deeply now to create cash reserves to fuel the innovation that is imperative to pave the way out of this crisis.
FiServ had two interesting takes on payment convergence. Denny Carreker and Dave Robertson presented a vision of a "silo-busting" platform that spanned from transaction initiation to settlement for multiple payment vehicles. Mike Reagan came at it from the perspective of exceptions management through common case tools and data repositories.
An engaging panel discussion on mobile banking with representatives from Amazon, Clairmail, and Wells Fargo addressed questions regarding revenue sharing between the wireless carriers, and banks. Notable quotes: "AT&T is the largest bill payment company in the world", and "What the carriers want is like saying, 'If you use the phone to order pizza, I want a piece of it!'" Other points included the need for relevant and personalized text alerts, like bill payment reminders as due dates approached.
Romina Abel and Beth Costa from Edgar Dunn presented insightful research on pre-paid cards use by the unbanked. I found it interesting that 25% of the unbanked had a standard credit card (High, I thought- versus 54% overall), and 18% had pre-paid cards (almost the same as 17% overall). The main reasons for pre-paid use were ease of use, wide acceptance, use of own money, safety and security, and control over finances. Notable quote: "Pre-paid as an alternative to The National Bank of the Mattress!"
Putting formal research and industry perspectives in sharp relief was an enjoyable dialogue between four 'generation Y' youngsters, and the audience of (significantly older!) conference attendees. For me, the defining moment was this interchange: Question, "Do you have Direct Deposit?"... Answer, "I don't know what that is". As you create tomorrow's systems, keep in mind that this is what you're up against.
On the exhibit floor, there were a few vendors that caught my attention...
At the top of my list is Clear 2 Pay. This is the first transformation that I have seen of payment convergence from an idea to a product. While convergence is a journey and not an event, these folks have cut their teeth on SEPA (Single European Payments Area) integration in Europe and are getting set to penetrate the Americas. The white papers on their website spell out an intriguing vision. As they say in the billboard business, watch this space.
In the vein of convergence, Mitek had their mobile check image capture application in view. While the jury is still out on how widespread adoption might be, their announced integration with mFoundry's mobile banking application, and their relationships with J&B Software and RDM Corporation for remote deposit capture suggest promise. There was also research recently from FiServ that indicated that one third of their financial institution survey respondents showed interest in offering mobile deposit capture to their business customers. Taking pictures of checks with cell phones, and sending them for deposit...who would have thought?
The folks from Alogent, now part of Goldleaf, have an approach to tailoring the user experience to match the needs of various market segments for remote deposit capture. Their Payment Web Services toolkit allows financial institutions to offer user experiences appropriate to the needs of consumers, merchants of varying size, and corporations. "Yes, so what's new in having different products suited for markets?" you say. But that is precisely where the uniqueness lies; this is a single infrastructure that can be configured to effect flexibility. It should help the total cost of ownership in not having to manage multiple products- each with its set of features, and product release calendar. With this toolkit that also allows integration with cash management systems, Goldleaf may have a compelling case for a look under the hood.
In the days prior to the passage of Check 21 in 2004, exhibitors at this show used to bring reader/sorters, which were electro-mechanical monsters that took up much space, and made a lot of noise. While those sorters have gone the way of the buggy whip, their place has been taken by desktop scanners. Panini launched their latest Ideal scanner at this conference. It is targeted for small businesses at a low MSRP of $299, and has a compact form factor that would fit a crowded point-of-sale counter. I found the automatic alignment capability where a check could be fed in at odd angles, and yet have the sensors and feed rollers line up the document for a good image scan an eye-catcher.
I'll go back to how Debbie opened the conference, "It was the best of times, it was the worst of times...". Given the ideas I saw and heard, and the will to prevail that I sensed from many, I am inclined towards the former disposition.
Wednesday, February 11, 2009
Payments Technology Adoption by Consumers
This last week I was told twice that the biggest challenge faced by technology companies offering new payment alternatives was technology adoption by consumers. The first comment came from an executive at a mobile payments company, and the second from an individual at an organization with a new take on alternate online payments. They both felt that they had to "move the needle" in getting more consumers to use their vehicles.
While I understand the need to get market traction in order to get emerging technology going, the fact remains that technology companies in the payments space do not control the consumer franchise. The ones that do are the banks, merchants, and to an extent- merchant acquirers. If past history is an indication, the ability of these entities to jump start technology adoption is middling at best.
There is the oft repeated example of ATMs having taken decades before consumers embraced them, and that too for cash dispensing, not deposits. The adoption ramp rate of check imaging has been one of the fastest in recent memory, and even there the widespread use by small business had to await the re-engineering of the check clearing infrastructure- propelled by the external legislative push of Check 21.
"So, what of PayPal™?" you say. The secret to moving needles, I believe, lies in this success story. Whether it was part of an overt strategy, or a fortuitous perfect storm, the coming together of PayPal with a technology, and eBay with a new and rapidly growing consumer franchise was at least one secret sauce in this story. The "viral" adoption that is talked about was at least in part due to the clear and present access to a large group of consumers.
Thus, my take on a strategy for payments technology providers trying to get consumers and small businesses to embrace the "new and different" centers on not trying to engender "viral" growth on one's own. It is unlikely that technology providers will have either the reach, or the muscle to change behavior. It is also difficult to get a major part of a market segment like banks, merchants, or acquirers of a certain type to sign up for something untested regardless of the co-marketing programs one might put in front of them.
I submit that it is better to narrow the focus significantly to find the one, two or three entities with the broad consumer franchise, receptivity to new paradigms, and the wherewithal to execute the shared vision. In other words, spend the energy in finding the rare horse that can get you there, and then hang on for the wild ride!
How does one find that rare horse? Well, they don't call it a "secret sauce" for nothing!
While I understand the need to get market traction in order to get emerging technology going, the fact remains that technology companies in the payments space do not control the consumer franchise. The ones that do are the banks, merchants, and to an extent- merchant acquirers. If past history is an indication, the ability of these entities to jump start technology adoption is middling at best.
There is the oft repeated example of ATMs having taken decades before consumers embraced them, and that too for cash dispensing, not deposits. The adoption ramp rate of check imaging has been one of the fastest in recent memory, and even there the widespread use by small business had to await the re-engineering of the check clearing infrastructure- propelled by the external legislative push of Check 21.
"So, what of PayPal™?" you say. The secret to moving needles, I believe, lies in this success story. Whether it was part of an overt strategy, or a fortuitous perfect storm, the coming together of PayPal with a technology, and eBay with a new and rapidly growing consumer franchise was at least one secret sauce in this story. The "viral" adoption that is talked about was at least in part due to the clear and present access to a large group of consumers.
Thus, my take on a strategy for payments technology providers trying to get consumers and small businesses to embrace the "new and different" centers on not trying to engender "viral" growth on one's own. It is unlikely that technology providers will have either the reach, or the muscle to change behavior. It is also difficult to get a major part of a market segment like banks, merchants, or acquirers of a certain type to sign up for something untested regardless of the co-marketing programs one might put in front of them.
I submit that it is better to narrow the focus significantly to find the one, two or three entities with the broad consumer franchise, receptivity to new paradigms, and the wherewithal to execute the shared vision. In other words, spend the energy in finding the rare horse that can get you there, and then hang on for the wild ride!
How does one find that rare horse? Well, they don't call it a "secret sauce" for nothing!
Saturday, February 7, 2009
Welcome to StratEx Insights!
Thank you for visiting StratEx Insights.
This blog is a vehicle for sharing perspectives on the challenges of aligning technology strategy and execution. While much of the content will deal with banking and payments technology, the insights should be relevant in other industries as well.
My perspectives are based on the thirty odd years I have spent in technology ranging from work on the Space Shuttle, to the remote capture and transmission of check images. I have found repeatedly that once you cut through industry specific jargon, the problems are similar. How do you go from what your market wants, to what you can do in a time frame and at a cost you can afford? How do you then keep your customers happy and let a lot of people know about it, so that you can make money by getting many people to to buy what you have, again and again?
Easier said than done- especially when companies grow large and lose sight of these fundamental premises that should drive all action!
I welcome you to share your thoughts as we go forward. I invite you to participate and have fun. I know I will!
Vijay Balakrishnan
President
StratEx LLC
This blog is a vehicle for sharing perspectives on the challenges of aligning technology strategy and execution. While much of the content will deal with banking and payments technology, the insights should be relevant in other industries as well.
My perspectives are based on the thirty odd years I have spent in technology ranging from work on the Space Shuttle, to the remote capture and transmission of check images. I have found repeatedly that once you cut through industry specific jargon, the problems are similar. How do you go from what your market wants, to what you can do in a time frame and at a cost you can afford? How do you then keep your customers happy and let a lot of people know about it, so that you can make money by getting many people to to buy what you have, again and again?
Easier said than done- especially when companies grow large and lose sight of these fundamental premises that should drive all action!
I welcome you to share your thoughts as we go forward. I invite you to participate and have fun. I know I will!
Vijay Balakrishnan
President
StratEx LLC
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