ACI Worldwide's Payment Industry Media Centre

It’s 2012. Have you made your first mobile payment yet?

2012-01-18T09:46:00.002Z

The year was 1996. Email was a really new concept and the few cell phones around were the size and weight of bricks. Selling products on the Internet had just started only a few years earlier and online sales had already reached $600 million. The industry was projecting a dramatic growth rate to $2.4 billion in 1997.

At the time, I had just started a new job at Firefly Network, one of the first Internet start-ups located in Cambridge, MA. Firefly was founded by a group of engineers from MIT Media lab and some business people from Harvard Business School. They had invented new technology, collaborative filtering, that helped you find new stuff by matching you with people you never met but were swirling around in cyberspace that liked the same stuff you liked. Back then it was hard to imagine that recommendations engines would be commonplace in e-commerce sites today.

My job was to help create a toolkit that online retailers like Barnes and Noble and Yahoo would eventually use to collect user preferences anonymously, make recommendations, and send targeted advertising from within their e-commerce sites. As a product manager, I knew it was important to put myself in the role of the consumer and make my first online purchase. I held my credit card in one hand while carefully entering the numbers one-by-one into the web browser with the index finger of the other. I’m pretty sure the browser was Netscape Navigator as Microsoft was playing catch-up with Internet Explorer. Naysayers were spreading fears about security and privacy while techno-optimists were declaring the end of the “brick-and-mortar” store.

Fast forward 16 years later. From our 1996 vantage point we couldn’t have easily imagined that e-commerce would become mainstream by 1999 and is now currently heading towards 1 trillion in online retail sales worldwide. It was hard to predict that the number of mobile phones would exceed the entire population of the world. Or, that the babies the dotcom era birthed such as Google, Amazon, eBay and Facebook would eventually grow up to become billion dollar companies. And that they would become the new entrants into the mobile payments market which is expected to reach $670 billion by 2015.

So when Google Wallet launched last year, as a product manager at ACI, I knew the significance and importance of making my first mobile payment. It was surprisingly easy to find a Nexus S 4G Android smartphone at the local Sprint store. It’s one of the few smartphones on the market that contains an embedded NFC chip that can send encrypted data a short distance (“near field”) to a reader located, for instance, next to a retail cash register. Loaded on my new phone was the Google Wallet which can hold my credit card information. Armed with my mobile wallet, I headed to my local store to make my first mobile payment. While checking out at the register I told the cashier I was going to pay using my phone – no plastic required. She had never heard of this and was excited to watch. And before I knew it there was a crowd surrounding me as I tapped my phone against the reader to make my payment. We all recognized we were getting a glimpse into a different future.

As product managers, business analysts and marketing professionals we are constantly challenged to step out of our comfort zones, stay curious and be willing to take risks with our product lines. Yet we also have the responsibility of performing the careful analysis to distinguish between the leading and the bleeding edge. We need to maintain the careful balancing act of putting forth wise investment proposals while still being early enough to market so that we can play a key role in a future the is unfolding before us. It is only by embracing the new while carefully navigating the currents of change that we will become co-creators of the future of payments.

It’s 2012. Have you made your first mobile payment yet?

Pamela LaTulippe
Director, Mobile Payments Innovation
ACI Worldwide

Banks want interactions, not just transactions

2012-01-16T12:45:00.002Z

Retailers mostly get it right, especially in the online world. They are doing really well at tracking everything their customer does and personalising the service they offer in response. Banks, on the other hand, don't tend to be very good at personalization - and I think a lot of that comes down to the inability to really understand everything that customers do with the bank, and a lack of true interaction with them.

In theory, a bank is in a really good position to understand their customer and know what is important to them. Your bank, for example, will know if you travel a lot because of where your cards are used overseas. They might even be able to tell if you travel for business or pleasure, depending if you pay for your own flights and hotel. They might be able to tell if you do a lot of driving, if you buy a lot of petrol. They know what supermarket you use, if you shop online and who your mobile phone provider is. The might be able to tell when you renew your household insurance or your car insurance, or even things like if you're a member of the National Trust!

But all too often, that information doesn't get used. Banks don't have the systems in place to take a view of a customer across all activity and use that information to create 'intelligence'.

Imagine if they could though.

Imagine if my bank knows that I do a lot of driving so they tailor my gold account 'package' to that - with breakdown cover, windscreen insurance or a free winter check for example. But if the customer doesn't do a lot of driving, but instead travels overseas, their benefits package could include travel insurance, commission free currency, or access to airport lounges. The possibilities are huge, and I know some banks do try to do this, but it certainly isn't widespread.

For many banks, this is a long way away, but I think there are things they could do now that would help them get to know their customers better - by talking to them. Don't just offer a standard package of travel insurance, breakdown cover and phone insurance for your gold account holders - perhaps give them a choice for them to pick the benefits that would make a difference to them. Suddenly you know them a little bit better. Many banks encourage customers to tell them before they go overseas - but then the bank should use that information to sell currency exchange or travel insurance for example. If a customer sets up a new direct debit for home or car insurance, perhaps plan to contact them before the anniversary to offer your services.

I really believe that there are lots of things that banks can do to strengthen their relationships with customers, and the closer those relationships, the less likely it is that the customer would change banks, and the more likely it is that they will start coming to their bank for even more services.

Mitch Armstrong
Director of Solutions Consulting
ACI Worldwide

Don’t repeat the mistakes of the internet banking age

2011-12-01T16:57:00.001Z

Mobile payments, mobile banking, mobile commerce. These are the buzzwords around at the moment with new schemes being launched every day. Which particular concept will be successful is difficult to tell. Indeed as different countries and different population segments have different expectations there are likely to be several models needed to match the needs of customers.

One common factor behind all these schemes is the incorporation of some form of payment service. Most of the discussion and debate is around the way the service is presented to the customer, how it operates on the mobile device and related elements such as the security of the service. However, that payment has to be processed somewhere which is often the forgotten piece of the puzzle.

When internet banking came along the same focus was on the delivery of the service to the consumer and less time was spent considering where the processing of transactions was going to be happen. Many banks ended up putting in new systems or struggling to achieve good availability because they did not explore the right channels inside the bank to handle the transactions. We should not make the same mistake with mobile.

Typically mobile banking is replicating the functionality available through the ATM channel while mobile payments and mobile commerce are a mixture of ATM and POS services. So those core systems are probably the right ones to carry out the processing of the transactions. Scalability, reliability, availability are fundamentals for these services which exactly meet the needs of the mobile service. Transaction volumes are an unknown quantity so being able to scale to meet the take up is vital. Reliability, in accurately handling activity is essential to provide confidence in the new transaction services. And ensuring 24/7 availability is obviously needed from the outset. And often they are designed with the flexibility to handle traffic from many sources.

Staff in the channel development side of the business need to explore with their colleagues in the very traditional ATM and POS area how to make use of these existing processing services. Otherwise there will be more silos and complexity where many are trying to simplify a complex payments processing model.

Andy Brown
Director Product Marketing
ACI Worldwide

The Payments Hubbub

2011-11-24T16:09:00.001Z

There has been much debate and discussion about what banks actually mean when they speak of a ‘payments hub’ and how that might be implemented. What is often overlooked is that the concept of a payments hub (also commonly known as a payment factory) is gaining traction in the corporate world, as companies seek significant gains in financial efficiency.

The implications for a bank can be far-reaching, as it can be expected to consolidate various payment types, pass them through the most efficient settlement method possible, and to deliver information on those payments to the accounting and accounts receivable systems of the company in a timely and comprehensive manner. On the accounts payable side, the aim is to automate the invoice handling process and to apply straight through processing. And fraud detection and payment security are growing concerns.

As banks grapple with the need to transform their payments operations, they would do well to heed the requirements of their corporate customers and ensure that, as the banks aggregate their payment business services, a tighter integration between their own corporate front-end systems and their back-office payment engine is an explicit goal.

The emphasis should be on systems interoperability – payment engine to online banking to the corporate’s own payments hub. In that way, the bank is positioned to provide extra value to its corporate clients. And puzzling over what a bank payment hub actually is becomes something of a redundant exercise.

Paul Styles
Solutions Consultant
ACI Worldwide

Final countdown to Sibos

2011-09-15T12:55:00.001+01:00

It’s hard to believe that Sibos is upon us again. It doesn’t seem like almost a year since we were all in Amsterdam. (Although they do say that times goes faster as you get older, so maybe that’s to blame…)

In a world where so much is ‘virtual’, I must confess to a small stab of guilt at the thought of so many people travelling from around the world to come together in one place. And then I remember that I thought the same last year, and the year before – right up until the moment the doors opened on day one.

Every year I hear from the banks that I talk to that Sibos is invaluable as a place to come together, share ideas, hear what others in the industry are doing, participate in debates and learn from their peers. The fact is that most customers, whether consumers or corporations, are only interested in how their bank competes in their domestic market and make decisions based on domestic comparisons. However, there will always be some customers who are looking for services outside of their country, and domestic players need to be able to compete with global or regional banks.

Naturally, global and regional banks have an advantage because they are able to share ideas more easily between country organizations. Therefore, purely domestic banks need to be proactive in their drive to learn from other countries – and this is where the truly international nature of Sibos adds value that just can’t be seen elsewhere.

While there is no need to compete globally to be successful in payments, it is important to understand what is going on globally - and the only surefire way of achieving that is to meet and engage with industry players from around the world, every year.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Towards the Unknown [Payments] Region

2011-06-28T17:48:00.001+01:00

Vaughan Williams’ choral work ‘Towards the Unknown Region’ is a dramatic setting of a Walt Whitman poem, describing the uncertainty of life, the soul being led to an unknown place with no maps or guides or paths. As the recent report ‘The Changing Face of Payments’ shows, the infrastructure of payments is heading towards an unknown region. There are many payment infrastructures and everyone agrees there will be fewer in the future. The report indicates 21% of respondents use over nine payments infrastructures today but that ‘all domestic infrastructure will disappear over time with schemes … closing, merging and consolidating.’ Obviously the SEPA project is driving change in Europe and other regions echoed the need for a similar response to the pressure of removing barriers for international payments.

But which payment infrastructures will be there in future? How can payment organizations survive in the journey to the unknown payments region? Vaughan Williams’ musical setting of the journey involves abrupt changes of key and swift climaxes. The payments environment does not involve sudden change. As the report makes clear new payment infrastructures will only gradually replace existing infrastructures as we have seen in SEPA gradually absorbing domestic payments (but too slowly in some people’s view) and Faster Payments in the UK gradually taking payments away from BACS. Recognition that the journey is one of transition from the current mix of payment channels to a different mix of payments is the key to being able to plan for the journey.

So what attributes should banks and other payments organizations ensure are embedded in their payment systems to allow them to survive the journey? Two key aspects stand out. Firstly payment systems of today need agility and flexibility to survive the journey to the unknown payments region. Payments systems need to be able to absorb change. With many organizations the challenge is the proliferation of payment systems, all using a multitude of payment infrastructures. Just as consolidation in the infrastructures will lead to more efficiency in effecting a payment, so the consolidation of systems within a bank is vital. ACI research last December showed that 45% of banks are in the process of transforming their payment systems or have plans to in the next two years. The start point is the consolidation by payment type or by geography leading to consolidation across customer types or regions.

Secondly payment systems also need to be able to handle the ‘real time’ world expected by consumers and corporates. As the report makes clear increasing numbers of transactions will move from the bulk payment mechanisms into real time mechanisms; it references the expectation that payments are like emails with almost immediate delivery. That requires banks and other payment organizations to ensure their entire processing is also in real time. For instance, it is pointless being able to submit the payments in real time if the fraud detection systems are still working on a post authorization basis; fraud detection needs to be real time, in the transaction path as well.

While payment infrastructures are moving towards that ‘unknown region’, banks and other payment organizations can prepare for that future. Perhaps a challenge for one of today’s composers is to illuminate the path of payment systems towards that unknown payments region!

Andy Brown
Director, Product Marketing
ACI Worldwide

Combating Online Banking Fraud - A Top 10 List

2011-06-23T11:53:00.003+01:00

For many financial institutions, the recent ruling in the US holding a bank responsible for fraudulent losses from business accounts has raised a few eyebrows because, traditionally liability has remained with the customer for business accounts. However, the court ruled that the bank has a responsibility to protect its customers through the use of fraud detection mechanisms.

For most banks this just means doing what they do already. The fraud detection systems used today are comprehensive - looking at payments from different organizations, across different channels, all day every day, and spotting anything that seems even slightly out of the ordinary. As an industry we share information about types of fraudulent attacks, or even the IP addresses used by criminals to try to gain access to online bank accounts, and the fight never stops to stay one step ahead of the fraudsters.

If banks want to check that they are promoting reasonable efforts to prevent and detect online banking fraud protection for their customers, here is a checklist of ten of the most important features of successful fraud prevention and detection:

1.Apply multi-factor logon authentication for online banking systems - such as tokens with one-time password or Adaptive Authentication (risk-based authentication).
2.Utilize real-time analytics - monitor transactional behavior to determine whether activity is standard or anomalous for that customer. When high-risk activity is detected, action can be taken in real time or near-real time to stop the transfer of funds from the customer's account. Funds can also be held until customer validation can take place (see #4 below).
3.Employ profiling - include non-financial information (IP address, login activities, and device characteristics) to build customer profiles which can be stored to monitor ongoing behavior.
4.Make use of out-of-band notification methods- utilize phone call, text message, e-mail, etc to confirm activity with customers before transactions can be completed.
5.Maintain anti-virus software - Be sure to recommend your customers keep it current on end-user machines. While not fool-proof, it can stop lesser forms of intrusion.
6.Maximize password management - Ensure password management best practices are enacted (e.g. change password every ninety days, minimum length, combination alpha-numeric, varying history, etc.).
7.Leverage dual approval and limit management capabilities in your online banking tool -End-users with transaction initiation or approval entitlements should not also have administrative rights.
8.Implement token management at ACH or Wire release - this approach provides another layer of authentication prior to finalizing the transaction.
9.Employ a prescriptive, layered approach to security - utilize security tools within your online banking solution (e.g. multi-factor authentication, limit management, etc) with a fraud prevention and detection solution (e.g. profiling, analytics, etc.)
10.Education - keep it simple but constant. Partner with your customers to ensure they are aware of today's threats and know what tools are available today to protect themselves.

Michael Grillo
Senior Product Marketing Manager
ACI Worldwide

Knowledge-based innovation

2011-06-20T11:47:00.002+01:00

All banks benefit from improvements to the payment market’s efficiency. This is where experienced software professionals can help the payments community achieve more in less time, particularly in complex global markets. Software partners are in a position to help deliver innovative services with their available proven solutions and tools. When a bank has a question, there is often a good chance that a global solution provider already has the answer, or has gone some way to finding the solution. In this space there is little reason to go it alone, or take on the risk of re-inventing the entire payments infrastructure.

The latest stage in the evolution of the payments business is the development of fully functional payment services hubs that enables agile payments processing from common components across payment types. These hubs enable banks to offer new products, services and customer channels, safe in the knowledge that they have the back-office processes and functionality to meet customer demands, whatever they may be. Any roadmap in wholesale or corporate payments innovation is likely to direct financial organizations towards the adoption of a payments hub.

By providing core services on time and in the most effective way, banks can ensure that customers remain happy to do business with them. They should avoid going after the latest whim or technical fashion without ensuring that they can continue to deliver the business basics.

The payments industry has changed dramatically over the past few years and, like any other evolving business, will continue to change in the future. Innovation is what keeps the industry moving, but it is all too often regarded as a major step forward in terms of technical capabilities, without due consideration being paid to the business models and operations that were the initial source of competitive strength. In reality, innovation is about ensuring that products and services that the customer wants now and wishes to have tomorrow can be delivered at the time that they want them and at a price they are willing to pay.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Innovating to better compete with existing and new players

2011-06-17T10:06:00.001+01:00

The need to develop new customer propositions has become more important recently because of the new market entrants that many claim are eroding the traditional bank’s business in the payments space. It is a common topic of conversation at industry conferences, but in reality these new entrants invariably work with banks to deliver final settlement. The far more pressing concern is that these new entrants are talking directly to customers. What’s more, as new players push harder to offer competitive banking services, we can expect legislative demands to be increased and the playing field to be leveled. To ensure innovation, it is important to explore and establish ways of working alongside these new players.

Part of the challenge here is that banks are not often regarded as innovators or leaders of innovation. New entrants find it much easier to adopt these titles, and are able to move with greater agility and come up with unique propositions. Traditional banking houses are still thought of as being the safest environment to move money in, but this level of trust needs to be seen alongside innovation.

Small value cash and card retail payments between consumers are the target, and person-to-person (P2P) payment service providers like PayPal and now Facebook are already strong competitors in this space. However, as already noted, revenues are low for these types of payment.
Remittance services are also popular among a significant consumer cohort, and payment companies are keen to offer services that front-end the traditional banking systems. The key target of international payments – those with high value and strong revenues – are the ones that really need protection. Critically, that will only happen if the banks provide the products and services that customers want to buy.

Thus, banks should not shy away from working with these new players, particularly as they can still take the most important role, that of settlement. Since settlement must be performed in a secure, risk-free and guaranteed manner, traditional banks are still best placed to provide it. Currently, only the banks offer that platform, alongside the legislative constraints of doing business. Banks should provide exemplary settlement services, ensuring that the new players are treated as well as any other customer. In this more diverse marketplace, banks need to ensure that their innovation is directed towards providing a seamless service to all existing and potential customers, regardless of the nature of the contact point.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Innovating the customer proposition for true differentiation

2011-06-16T12:19:00.001+01:00

A broad range of activities – and not just cost cutting – must be adopted if a financial institution’s market share is to be maintained and managed, and are imperative if market share is to grow.

Consider a scenario in which every organization provides the same processing to ensure regulatory compliance. In this situation, there is little a customer can do to determine which bank is deserving of his business, other than price. Conversely, a bank that is able to clearly differentiate its product offering has a unique selling point that can attract and retain lucrative customers. Banks also offer value-added services to their clients as a means of moving away from commodity pricing and into accurate pricing for the real value that has been added.

Innovation in payments is invariably not about how the payment is processed. Ancillary services to payments are frequently more important to corporate customers: the provision of loans and liquidity, availability of data in real time, or pooling services and general cash management. It is the total offering that creates a fully rounded customer proposition, and whichever is chosen, the role of payments is to support these activities. Banks should therefore ensure that their payments service is able to facilitate these key areas.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Driving innovation in a cost-cutting environment

2011-06-15T14:39:00.001+01:00

An ongoing squeeze on budgets, combined with unprecedented levels of external scrutiny of both operations and performance, has created a situation in which improving the cost base has become paramount for most banks. Nonetheless, cost cutting need not be an insurmountable obstacle to innovation. Indeed, it may be a key driver of it.

The new market landscape has caused financial institutions to look for ways to reduce the time required to see a return on investments, which in turn has driven demand for a more agile business environment that is able to bring new services and products to market more quickly. As a result, improvements to the operational framework have become essential, and many banks’ IT departments have begun the process of seeking out ways in which technology can be improved to achieve these ends. A number of common themes and strategies are emerging that can be viewed as useful starting points for bringing an innovative approach into the organization.

1. Leverage existing assets: perhaps the most obvious place to start is exploiting existing assets more efficiently and effectively. This can be achieved, for example, by making the most of vendor-supplied systems where new functionality is often provided for the modern market
2. Scrutinize new technology carefully: a number of IT departments are also choosing new middleware toolkits to bring existing solutions into the new architectural view, but care must be exercised here. These kits often promise to simplify the complexities inherent in the existing integration environment while maintaining the same level of payments processing. But this is not always the case, as some banks are now discovering
3. Use the consolidation opportunity: consolidation will inevitably save more than making system environments more complex, and is a critical cost-saving action that a number of banks are undertaking
4. Look carefully at straight- through processing: improving bank operations is another important cost-saving measure under consideration
5. Tackle fraud effectively: a bank can improve cost efficiency through better fraud prevention of payments – not just to avoid regulatory fines, but to ensure that the payment is stopped in-house rather than at the next bank in the chain

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Payments innovation in wholesale banking has never been more important

2011-06-14T15:19:00.001+01:00

Whether it is bringing new products to market or offering existing services at a lower cost, innovation in wholesale banking payments is now an important aspiration. Innovation is often seen as the means by which banks may protect current revenue streams and open up new income sources to replace those lost through regulatory change. As a consequence, it is innovation that has become key to maintaining a competitive position in a crowded market, ahead of projects that focus solely on cutting costs.

However, driving innovation is far easier said than done. Where do you start and how can you mitigate risks? A simple starting point can be to look at the way in which the world is changing and aim to meet the aspirations of your customers as their needs change.

For example, in a relatively short space of time, internet-enabled smart phones and tablets have become the dominant technology in the consumer environment, and are now causing traditional methods of access to retail and wholesale banking to be re-thought and reconsidered.

Just as smart phones have become wide-ranging communication tools, social networking sites are an increasingly important channel of communication. This is relevant to the payments businesses because they have become the chosen method of communication between consumers. This presents significant possibilities, of which the development of a Facebook payments subsidiary is perhaps the most obvious example. However, the developments in communication habits enabled by rapid advances in technology are also becoming increasingly relevant in the wholesale and B2B space as the expectations of a bank’s corporate customer are shaped by the daily experiences of its individual staff members.

The other critical factor in shaping the new payments landscape is inevitably that of regulation. Directives like SEPA in Europe and the Faster Payments initiative in the U.K. were intended to improve the retail customer’s experience, but have had a more dramatic effect in corporate banking where they have driven a number of technological changes.

The successful banking business will embrace this changing environment as an opportunity to innovate and provide a higher level of care and superior service to corporate customers. Without doing so, financial institutions will quickly be left behind.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Let’s hear it for the payments big boys

2011-05-25T10:30:00.003+01:00

Since the financial crisis, supervisors across the world have been trying to work out ways of dealing with banks deemed to be ‘too big to fail’. The most obvious solution (and the most simplistic) is to chop them up into manageable bits so none are too big or interconnected to be allowed to fail, because the current received wisdom seems to be that banks that are smaller and more modular are less of a risk.

But from a payments perspective, there are two counter-arguments to this approach.

Firstly, the big banks that operate, and offer payment services, internationally are actually made safer by their geographical spread – there is no concentration of risk on any one particular economy. And that’s an important element in terms of regaining customers’ trust.

And the second point is that the banks that operate and provide payment services internationally offer clients something that others cannot:
- A consistent level of service across all points of contact,
- The benefits of payments’ best practice from their widespread experience,
- Better management of their clients’ cash across borders.

So there are good and sound reasons to applaud the big banks’ revival of interest in the unglamorous business of taking deposits and processing payments. We need big banks to do this. Mind you, they’d better have the right systems in place to do it properly...

Paul Styles
Solutions Consultant

Taking action against the burden of legacy systems

2011-05-19T11:34:00.000+01:00

We know that most financial institutions are burdened, to a greater or lesser degree, by siloed legacy payment systems. Part of the problem is that the limitations of this architecture of legacy infrastructure are not immediately obvious. Individual systems function, and function well for the most part. But although they serve their individual purposes now, there is little to suggest they will be able to work together to support financial institutions as they adapt their business models to the demands of a new decade.

The sheer volume of transactions that these legacy systems are expected to handle continues to grow – placing ever growing pressure on already creaking infrastructure. The financial crisis has dramatically accelerated the pace of change and has placed acute pressure on legacy systems. It brought about unprecedented levels of consolidation and tremendous regulatory change, and is accompanied by a fast-paced revolution in technology and a changing customer demographic.

Furthermore, the payments industry is no longer the exclusive domain of established financial institutions and traditional payment processors. New entrants from non-financial industry sectors are making their presence felt and challenging long-held notions about the payments business. These new entrants have been enabled by customer-friendly regulations and fast-emerging technologies, and are gaining ground in traditional B2B and B2C spaces as well as creating and fulfilling an electronic P2P payments environment.

These new entrants come without the baggage of years in the payments space. They offer new products and services, carefully targeted and often fulfilling a niche demand, without having to compromise because of their technological limitations.

The convergence of payments and consumer technology favorites is indicative of another critical factor facing financial institutions. Consumer’s lives are increasingly digitized. Customer expectations are therefore changing rapidly. Younger customers in particular are used to services delivered online and in real time and expect similar levels of service from their financial institutions. Traditional banking brand strengths, like reliability and security have less meaning for the next generation of customers for whom speed and convenience are the key brand values, with reliability and security considered hygiene factors. And legacy systems cannot always meet these expectations.

The payments industry is therefore at a tipping point. Financial institutions need to be more proactive in the payments evolution while managing crisis-driven business pressures and new regulatory and compliance imperatives. First of all, they will need to make some prompt decisions about how to redesign or accelerate their revenue-focused and cost-focused payments strategies. New pressures threaten to overwhelm the legacy systems on which the payments business has been built.

Louis Blatt,
Chief Product Officer
ACI Worldwide

The heritage of legacy payment systems

2011-05-05T11:39:00.001+01:00

The past 30 years has seen billions of dollars spent on payments systems – with financial institutions building up a plethora of different systems and technologies designed to meet specific needs and develop competitive advantage. However, as the payments infrastructure gets more intricate and unwieldy, the harder it is for financial institutions to realize the potential benefits of technology.

Software vendors and financial institutions have a lot to answer for when it comes to the complexity of payment systems. We have often seen financial institutions racing to be one of the first to market with new services. More often than not, the industry has bolted on a new platform for the new service, rather than spend extra time building new functionality into existing systems. The lack of maturity and adoption in service based software development methodologies resulted in the inability to bring to market a unified solution. This has led to complex and siloed systems that have become a burden.

The technology that prevails in many financial institutions is a combination of old and new, dating from the 1980s, 1990s and 2000s. There is little room for scalability or agility in older systems, which are not designed for flexibility or the need for real-time processing. The result is an imperfectly integrated blend of old and new technologies that compound the tangle.

Consolidation has also driven complexity. The number of independent financial institutions has decreased rapidly over the years, as larger institutions seek growth and expansion through a wave of mergers and acquisitions. But along with new markets, new customers, and new revenue opportunities, financial institutions have also acquired additional systems to add to their own rambling infrastructure.

Another driver of system duplication and complexity is globalization. Facing diminishing returns from domestic markets, established financial institutions in North America, Europe and Australia have turned to Latin America, the Middle East and certain countries in the Asia-Pacific region, where the prospects are much more attractive. Regional institutions have been acquired and in the process their existing systems, designed for local requirements and legislation, have been added to the payments landscape of the bank.

Finally, the regulatory landscape is changing rapidly, bringing with it new demands for compliance, audit, transparency and control. Financial institutions will need to update platforms and processes necessary to issue and manage cards in this new environment.

As a result of all of these factors plus customers’ constant demand for new and more convenient methods of payments such as mobile, technology has become all-pervasive: it has multiplied through all aspects of a financial institution’s payments operations and replicated across channels, payment types and business divisions. Many organizations are, in effect, a series of separate mini banks that simply operate under a unifying brand, but with a completely independent view of external customers and internal resources. But at some point, the development of monolithic systems that increasingly consume the development and support budgets at banks has got to stop, and financial institutions need to take a long-term, cross-organization view for the future of their payment systems. The need to move to the next generation system is no longer disputed but how that migration should occur is the key question. Banks must develop a plan to migrate to a more modular and unified system that offers the business agility required but does not compromise the availability, reliability, and scalability of the legacy systems.

Louis Blatt,
Chief Product Officer
ACI Worldwide

Saying goodbye to the old…

2011-03-23T08:58:00.001Z

I blogged earlier this week about the importance of payments and banks adding value for their corporate customers, which is being highlighted at IPS. Electronic payment volumes are still increasing and banks have to look at how they are being managed and processed.

But for many institutions this can be easier said than done. The past 30 years have seen literally billions of dollars spent on payment systems, and the payments infrastructure within many financial institutions is siloed, with different payment types often having their own systems, information, processes and people to support them. It isn’t uncommon for a medium to large financial institutions to have between 60 and 100 individual systems to process payments.

However, the cost of maintaining these systems; the downward pressure on the per-transaction fees that banks can charge; and the need for speed in responding to innovation in the market, is leading many banks to look at their payments landscape and start to consider how it can be evolved to become more consolidated and efficient.

We’ve heard lots of talk about payment hubs in the past few years, and while I agree that consolidation is key, it end goal isn’t just about getting all of your payments onto one system, it must be about intelligently and effectively bringing together processes and technology to reduce inefficiencies and increase flexibility. It doesn’t really matter if you go from 100 systems down to 5 or ten rather than just one, if you have delivered significant benefits at the same time.

But getting there isn’t easy. In most financial institutions it isn’t a case of throwing out the old and bringing in the new, it is a more gradual evolution , but the end goal is still the same – efficient technology and infrastructure on which the bank can deliver the processing functionality, flexibility and scalability it needs today and into the future.

Craig Ramsey
Wholesale Solutions Lead

Will transaction banking please step forward?

2011-03-22T09:25:00.000Z

The provision of payments is a fundamental function of banking, practically as old as money itself. But since the introduction of cheques more than 350 years ago, the payments landscape has been evolving continually, due to changing customer requirements, competition, legislation and technology.

The speed of change has increased in recent decades, putting more and more pressure on the banks, but the function of making and receiving payments has never really had its time in the limelight. But now things are changing, with a renewed focus on payments and the revenues that can be generated from what is a stable and relatively predictable business line, with growing volumes. However, legislation such as SEPA is driving down the per-transaction revenue that can be generated, so to be successful and stand out from the crowd, banks need to apply their expertise on their customers and the market to create propositions that add value to basic payment processing.

One key example of this is in the corporate payments world. For businesses, payments are of little interest in themselves, they are part of a bigger picture of transactions being completed, and also the wider liquidity position of the organization. Banks need to find ways to add value to their customers, for example by making payments easier to initiate and available at short notice; by providing real-time reporting and management information; and by offering a consistent payment experience globally – and many banks are looking externally for an experienced partner to help with this process.

Anything that banks can do to add value to their corporate customers, and build a relationship that is more akin to a partnership than a customer/supplier, then the greater the opportunity for the bank to continue to run its payments function as a revenue generator.

Craig Ramsey
Wholesale Solutions Lead

Success factors for in-house card processing

2010-12-06T15:19:00.001Z

I recently posted on the brand, customer and risk-mitigating advantages of bringing card processing in house. However, while an in-house card processing strategy clearly presents a set of indisputable strategic and global business advantages, there are risks to consider.

Banks need to work with their solution provider to establish a deployment strategy group to ensure critical elements of the businesses resources, strategy and IP are addressed, leveraged and protected in the creation and execution of an in-house processing system. Such a group should include key stakeholders, such as line of business, technology, operational and governance leaders.

For those considering implementing an in-house card processing strategy, the top critical system and functionality requirements include:
• Global functionality
• Massively scalable issuing and acquiring capabilities
• Proven security and proactive fraud detection tools
• An open and multi-national platform
• Highly integrated and secure transaction processing.

Banks that take these factors into account when building an integrated, consolidated and global in-house card processing strategy will be armed for success. A brand is a strategic weapon, and a robust, innovative card program is a part of this strategic arsenal.

Lynn Holland
Vice President,Product Management
ACI Worldwide

In-house card processing: reducing risk and costs

2010-12-02T15:29:00.000Z

I recently posted on how bringing credit card processing in house can help build a financial institution’s brand and customer loyalty. For banks with in-house processing and advanced fraud detection systems, another advantage is the ability to mitigate brand and business risk around privacy and security issues.

Managing risk, compliance and governance directly as opposed to depending on another organization’s security and operational effectiveness is a key factor in many financial institutions’ decision to bring card processing back in house. Being in direct control of all their customer information, banks and financial institutions glean fast visibility into potential and actual threats and can respond rapidly to intrusion and potential data damage.

Additionally, considering many banks have one processor managing prepaid, another handling corporate cards and another perhaps supporting a division as a result of an M&A, the potential for data and intrusion risk exposure can be multiple fold. This issue also brings to light the opportunity for significant cost savings through consolidating and bringing processing under a single, integrated and global in-house system.

Lynn Holland
Vice President Product Management
ACI Worldwide

Why bring card processing in house?

2010-11-30T17:05:00.003Z

While outsourcing continues to be a trend this year, in terms of card processing there are far-reaching business and financial advantages to bringing the process in house. On the one hand, the economics of outsourcing can be competitive when looking at the low cost per unit in post mature market segments like consumer credit cards.

Cards represent a significant opportunity to drive brand consciousness and product differentiation for consumer and corporate customers. That said the ability to control and tailor those card products give a financial institution the ability to more effectively compete for new business and retail existing customers.

For instance, banks and financial institutions with in-house card processing can be innovators in the field and deliver premium products, which leads to greater brand loyalty, leadership and protection. Banks that outsource card processing rarely have access to new products on an exclusive basis. Instead, they must wait in line with all the other processor customers for new products to be rolled out. In contrast, banks with in-house card processing systems manage their own product roadmaps and are better placed to gain coveted first-to-market positions with innovative, customized and high-value products. In the case of the lucrative high-return card segments such as corporate, loyalty and gift, the first-to-market position is an important competitive and financial advantage.

With respect to customer engagement, banks can offer more relevant, attractive and useful card products with in-house card processing’s flexibility to tailor products to consumer demographics. With respect to merchant relationships, an in-house processing strategy presents a powerful means for banks to protect and enhance these relationships through high-value and ‘sticky’ services. For example, using integrated in-house processing systems, banks can make card services available through the same set of merchant screens, interface and single sign on. For mid-tier merchant services, this can involve completely handling all their merchant banking, paying them for their credit card transactions every day and helping them manage their exception and dispute processing. While for large corporate customers to whom banks are providing all treasury cash management functions, banks can deliver a merchant program through the same interface and portals. Merchant attraction, growth and retention are key, not only to a successful card program, but for a successful top and bottom-line.

Directly owning and managing the relationship with card customers through in-house processing presents a set of compelling business, financial and strategic advantages. As a result banks achieve greater brand relevance, value and loyalty across all segments -- from consumers or small business, to mid-sized merchants and large global corporate customers.

Lynn Holland
Vice President Product Management
ACI Worldwide

Direct debit fraud at an all-time high

2010-11-23T11:59:00.003Z

It is worthwhile remembering that there is actually more than one victim involved in Direct Debit fraud. The Paying Bank executes the payment against a fraudulent direct debit mandate, and the Collecting Bank receives the fraudulent payment, whose customer provides goods and services – for simplicity let's assume they are in fact legitimate in the first place.

Under scheme rules the Collecting Bank is obligated to indemnify the Paying Bank up to a specific threshold limit where payment has been made by mistake (including fraudulent payments). So the actual victim here is not just the Paying Bank’s customer whose details were stolen, but also the Collecting Bank and their customer who in good faith provided goods and services to the criminal against a fraudulent payment instruction.

This is not a new theme. Those financial crime professionals that are old enough will also remember and be familiar will the old Direct Debit telegraphic transfer directory scam in the mid 1980s. However, Direct Debit and ACH fraud does need to be taken seriously This is also not just a domestic problem. Reg E in the US also exposes banks to fraud threats and requires careful management.

Fortunately there are a number of tools that banks can employ to help identify this type of fraudulent activity, possibly one of the most common and successful being ‘out of band’ communication – where the bank contacts the customer using a mobile phone call or SMS message for example, to confirm the new mandate instruction. This method can also be used as a verification tool for any type of transaction to confirm its legitimacy – including online payments or even debit or debit card transactions. For banks, the priority is identifying fraud accurately at the first possible opportunity, and stopping the criminals in their tracks.

Andy Morris
Risk Business Solutions Consultant
ACI Worldwide

The real payments impacts from liquidity regulations

2010-10-27T13:08:00.001+01:00

As a key theme for SIBOS there is a lot of discussion about the impact of regulations, and the unexpected consequences that all too often accompany new rules.

The BASEL III focus has been on ensuring banks are well funded to cope with problems that may occur in the market, with the particular focus on the failure of an entity involved in a transaction. To do that, naturally, the risk of doing business with each party has to be considered when undertaking each transaction.

In looking at the bank customer requesting a transaction, the risk will vary depending on many factors including credit ratings but also, and perhaps more importantly, by how well the bank knows that customer. Is this a customer who makes regular payment requests and has a deep relationship with the bank, or an organisation that only uses one product and makes irregular payments? The latter will be viewed as a higher risk and therefore will require more funding set aside to cover failure than the former.

Increasing the collateral to cover the liquidity required for higher risk customers and payments naturally makes this more costly to the bank. That cost may be passed on to customers. The implication from several speakers at Sibos is that banks will be even more focused on servicing only the customers who have multiple products and are regular users of their services and will discourage the single product customer who makes only occasional use of the service. I could see smaller corporates suffering from higher costs for their payments.

But I also wonder how some of the banks payments infrastructure will handle this change in emphasis. The move from handling a broad range of clients with a spread of payments to a smaller set of customers with much higher volumes could challenge some payments environments. Once again agility is needed in the payments systems to respond to both the direct and indirect consequences of regulation.

Louis Blatt
Chief Product Officer
ACI Worldwide

Getting one view of financial crime

2010-10-27T12:02:00.002+01:00

Anyone who has worked in a bank, or has spent any length of time working with them, knows that technology silos are all too commonplace. Many banks have one system to process debit card payments, another for credit, a third for online banking, and the list goes on. The same applies for fraud prevention and detection, where many banks aren't yet taking a true enterprise view of a customer but instead trying to identify fraud on individual channels, which inevitably makes the detection slower and less accurate - for when fighting financial crime, information and knowledge really is power.

So I am heartened by the session I attended today in which the panellists of senior executives from major banks all agreed that sharing and centralising AML, sanctions, KYC and fraud prevention and detection are key in reducing costs and increasing success. I completely, wholeheartedly agree. The most important thing for the bank isn't maintaining silos or, dare I say it, the all-too-common politics that accompany them, it is about stopping the criminals and preventing fraud losses - both the banks' and their customers'.

I hope what they have seen and heard this week will really encourage banks to take a fresh look at how they are stopping all types of financial crime, and that the panellists today will continue to lead by example. Fraud isn't a competitive issue, it is something the whole industry needs to work together to prevent, and this could be the start of that process.

David Divitt
Fraud & Risk Solutions Consultant
ACI Worldwide

What will it take to get to SEPA?

2010-10-27T10:42:00.000+01:00

The challenges of regulation for SEPA were made clear in the "SEPA 2010" session at Sibos today when the European Commission declared that "moving from self-regulation to regulation is not a small step but a major challenge”. In a sense, that sentiment comes as no surprise at all, given how far we've already travelled down the road to SEPA.

The sad thing is that this Sibos session yet again showed how far we have yet to go. Communication around SEPA is seen to be key and needs to be stepped up dramatically. It is, however, being pitched as a shared responsibility. I was heartened though to learn that the intention of the EC is not to lead to a re-fragmentation of the market.

Mind you, I can't help feeling that the SEPA initiative is a major project which still has no clear project manager. The benefits of SEPA will undoubtedly come - we just have to remain patient for a while longer.

Paul Styles
Solutions Consultant
ACI Worldwide

Can Africa learn lessons from SEPA?

2010-10-26T12:40:00.001+01:00

It's very interesting to see that Southern Africa plans a SEPA-style payments harmonisation and that they consider that learning from the experience in Europe could be very useful. Something that immediately springs to mind is to treat self-regulation with caution. In Europe, we are now actively seeking regulatory intervention to set an end date for the withdrawal of the legacy payment instruments as the SEPA initiative feels as though it is stalled without that. Self-regulation simply did not deliver.

On a different but related point, I have just emerged from a Sibos session on 'Rebuilding Trust', and the issue of self-regulation came up in that discussion, with one panellist declaring that, in the context of recovery from the financial crisis, "self-regulation is over". The concept of self-regulation just doesn't have many fans at the moment. And there are many calls for closer collaboration with the regulators. How things have changed.

But it may be a salutary lesson for Southern Africa. The regulators should ensure that the appropriate framework is in place. Then the banks can concentrate on ensuring that they act in the interests of their clients as they deliver harmonisation, rather than merely reacting to a political impetus. There can be huge value in such initiatives - the trick is in delivering it.

Paul Styles
Solutions Consultant
ACI Worldwide