Regulations, Outsourcing Top Industry Trends

By Mark Brousseau

As TAWPI prepares to raise the curtain on its annual Forum & Expo in Washington, D.C. next week, payments and document management operations executives are grappling with mounting regulations, industry-wide over capacity, and pressure from senior management to outsource.

"As a result of the industry scandals, bank and broker/dealer failures, and stock market decline, increased financial services regulations are likely," says Edward Kinsella, second vice president, transfer agent, for John Hancock Financial Services (ekinsella@jhancock.com). "Companies will need to find ways to quickly and efficiently adhere to these new requirements," he warns.

Kinsella says the financial services industry also is facing significant over capacity. "This will likely lead to consolidation, and mergers and acquisitions," Kinsella says. "Companies will be challenged to combine their operations to broaden their product offerings, increase profit margins, reduce expenses, and create new efficiencies and economies of scale," Kinsella adds.

Kinsella also sees a greater push towards outsourcing: "As a result of the economic slowdown, companies are focusing on their core competencies and looking to outsource functions and processes that can be handled by third-parties. Companies must steer clear of functions that distract them from their core competency, or can be handled more cost effectively by others."

Mike Reynolds, executive vice president and director of sales and marketing at Cash Management Solutions, Inc. (mike.reynolds@cashmgmt.com), sees continued interest in outsourcing across all levels of financial institutions. "This is being driven by economics, cost pressures, footprint considerations, and platform replacement decisions," he says, noting that many banks are struggling with whether they should invest in newer lockbox technology. "Innovative banks are exploring combinations of outsourcing and in-house processing."

John Kincade, vice president of business development for J&B Software, Inc. (johnki@jbsoftware.com) also expects increasing customer interest in "hybrid" outsourcing solutions where the customer keeps some of its more strategic payment vehicles in-house, and outsources the labor-intensive functions. "Vendors will have to provide modular solutions that allow this," Kincade says.

Mark Stevens, president and CEO of Moorestown, NJ-based OPEX Corporation (mstevens@opex.com), expects significant consolidation in the retail lockbox market. "There are fewer and fewer companies doing this kind of work," Stevens says. "I believe that we will see three or four companies as the 'last man standing' in this space."

Kinsella says oversight and risk management is critical to the success of outsourcing.

Reynolds notes that for operations that stay in-house, the focus is on improving efficiency and productivity by taking a hard look at existing workflows, technologies, and analyzing staffing and capacity models.

“Companies are driving the last ounce of expense from the business as they strive to meet Wall Street targets,” agrees Bob Young of Manasquan, NJ (lcpard77@verizon.net). “The latest round of earnings releases the past few weeks prove this point.” Payments processing executives are challenged with finding ways to use their current technology – software and hardware – to make their operations more efficient, to satisfy upper management, Young added. “I have to think that the purchase of new processing systems is a low priority, given the economy.”

Reynolds adds that everyone -- service providers, technology vendors and end-user customers -- are seemingly squeezing each other on pricing. "I'm seeing renegotiation initiatives on almost every front as organizations try to better align pricing with volume and product deliverables," Reynolds says, adding that he hopes this eases as the economy improves.

As part of the push to reduce costs and gain operations efficiencies, Stevens believes shared services will become a hot topic. "We are seeing several remittance shops with scanners looking to do AP work for their organizations," Stevens said, adding that he expects this trend to continue.

Similarly, Kincade believes the convergence of forms and payments processing will accelerate next year, with customers moving to more sophisticated correspondence management systems. In some applications, payments can accompany correspondence 30 to 50 percent of the time, Kincade notes.

What do you think? Post your comments below.

Convergence Still A Hot Topic

By Mark Brousseau

The convergence of payments and document automation was a hot topic at last week’s TAWPI Forums & Expo in Orlando. During a meeting of TAWPI’s Payments Capture and Clearing (PCC) Council, panelists Jim Bunn of IBML, Bo Minogue of Mavro Imaging, and John Kincade of J&B Software, offered the following tips for ensuring that a payments and document automation initiative delivers the greatest return on investment.

… Before purchasing or implementing any new technology, thoroughly review the way your operations currently do things, to avoid automating bad business processes and work rules. You want to re-engineer process flows to eliminate as many hand-offs as possible, Kincade said. And you don’t want to stop the process flow for exceptions handling.

… Be sure to benchmark and measure the throughput of every process. Minogue said organizations could do this through the use of simulation software that compares current and proposed processes. Modeling the impact of various processing scenarios helps organizations make workflow changes that deliver the most payback. And don’t put the cart before the horse: organizations should never select a technology solution until they have considered potential process improvements.

… Look at document and payments automation from an enterprise level, rather than from a departmental or process perspective. Organizations can achieve significantly higher payback by implementing solutions that reach across an enterprise, Bunn noted. Ideally, payments and document automation solutions would also link the front and back office, but Bunn said this typically is not happening.

Do you have tips for automating payments and document processing applications?

Post them below.

Get Ready For More RP Vendor Consolidation

By Mark Brousseau

You might have been surprised to hear this morning that long-time remittance and lockbox solutions vendor JB Software, Inc. is being acquired by India-based 3 i Infotech Ltd.

3 i Infotech signed a deal to acquire the TAWPI Hall of Fame member and its units for $25.25 million in cash, according to a Dow Jones report. The move will give the Indian company a greater footprint in the payments processing business in the U.S.

“This company has a payments processing product which is well accepted in the U.S. market. We expect strong growth for this product in markets outside the U.S. as well,” 3 i Chief Financial Officer Amar Chintopanth told the Dow Jones Newswires.

While Chintopanth might be expecting growth for JB Software, several industry watchers I spoke with today are anticipating more consolidation among remittance solutions vendors. “I expect to see continued consolidation among the remittance solutions providers, fueled by the growth opportunities offered by remote deposit,” Creditron President Wally Vogel (wally_vogel@creditron.com) told me, noting that JB Software was only an occasion competitor to Creditron, which was acquired this summer.

“Remote deposit, integrated with the accounting functions of remittance processing, provides a powerful tool with business implications for accounting application providers, banks, large corporations and remittance technology companies,” Vogel said. “There is an intersection of opportunities for these diverse players that makes this an exciting time for our market.”

Steve McNair (mcnairs1@aol.com), president of FTP Consulting Services, Inc., in Southlake, TX, also expects more consolidation among remittance solutions providers. Going forward, he believes we could see more end-user interest in payments outsourcing than in remittance software license sales.

“This deal is significant because it’s further evidence of the consolidation of the remittance market,” McNair told me. “What’s also interesting is that the deal is with an international company with little background in remittance processing. Given that, I’m wondering whether JB Software will be changing focus towards global engagements, and specialized processing efforts, such as government and custom applications.”

To that end, McNair said 3 i Infotech, by virtue of being based in India, could likely provide JB with the people necessary to deliver on custom programming efforts.

Clint Shank (cshank@sortlogic.com), president of Omni-Soft, Inc., the parent company of SortLogic SYSTEMS, sees this deal as part of a worrisome larger trend. “In my view, our market is eating itself from the inside out. The big sales based on big hardware and expensive software are gone, and in their place is a commodities market,” he said. "The folks that did well in the past are falling flat in this market. For instance, how long was IBM the most dominant player in our market? Forty years? Fifty years? What does it mean now that they aren’t even present? Look at BancTec and you see pretty much the same thing.”

“What we are experiencing is a real sea change,” Shank continued. “The big players are too slow to respond to an overnight shift in the market and the new guys are filling the void. It used to be that the big ate the small. Now it’s the quick that eat the slow.”

The question everyone I spoke with was asking was: “Who is the next to be eaten?”

What do you think? E-mail me at m_brousseau@msn.com.