FUSION 2010

Juan Paz of Ameriprise arrives this afternoon at FUSION 2010 at the Gaylord Texan Resort & Convention Center in Grapevine, Texas.

TAWPI @ NACHA Payments

Posted by Mark Brousseau

In 2010, Online Banking Solutions (OBS) predicts the following banking industry trends:

… Online banking and security will take center stage.
… Banks will begin to leverage additional delivery channels beyond the Web to create high-value solutions for their clients. This will begin with alerts and notifications, secure file transfers and the introduction of commercial mobile banking services.
… Companies will increase the number of file exchanges with banks in support of a full range of treasury services.
… Banks will begin to develop/acquire commercial entitlements and single sign-on (SSO) components to rationalize and improve the overall end-user experience.

What do you think?

Building your deal team

Building Your Deal Team - Assembling the Right Players
by Kenneth H. Marks

Thinking about selling your company, buying a competitor, or maybe raising capital? You need a deal team with the right mix of talent and experiences to get the best value and to assure the transaction happens. As economic activity is starting to pick-up, some small and mid-sized companies are testing the waters and seeking to launch strategic initiatives to move their businesses forward. In some cases this means raising capital and in other cases it means partnering with or selling to an investor or buyer with deep pockets or where there’s a strategic fit. No matter what the case, having the right team can make the difference - not just in the value and quality of the deal, but whether you actually get the deal done.

So, before you jump into a transaction and start negotiating, make sure you have the right players on your side -

1. Legal Counsel – a critical member of the team. As management considers its alternatives and potential actions, it needs to understand the issues and potential ramifications. Your lawyer should be experienced with transaction structuring and securities law issues, and should be someone whose judgment you value and trust. There are many issues that arise out of the various corporate finance and M and A (mergers and acquisitions, which includes selling a business) transactions. It’s important to have a lawyer who is a “deal doer” as opposed to a “deal killer.” Deal doers have the best interest of the company and shareholders in mind and are focused on completing deals and finding ways to make transactions close. In all deals, there are obstacles and emotions that arise even after the business principals have agreed on the major terms. A lawyer who can think creatively can facilitate solutions to overcome these obstacles.

Though you may have a long and successful relationship with personal counsel that may be strong in real estate, estate planning, or some other discipline, that lawyer may not be the right counsel for corporate finance and M and A transactions. Typically these folks will focus on the wrong issues and spend too much time getting up to speed, the end result being either a poorly done deal or a failed transaction. If current counsel lacks the skills you need to achieve a successful transaction, ask him to help you locate and evaluate new counsel with the right skills; do this before you begin the transaction process, not afterwards.

Having counsel that is known for doing deals and for expertise in transactions can be invaluable in the process and will lend credibility in reaching your goals. Lastly, some law firms have partners that cross over from counsel to an informal investment banker. This is not bad if they have the marketing skills, deal instincts, experience, and available staff time; but it can be problematic if their role is not well understood and defined.

2. Investment Banker / M and A Specialist - if you are selling your company, this role is a must. If raising capital, others on the team may be willing and able to assume the position; it depends on the stage of the company and the type funding required. Investment bankers and M and A specialists are intermediaries that drive the transaction process, help present and market the company and may actively participate in negotiating the deal. You can think of them as the “deal quarterback”. In some cases you will find a strategic advisor or consultant filling this role, which is fine too. The process of a selling a business is reasonably complex and requires an integrated effort of the entire team to get the best results. The key is to have a partner-level professional with transaction AND business experience that understands the entire process, the subtleties, and the inter-related issues and opportunities.

3. Accountants - we use the plural tense because there are usually multiple accountants involved in the process. First there is the need to have financial statements that comply with generally accepted accounting principles (GAAP). Valuations tend to boil down to a multiple of EBITDA (earnings before interest taxes depreciation and amortization) or cash flow. The audit accountant can help your team insure that you have defensible earnings information that will likely be required in negotiating the deal. Without it, you will be operating from a position of weakness and constantly being second guessed by the investor’s or buyer’s team.

Second, there are the tax accountants. Particularly in the sale of a company (vs. financing), there are a number of decisions that can directly impact the eventual after-tax cash proceeds to the shareholders. Your ally and partner in making these decisions is either your tax accountant, which should have corporate finance or M and A transaction experience, or a tax attorney with the same.

4. Board Members and Management - no one knows your business better than you and your management. There is a dual purpose in choosing your internal players: (a) to have multiple eyes and minds focused on the deal that understands the intricacies of the business and its industry, and (b) to represent the interest of the shareholders and key stakeholders that will be required to get the transaction complete. A critical investment component for many investors and buyers is management. In addition, having your senior team members on-board early in the process is usually key to successfully presenting and marketing the company. It enables outsiders to observe the breadth and quality of management, and allows management to evaluate potential investors or buyers in real-time as the process progresses. At a minimum, expect to have your CFO or controller, and key board members ready to engage as required.

Carefully interview and assemble a group of professionals that have the focus, expertise, network, and mind share to enable you to make sure-footed, solid decisions as you contemplate and execute on the financing or M and A process. Keep in mind that not all advisors are needed at once - prioritize, and be aware of the cost and benefits of the engagements and timing of support. The mix of these professionals and their firms is a function of the credibility of your company’s management, size of the business checkbook, stage and industry of the company, and the realistic growth opportunity of the business.

Kenneth H. Marks a Managing Partners of High Rock Partners, providing growth-transition leadership, advisory and investment. He is the lead author of the Handbook of Financing Growth published by John Wiley and Sons, www.HandbookofFinancingGrowth.com. You can reach him at khmarks@HighRockPartners.com.

Risk and Image Payments

Posted by Mark Brousseau

Vijay Balakrishnan, president of StratEx, LLC (www.stratexllc.blogspot.com) passes along the following article:

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!

Key Criteria for Mobile Solutions

By Mark Brousseau

A new white paper from Fiserv, Inc. says there are 10 key criteria for selecting a mobile financial services solution:

1. Flexible enrollment
2. Ability to deliver banking services via SMS, WAP and downloadable applications from one provider
3. Consolidated enterprise platform
4. Adaptable and scalable solution
5. Extended functionality
6. Mobilizing and streamlining business processes
7. Proven premium services
8. An integrated platform that lowers the total cost of ownership and interfaces with core banking, online banking and electronic billing and payment systems
9. Bank-centric
10. Multiple deployment options
    

What do you think? Post your comments below.

You Get What You Pay For -- Even With Remittance Solutions

By Mark Brousseau

When making a purchase, everyone like to "get the best deal." In these difficult economic times, with costs being carefully scrutinized, that is more true then ever.

So, when it comes to remittance solutions, what is the best deal, and what is the true cost?

"A neighbor and I replaced our roof shingles at about the same time last summer," recalls Wally Vogel, president of Purepay Receivables Automation (wvogel@pure-pay.com). "My neighbor proudly told me that he paid half the price to his roofer for the same job. 'The roofers are all the same,' he said. Right? When I heard this I felt that maybe I should have obtained more quotes (I did get two), or shopped around more. But this spring when my neighbor had water leaking into his house in three places, and was unable to track down the company that did his roof, I felt sorry for him. But I also felt better about the value I received for my money. The lowest price does not always represent the best value."

What's true for roofers is also true for remittance processing solution providers, Vogel cautions. "They are not all the same, and choosing the wrong one can be an expensive error," he says. "Saving some money upfront won't seem like such a good idea when your system is down, or you have errors and inefficiencies keeping your organization from making your deposit deadlines."

Vogel says users need to ensure that they are getting a solution that will truly meet their needs, before they consider the price. "Missing features could result in extra manual keying and sorting, which will reduce the time savings of the solution," Vogel explains. "A poor user interface could result in operator errors which are expensive to correct and can cause customer service issues. And a cheaper scanner could jam more, have poor image quality and a lower read rate, resulting in less throughput and more errors."

There are other hidden costs as well. Some of these may be obvious, such as higher costs for maintenance, Vogel says. Others may not come to light for a year or two, when it's time to change a step in the process. "This is when users discover that they need to pay more for custom changes that wouldn't be necessary with a more flexible remittance solution," he says.

Another hidden cost is the time and effort required by a biller's staff, and its IT department, to implement the solution. "Purchasing a less expensive system which takes twice as long to implement, or purchasing from a company which does not have efficient project management in coordinating the interfaces, testing, and training required will result in internal costs that could well exceed the savings when compared to a truly turnkey solution from an organization with a professional implementation and delivery model," Vogel says.

So, when seeking the best value in a remittance solution, Vogel recommends that billers look beyond the sticker price and consider:

... a full set of time saving features (e.g. no need to sort multis from singles, MICR match for check only, account number reading for consolidator checks, ICR roping of long lists)
... ease of use and user interface (e.g. one key zoom, color coding, easy to read fonts)
... quality of the scanner hardware
... maintenance costs
... costs for future changes and upgrades
... time to complete implementation
... quality of project management from vendor
... expectation of your IT involvement

"Taking these and other factors into consideration will help ensure that you truly obtain the best value and that you will be satisfied with your remittance solution in the long run," Vogel says. "Checking references, talking to others about their experience with the vendor, and visiting other client sites is a great way to assess what you can expect from a vendor and what type of value they will deliver over the long term."

"I have heard some say that remittance solutions are commodity items and that they just want the lowest price," Vogel concludes. "If anyone still believes that, I say let's talk. We can meet at my neighbor's house. But you might have to bring a bucket if it's a rainy day."

What do you think? Post your comments below.

e-Payments Deliver Cost Savings for Utilities

Posted by Mark Brousseau

Meter reading, billing and payments were the top opportunities for customer service cost savings identified by the 300 utilities surveyed by UtiliPoint International.

The interchange fees for utilities accepting credit card payments easily exceed $200 million annually, UtiliPoint International found. But the majority of utilities with more than 100,000 customers do not pay a dime of this $200 million in annual interchange fees because their customers are charged a small fee to offset interchange.

In addition to saving money on interchange fees, many utilities can also save money by sending their customers a bill that is easier to read, the survey found. More than 15 percent of calls into the call center are from customers who do not understand their bill. Clearly laying out the most important details of the bill (amount due, date due, account number) can reduce utilities call center expenses or allow current call center employees to work on other projects, notes UtiliPoint International.

What do you think? Post your comments below.

NACHA Payments 2009 Highlights

Posted by Mark Brousseau

On the Glenbrook Payments Views Web site, Erin McCune, a partner with Glenbrook (415-441-4840), provides the following highlights, observations, and recurring themes from last week’s NACHA Payments 2009 Conference in Orlando.

The exhibit hall was approximately one half the size of last year and many of the vendors opted for smaller booths than they’ve had in the past. There were relatively few bankers in attendance - travel budgets are tight, as is scrutiny of how TARP funds are spent ("Disney World Boondoggle!" would be bad PR indeed). This was disappointing for the vendors but great from my perspective; they had lots of time to talk to curious consultants from Glenbrook.

Here at Glenbrook we recently coined the term Payments as a Service (PaaS) to describe a growing interest among businesses (billers as well as ecommerce merchants) to outsource their payment processing (incoming and outgoing) and related functions, such as fraud analysis. At Payments 2009 we observed vendors offering PaaS services to billers as well as new capabilities that will enable banks themselves to offer more comprehensive payments support for their corporate customers. For example:

... Fiserv announced a new "convergent" payments solution that enables banks to process ACH and check payments on a common platform, streamlining and combining customer facing capabilities. This has the potential to significantly improve the silo’d product specific interfaces that consumers and businesses face when they interact with their bank. Eventually the solution will support wires, credit/debit, and CHIPS. The potential to streamline and enhance treasury services to businesses, by allowing them access to their bank’s own cross-payment portal is huge.

... The combined forces of 3i Infotech, J&B Software, and Regulus offer a comprehensive lockbox solution to banks and billers, regardless of whether they want to install software locally or utilize a hosted solution (or some combination). The solution allows billers to use one platform to generate and deliver bills (paper or electronic) and receive payments via IVR/telephone, web, walk-in, kiosk, or call centers. A new feature enables remote check capture via cell phones, which may be particularly appealing for brokerage and insurance customers.

Those of you who know me, know that I have spent much of my career toiling to increase the number of native electronic B2B transactions. At NACHA this year there are signs of hope for B2B payments on a variety of fronts:

... The investment and financial planning company Raymond James presented a case study with Bottomline Technologies. Raymond James generates one million outgoing payments per year and utilizes Bottomline to manage its interface with SWIFT and route payment approvals across its 2200+ broker offices and 700 bank accounts. Key benefits include: improved customer service; increased audit/control; format standardization; and, most importantly as stressed by Raymond James, the solution is bank agnostic.

... Corporate adoption of ISO20022 within SEPA/Europe and beyond; top 10-15 corporate customers at each global bank are in the process of implementing.

... At last year’s Payments Conference NACHA presented the results of research on small to medium sized business’ payment capabilities and needs. This year, NACHA’s B2B initiative showcased a pilot of electronic invoice delivery, payment creation, and auto-cash application integrated into QuickBooks. The solution, from BankServ and ipCommerce demonstrates a seamless solution for SMB.

... 3Delta Systems enables merchants to send L2 & L3 data to buyers using PCards and is working to reduce friction for businesses accepting card transactions. Those that provide L2 and L3 data benefit from significantly reduced Interchange.

Western Union is an example of a payments company that has proactively adapted its product offering to changing consumer needs. News from Western Union at this year’s conference:
Western Union is offering expedited, same day payments - primarily in-person payments, but also via the Internet and IVR (telephone) systems.

... Did you know that if you are a Google AdSense publisher you can collect your advertising income in cash via Western Union worldwide?

... Western Union sends data to billers real time (or hourly, or daily depending on the capabilities of the biller’s A/R system). RPPS and other bill payment consolidators do, too. Is it too much to ask for B2B transactions to have similar timely data delivery?

Additional biller testimonials from Comcast and Liberty Mutual:

... Bill suppression is key, electronic payment accelerates receipt of funds by 7 days, but billers need to suppress paper bills in order to achieve their cost saving goals.

... Liberty Mutual: reduced internal lockbox resources from 29 FTE in 205 to 13 this year.

... Comcast: payroll cards, bank by card products are reducing walk in traffic, incorporate incoming transactions through eLockbox solution.

... Each new payment process requires extensive training to address customer concerns/questions about payment at each of Comcast’s 70 call centers.

... Comcast: Don’t forget, it’s all about the exception processing!

... Scalability is key, Comcast has 24 million customers.

Interest in Web 2.0 demonstrated by a handful of well attended sessions. One on financial institution marketing that I attended had audience members frantically taking notes; low point was when one banker asked "What’s LinkedIn?"

... BofA research reveals that customers very much prefer widgets, they are perceived as more conversational than websites

... BofA paying attention to iPhone, iGoogle, Adobe Flex, Silverlight

... Half of BofA’s 2 million mobile banking customers are using iPhones.

... Four key components of bank new media strategy: mobile/SMS, blogging, social media, Internet marketing (TDG Phenix)

... Quote: "If I think my bank is doing something great I tell 3 people, if they are doing something terrible I tell 25 people AND blog about it."- Larry De Palma, TDG Phenix

Web 2.0 has the potential to transform corporate treasury solutions. Where is the Mint for corporate payments? Ideally a light weight treasury workstation + payment hub. Best quote about today’s cash management offerings: "Treasury is the Atari of banking" - Milton Santiago, BofA

... Smart alerts have potential to help resolve B2B transaction issues more quickly, i.e. alert supplier that buyer attempted payment but had an issue, supplier A/R should contact buyer A/P (BofA session)

... FedEx analogy - demystifying treasury and payments - don’t care how it gets there (plane, truck, train) as long as it gets there (BofA session)

The Future of Payments

By Mark Brousseau

When NCR Corp. considers the future of payments, it envisions the evolution of multi-channel payments optimization, Stephen Reade, vice president and general manager of global software and technology services, told attendees of TAWPI’s Payments Automation Conference this week in Ft. Lauderdale, FL.

“Ultimately, our goal is to enable faster, easier customer interactions, across multiple channels. Many financial institutions consider this business process optimization,” Reade said during a keynote presentation. To enable these multi-channel opportunities, financial institutions will have to enhance their operations infrastructure. But the effort can pay big dividends, Reade said.

“Multi-channel consumers spend more, and they spend more consistently,” he said. “Our clients are starting to recognize this.” Reade pointed to an Aberdeen Group study that found 38.3 percent of multi-channel consumers are significantly more profitable than single-channel consumers. “They’ll spend more on a single transaction,” Reade said, “and they’ll use multiple payment types.”

The broadening mix of payments channels also is forcing financial institutions to address multi-channel optimization. “Once a financial institution begins to establish a relationship with a customer via a particular channel, it’s almost impossible to turn it off,” Reade said, noting that despite the growth of mobile banking, financial institutions are still seeing strong interest in ATM-based channels.

“Consumers will always assume and expect self-service,” Reade said.

What do you think? Post your comments below.

Cost Reduction Driving Solutions Sales

By Mark Brousseau

The current economy is creating additional impetus for expense reduction and service improvement, says Bob Lund (rlund@egisticsinc.com), chairman and CEO of Dallas-based eGistics, Inc., and vice chairman of the TAWPI Board of Directors.

“Every solution that you are going to install has to have a cost reduction element associated with it,” Lund told me. “Increasing functionality without improving productivity isn’t going to get you there.”

What do you think? Post your comment below.

RDC and Risk Management

By Mark Brousseau

On January 14, 2009, the FFIEC (Federal Financial Institution Examination Council) published long-awaited guidance on “Risk Management of Remote Deposit Capture.”

This guidance defines Remote Deposit Capture (RDC) as a “deposit transaction delivery system” rather than simply as a new service. It talks about RDC in terms of information received by a financial institution from checks sent electonically from remotely located businesses and individuals, as well as the financial institution’s branches, automated teller machines (ATMs), and domestic and foreign correspondents. However, it focuses primarily on RDC deployed at a customer location.

RDC introduces some new risks and increases some existing risks in processing deposits, says Kathy Levin, AAP, managing director, Payments Information Circle (404-478-3491, kathy.levin@paymentsinformation.com). Some financial institutions have begun offering the service without fully understanding the risks involved in RDC, she notes.

“The guidance addresses expectations for identifying, assessing and mitigating risk and discusses roles and responsibilities in implementing and operating RDC in a financial institution,” Levin told me. “It makes it clear that, as with any new payment delivery system offered, there should be no implementation of these services without management oversight, compliance/internal audit involvement and board approval.”

Levin adds that the guidance addresses the necessary elements of an RDC risk management program and provides strategic, credit/underwriting, vendor management, legal and compliance, fraud management, and operational and implementation direction for financial institutions. It also emphasizes the importance of adequate risk management at the remote locations, she says.

“Many financial institutions implemented RDC quickly and experienced rapid adoption of the service,” Levin says. “Some may need to go back and revise their policies and procedures to ensure they are in line with the new guidance.”

In addition to the suggestions contained within the guidance itself, Levin says financial institutions will need to utilize information contained in the FFIEC Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual, Interagency Guidance on Authentication in an Internet Banking Environment, Interagency Guidelines Establishing Information Security Standards, and sections of the FFIEC IT Examination Handbook, including the Information Security Booklet, the Management Booklet, the Outsourcing Technology Services Booklet, the Business Continuity Planning Booklet, and the Operations Booklet, to ensure compliance in specific areas.

For a copy of the new FFIEC guidance, visit http://www.ffiec.gov/pdf/pr011409_rdc_guidance.pdf.

The Economic Upside

By Mark Brousseau

The current economic downturn has created a renewed focus on cash, and prudent cash management. And like any other economic situation, this trend has a downside and an upside when it comes to solutions sales in the payments space, says Wally Vogel, president of Toronto-based Purepay Receivables Automation (wvogel@pure-pay.com).

“We have seen mixed results in our customer base as a result of the new reality,” Vogel told me.

“One the downside, uncertainty is delaying projects and purchases,” Vogel said. “These deals are not dead by any means, but they are not moving ahead either.” Vogel calls this ‘purchase paralysis.’ “The delays we are seeing now are moving out sales that we have spent months developing. It is frustrating to have them stall as they near the finish line.”

Not only does this stymie payments solutions providers like Purepay, it also frustrates the organizations that can’t do anything but maintain the status quo, Vogel noted.

But there is an upside to the current economic situation. Vogel says Purepay is seeing some of its clients take advantage of the current environment to improve their technology infrastructure and gain a competitive advantage over their more conservative peers. “These clients are reducing costs, expanding their service offerings, and winning business,” he said.

“With the primary goal of prudent cash management, automating and enhancing the payment processing technology platform, and expanding rather than contracting business, is an effective way to achieve positive results,” Vogel said. “Organizations that invest in their payments infrastructure now are on an upward vector and will grow and thrive, despite the economy.”

As for the rest of 2009, Vogel expects to see even more of a stratification of the winners and losers in the payments space, and an increased focus by users on offerings that deliver immediate benefits. “Any investment of capital will be, and should be scrutinized to ensure that there is a solid business case, clear costs savings, and that it creates a competitive advantage,” Vogel said.

What do you think? Post your comment below.

From the Postmaster General's Mouth

Posted by Mark Brousseau

Below is a link to Postmaster General John E. Potter's testimony before Congress Wednesday where he asked lawmakers to lift the requirement that the agency deliver mail six days a week. This proposal could have a significant impact on remittance and lockbox processors, industry observers point out.

http://www.usps.com/communications/newsroom/testimony/2009/pr09_pmg0128.htm

What do you think? Post your comments below.

Equifax Goes For The (Digital) Wallet

Posted by Mark Brousseau

Equifax offers I-Card for the ‘digital wallet’
Bloomberg News

Friday, November 14, 2008

Equifax Inc., the provider of consumer-credit information, unveiled an online information card aimed at encouraging businesses to support a “digital wallet” identification system to protect against fraud.

The information card, or I-Card, is an Internet equivalent of a driver’s license or passport, Atlanta-based Equifax said. Customers with the Equifax I-Card can install software called digital wallet that enables one-click sign-in via a personal computer, said Steven Ely, president of Equifax Personal Information Solutions.

“I-Cards are really the next generation of Web tools that allow users to use a single sign-on approach so they can use one card at multiple Web sites,” Ely said in an interview. “We expect the marketplace to completely shift away from user IDs and passwords to the use of I-Cards.”

Consumers won’t be charged for the cards, Ely said. Revenue will come from the sale of technology to businesses, which will verify identities and help customers complete online forms, he said.

About 8.1 million people in the United States were victimized by identity theft in 2007, Equifax said, citing Javelin Strategy & Research. The average loss was $5,574. Losses from online fraud rose 21 percent to $239.1 million in 2007, the FBI said, citing the Internet Crime Complaint Center.

Managing identification data for individuals and businesses generates “dozens of millions of dollars” for Equifax and revenue could “substantially” increase in coming years, Ely said.

“We have made a strategic decision to invest in developing products to significantly grow our footprint in the identity management space,” Ely said.

What do you think of the digital wallet? Post your comments below.

Alternative Payments Going Strong

Posted by Mark Brousseau

Online buyers turn to alternative payments

An interesting item from the Pacific Business News:

A growing number of online shoppers are turning away from traditional credit and debit cards and moving toward cash-based alternative payment options, according to a retail forecast survey released this week by Javelin Strategy & Research.

Alternative payments — such as PayPal, Google Checkout, Nacha SVP and Revolution Money — will become preferred choices for online consumers and will continue to grow over the next five years, increasing to one-third of online retail transaction volume by 2013, the survey said.

This year, alternative payments will reach $148 billion and rise to $268 billion by 2013.

The growth will be strong for companies that build brand awareness, said the survey.

As the trend grows, the survey urges banks and traditional card brands to expand their own prepaid card products and partner with alternative providers.

This holiday season, alternative payments will comprise $7.8 billion in purchases compared to $35 billion in traditional online payment methods.

What do you think? Post your comment below.

Consumers Blast Auto-Pay

Posted by Mark Brousseau

Interesting article from the Herald Tribune on automated payments:

Automated Bill Payments Are a Cinch (Not So Fast)
RON LIEBER
Published: Saturday, August 30, 2008

A few months ago, in my first column for this newspaper, I extolled the virtues of automated bill payments: Set them up once, let your utilities, phone and credit card companies pull what you owe from your bank account each month and never sit through the drudgery of a bill-paying session again.

And boy, did you let me have it. I heard from a number of readers who thought I was out of my mind for suggesting that they send money out automatically each month or give billers unfettered access to their credit cards and bank accounts. Horror stories poured in, as well as several specific questions and concerns.

So this week, we’ll look at five reasons that people are wary of automating their financial lives this way. But first let’s back up and define precisely what we’re talking about.

Until the 1990s, most of us were stuck writing a whole bunch of checks each month to pay our various bills. Then came the early Web-based bill payment systems, where we’d go to a bank or biller’s Web site and push a few buttons to move money to the right places.

Only more recently, however, has it become possible to pay each bill every month without lifting a finger. There are three basic ways to do this. You can give each biller permission to pull the full amount from your bank account. You can use the online bill system at your bank to push payments out automatically each month. Or you can charge every bill to your credit card and give only that card company permission to pull money from your bank account when the credit card bill is due.

Each of these methods has its potential shortcomings, which will become clear as we march through the hiccups that can occur when automating your payments.

ERRORS Some people fear giving companies the ability to draw money from their bank accounts because they worry about mistakes. If a biller takes thousands of dollars more from their account than they should, it could lead to overdraft fees and a huge hassle trying to get the money back.

So how often does this happen? Nacha — the Electronic Payments Association, a nonprofit association that oversees the network that automated payments travel on, says the error rate is 38 for every 100,000 bill payments. This figure counts mistakes that banks report but doesn’t include problems that consumers solve directly through the billers. (Nacha once stood for National Automated Clearing House Association; automated bill payments are one of many kinds of A.C.H. transactions.)

If an error occurs, according to Elliott C. McEntee, Nacha’s chief executive, the association’s rules, which all banks that deal in A.C.H. payments follow, require banks to automatically credit customer accounts for the mistake.

Consumers get the credit as long as they inform the bank of the problem within 15 days of receiving the bank statement with the error on it. People who miss that deadline still have recourse under federal rules, which give consumers 60 days to report the error, but the credit could be provisional at that point until the bank determines who’s responsible for the error.

Are customers quickly made whole all of the time? Probably not, because banks may neglect to follow the rules and their customers may not read their bank statements quickly or carefully. But if there’s a problem, go to your bank first and request a credit before you complain to the biller. Mr. McEntee suggests calling your bank rather than talking to a teller, because phone representatives should have scripts that prompt them to issue the credit.

If you’re charging every possible bill to your credit card, you’ll have an opportunity to catch the mistakes on the monthly card statement before you pay the bill. Then, you’re vulnerable only to the card company itself pulling the wrong amount of money out of your bank account. Also, you can earn lots of rewards from the card company. Just be sure to pay the bill in full each month, lest interest wipe out the value of the freebies.

One other thing to keep in mind: While billers make plenty of errors, consumers probably make even more. People forget to pay, pay late or pay the wrong amount. Part of the point of automation is to protect the mistake-prone from themselves.

SERVICE THAT WON’T END For months after John Wald, now a finance professor at the University of Texas, San Antonio, moved, his local phone company in Pennsylvania kept drawing money out of his bank account, even though he had canceled the service.

His bank was able to put a stop to the withdrawals but did not issue any temporary credit for the money that was already gone. It took a year to get the money back from the phone company, and now he steers clear of automated payments.

Stopping the automated payment, at least, may be easier if you’ve set it up through your bank’s online bill-paying system.

“Rather than authorizing a biller to take money out and losing total control, we give you that control back,” said Mary Beth Lawson, director of product management for CheckFree, a provider of online bill payment systems. Customers sign up on the bank’s Web site, not CheckFree’s.

CheckFree sometimes handles customer service for banks, too, and can get the biller on a conference call with a customer to try to resolve refund requests and other mix-ups.

EXPIRED CREDIT CARDS One potential problem with using credit cards to pay your bills each month is that they expire. Terry Perkins, an information technology consultant in Morristown, N.J., ran into this problem with Verizon two years ago. She said that she hadn’t noticed the lack of a charge on her credit card statement and that the company hadn’t sent any bill, warning or reminder that it needed the new date until a notice turned up in the mail saying her phone was about to be cut off.

“You get this really cold, intemperate letter where you can just infer from it that you must be a dirtbag,” she said. “I finally just said forget it, you guys are never going to have this privilege again, where you have access to my credit card.”

Bob Elek, a Verizon spokesman, said he couldn’t comment on Ms. Perkins’ situation but that the company can now get the new expiration date without a customer’s help 90 percent of the time.

Otherwise, the company calls the person’s home and sends e-mail messages to try to get it.

Indeed, Visa and MasterCard have programs that allow participating card companies and merchants to get new expiration dates automatically so they can continue customers’ automatic bill payments. Here’s hoping that becomes standard operating procedure. Until it does, you should put in a round of calls to billers around expiration time to make sure they have the new expiration date.

SECURITY Are you risking identity theft or other problems by giving so many companies access to your credit card numbers or bank accounts each month? Some people still think so.

But Bruce Cundiff, director of payments research and consulting for Javelin Strategy and Research, says the nonautomated approach is more problematic. If you’re paying bills one by one each month via your bank’s Web site, you need to worry about whether anyone has installed software on your computer that would capture user names and passwords. And not having paper statements and checks floating around that could be stolen from the mail is a plus as well.

COMPLACENCY If you’re not careful, automated bill paying can easily lull you into believing that everything is taken care of and no vigilance is needed. Scott Cole, a television editor for CBS who lives in Jersey City, said that his almost daily ritual of checking Quicken and then pushing the button to pay the bills once each month keeps him aware of each payment. It also forces him to think about whether the cost for any particular service has gotten unreasonably high.

Mr. McEntee, of Nacha, does have 17 automatic deductions taken from his bank account each month, but he keeps a list of them handy and then checks them off one by one with his bank statement each month.

I still think it’s possible to achieve Mr. Cole’s level of awareness while having Mr. McEntee’s volume of automated payments. Keep a cushion of cash in your checking account if at all possible to avoid unexpected overdrafts and jump on any errors if you’re unlucky enough to experience them.

In essence, the first principle of the automated payment is this: If you simply set it and forget it, you’ll probably regret it.

PayPal Still Growing

Posted by Mark Brousseau

An interesting article from the Austin American-Statesman about PayPal's plans:

PayPal doubles Austin office space

Many of the online payment company's 200 people here develop software.

By Kirk Ladendorf
AMERICAN-STATESMAN STAFF
Friday, August 15, 2008

In a little over a year in Central Texas, PayPal has grown to 200 people, most of them software developers, at its new Northwest Austin technology center.

Now, the online payments company has doubled its office space in Austin and plans to keep hiring aggressively.

Chief executive Scott Thompson offered explanations for the expansion: His company is growing fast, it needs more technical workers and it likes what it sees in Austin.

"PayPal is a technology and risk-management company more than anything else," Thompson said. "Our product development is done by engineers. They are all technology people who have a lot of talent, skills and capabilities in doing things with software."

The company is entrusting some of its most important work — software for new payment products, fraud detection and help-desk assistance —to the Austin technical team.

"It was a big decision, but we are extremely happy with what the result has been in a very short period of time," Thompson said. "We have been able to get tremendous quality and many more people than we thought. When we tell people we have openings and we are PayPal, lots and lots of people turn up. We get to pick from the best of the best because our brand in this market has a lot to it."

PayPal, which is owned by eBay, is the leading alternative payments company for e-commerce and other online payment transactions. Much of the company's transaction business is tied to eBay, but it is also expanding into other areas of e-commerce and electronic payment.

Thirty-three of the top 100 e-commerce sites in the United States use PayPal as a payment option. It is growing rapidly in Europe, and it is just starting its growth in Asia and Latin America, where e-commerce is in its infancy.

"They are the largest alternative payment company," said analyst Bruce Cundiff, with Javelin Strategy and Research in Pleasanton, Calif., who estimates that PayPal handles roughly 5 percent of e-commerce payments now but probably will double its market share to 10 percent over the next four to five years. "They are growing with e-commerce. We have them growing faster than credit card or debit card payments, but they are starting from a smaller base."

The company, with more than 60 million active customer accounts worldwide, handled $47 billion in transactions in 2007, and its first-quarter business this year was up 35 percent from a year ago. The company employs 7,000 people worldwide, and its major business operations centers are in San Jose, Calif.; Scottsdale, Ariz.; Omaha, Neb.; Dublin, Ireland; and Austin.

Thompson said the company is giving the Austin development center more responsibility because it has done very well so far.

"So far, it has been fabulous, and that type of success breeds on itself," he said. The company subleases office space in Freescale Semiconductor's Northwest Austin campus, and it is doubling its lease space to 70,000 square feet.

Some of the most interesting work being done in Austin is tied to the company's sophisticated software that detects fraudulent activity.

The software examines the online behavior of customers using PayPal and shuts down transactions involving those that exhibit fraudulent behavior patterns. The company said its loss rate to fraud is 0.27 percent, which it said is among the best in the payments industry.

PayPal's software developers work hard, Thompson said, but they get a chance to relax on the job, too.

The company break room has a pool table and a foosball table. And workers on motorized carts deliver free beverages to workers' cubicles. Sometimes the cart drivers conduct impromptu races in the halls.

The culture, Thompson said, is about moving fast and having fun doing it.

"The best part of our culture is, we have a furious desire to go fast and build stuff and have customers use products that are uniquely PayPal and very special in their lives," Thompson said.

Although other companies also do electronic payments, Thompson said, his company does it very quickly, safely and conveniently.

kladendorf@statesman.com; 445-3622

Economy Wallops Credit Card Use

Posted by Mark Brousseau

An interesting article from CNN on declining credit card use:

Study: Some Americans cut credit card use

By Ronni BerkeCNN's American Morning

STRATFORD, Connecticut (CNN) -- When Cappie and Don Perras saw their stock market investments tank this year, they decided to tighten their belts. They drive fuel efficient cars around their Connecticut town and eat at cheaper restaurants if they eat out at all.

To avoid impulse buying, they avoid the mall. And for now, at least, they've put away the credit cards.

This marks a big change from their old attitude.

"I felt secure with my credit cards like, 'Oh well, I always have my credit cards,' " says Cappie Perras, a special education teacher. "Now I feel like, it's almost like there's a big caution sign in front of the credit card, 'Do Not Use, Only In Case of Emergency,' " she adds.

The Perrases are examples of a trend building among middle-income and middle-aged consumers to cut back on credit card use, according to a new study by Javelin Strategy & Research, a financial research firm. Forty percent of consumers surveyed said they're pulling out their credit cards less than they were at the beginning of the year.

Don Perras, a college professor approaching retirement age, says the family has stopped using cards, except for rare instances like booking hotel rooms on the road. Instead, the couple uses their debit cards.

The aim: to soon be free of credit card debt.

"It would be a top priority," Don Perras said.

But with the high cost of living, the Perrases are having trouble making a dent in their $8,000 credit card balance.

"I used to be able to maybe put $600 towards the debt. ... Now it's maybe if I'm lucky, $200," his wife says.

The Perras family has plenty of company. Americans carry approximately $961.8 billion in revolving debt, according to the Federal Reserve Board. Delinquency rates on credit cards are at the highest levels since the end of 2002.

Even as consumers cut back on using credit cards, they're finding it harder to pay down their balances, says Javelin President James Van Dyke.

"In some cases they're out of work or perhaps their wages have been cut back, or maybe they had a variable rate which they have to pay more for than ever before," Van Dyke said. When people use their credit cards less, "this changes what goes on in the industry because credit card companies typically make a lot of their money on the fees they charge merchants."

The reduction in revenue from new purchases, combined with concerns about new delinquencies, pose big worries for the credit card industry, Van Dyke says.

"Credit card companies are running a bit scared right now, and for good reason, because people are having a difficult time paying off their balances; and everyday consumers, they're cutting into their purchases right now -- both luxury goods and even the basic necessities," Van Dyke says.

According to the Javelin study, nearly 70 percent of financial institutions say they have cut back on credit card solicitations. Six of 10 say they are limiting the amount of credit offered to customers.

James Chessen, chief economist for the American Bankers Association, says the industry is well prepared for the economic downturn. "It's all a matter of managing that risk, because you know the volume will be off, you know the economy is riskier today than it was a year ago. So you naturally take that into account so you have the capacity to come out of this even stronger than you came into it," he added.

For Cappie Perras, being stronger means cutting back on plastic. "I don't feel good about the credit cards," she says. "I regret that we got into so much credit card debt."

Think this is part of a trend?

Post your comment below.

Unisys Confronts Signs Of The Times

Posted by Mark Brousseau

Interesting article on Unisys in today's Philadelphia Inquirer:

By Mike Armstrong

It’s a sign of the times when furor over a sign can cause a company to rethink whether it wants to do business in Philadelphia.

Unisys Corp. said in December it would move its corporate headquarters from Blue Bell into Center City. It agreed to lease 90,000 square feet in Two Liberty Place and relocate 225 employees there.

Some scoff that that’s not a lot of jobs, but it is for the city that’s been bleeding jobs for decades.

Symbolically, the city could do worse than attract another Fortune 500 company into its core.

Who could foresee that Unisys’ plans would not be well-received by some well-heeled tenants in the million-dollar condos on the top floors of Two Liberty. Nothing against information technology; they have a problem with the red corporate logo Unisys wants to affix to the building outside the 38th and 39th floors.

That red sign has thrust Unisys into a federal lawsuit with those tenants. Plus, opponents will vent about it at a zoning hearing board meeting in September. That would be the second hearing on the sign after one last week.

Nothing of this surprises me. But to hear a Unisys spokesman say the company would have to reevaluate its plans if it isn’t able to stick its name on Two Liberty?

Does anyone really think that if Unisys loses in this sign whine that that would be the reason it doesn’t move into the city?

Come on, this company is beset by challenges.

Unisys has been the incredible shrinking computer company since it was formed in 1986 by Burrough Corp.’s acquisition of Sperry Corp. At $5.7 billion, it generates $4 billion in revenue less than it did 20 years ago. Over the same period, the company shed 62,500 jobs to bring its current global workforce to about 30,000.

And if you read the transcript of Wednesday’s conference call with analysts, the company is likely to get smaller.

“We recognize that to succeed in today’s market, we need to either be very big and highly diversified or else smaller and highly focused,” said Unisys CEO Joseph W. McGrath. “We believe the best path forward is the latter one, to build on the work we have done and further focus and refine our business model.”

If getting smaller and more focused makes Unisys more profitable, that’s great. But after 20 years, it hasn’t figured out what it’s really good at? Given some of the comments by McGrath on that call, it still sounds like it’s trying to come up with the right strategy.

I can understand brand-building, and that’s part of why Unisys wants to be in Center City. (How many times can management entertain clients at Alison at Blue Bell, right?) But lots of opponents of the Unisys sign see Philadelphia’s “brand” trumping this corporate one.

I think some of the opposition has blinders on to have missed all of the corporate logos that have been affixed to buildings around the city.

But whatever the zoning board decides, it’s going to be fascinating to see what Unisys does. If it loses, will it quietly press ahead with the move into the city? Or will it move to Radnor next to Lincoln National Corp., which moved its headquarters and 400 jobs out of Center City in 2007?

If it wins, will its branding effort be seen as innovative or annoying to the other corporate elite around town? If it wins, does it really lose?

Social Security Goes Electronic

Posted by Mark Brousseau

An interesting article from The Philadelphia Inquirer:

Social Security offering a debit-card option
By Harold Brubaker
Inquirer Staff Writer

Social Security recipients who receive paper checks because they do not use banks have a new way to get their money.

The U.S. Treasury Department said yesterday that it would begin pitching its new Direct Express debit card to 2.4 million beneficiaries from Maine to Virginia. Information about the card will come with this month's checks.

These recipients include nearly 250,000 people in Philadelphia and surrounding counties in Pennsylvania and about the same number in New Jersey.

"You can easily use this card to manage your money every month with no fees," said Judith R. Tillman, the commissioner of the department's Financial Management Service.

The card is designed to prevent lost checks, thwart check thieves, and save cashing fees that average $6 per check, she said.

Most Social Security recipients receive benefits by direct deposit into their bank accounts. Those without bank accounts typically use check-cashing firms.

The debit cards, issued by Comerica Bank of Dallas, allow users to track their spending at no charge on a Web site or through an automated telephone line. It costs 75 cents a month to get a paper statement. The system will not allow a card user to withdraw more than the available balance. That means there are no overdraft fees, which bedevil many elderly bank customers.

"It seems like a pretty good product," said Leslie Parrish, a senior researcher in the Washington office of the nonprofit Center for Responsible Lending.

"It eliminates the need to go to a check casher, but it also has a leg up on regular bank accounts if people are worried about overdrafting through a debit transaction," she said.

Tillman said her agency sends 489,000 Social Security and Supplemental Security Income checks to Pennsylvania every month, including 241,000 to Philadelphia and the surrounding area. In New Jersey, the figure is 263,000. She did not have a breakout for South Jersey.

If all four million people nationwide who receive Social Security or disability benefits but do not have bank accounts were to sign up for the debit card, taxpayers would save $42 million a year, said Tillman, a graduate of Glassboro State College, now called Rowan University.

The Treasury sent 59.1 million Social Security and disability payments in May. All but 10.5 million of them were deposited directly into bank accounts. The debit card is available to anyone who receives those benefits.

Social Security and Supplemental Security Income recipients may sign up for the card by calling toll-free 1-877-212-9991 or visiting www.USDirectExpress.com.