ACI – S1: Making the Cash, Trade and Payments Dream Real

So much for deal stickiness. ACI Worldwide bidding on top of Fundtech for S1. When I blogged about the Fundtech-S1 deal last month I asked the question, “wasn’t this ACI’s dream? ” I wondered why ACI Worldwide hadn’t made a go for S1 considering it’s platform has many of the moving parts ACI Worldwide was missing with its last home-grown attempt at the “global” platform.  Any way you look at either deal, S1 wins. Maybe cash in the hand is worth more than paper.  Fundtech, however, has a robust payments business and clientele and regardless of how this drama ends, I do not believe they will be too bruised by the outcome.  In many ways, the ACI Worldwide deal may be the best thing to keep smaller agile competition and deal targets open.

See Reuters article

New Date – NACHA Webinar on Cloud and Payments Aug 9 at 1:30

Join Maggie Scarborough, FinServ Strategies; Julie Elberfeld, Capital One; and Mary Ann Francis, WIPRO Banking & Financial Services; Vinay Prabhakar,
Bottomline Technologies

Register Now

As mobile burns a billion dollar trail through the technology sector riding on cloud computing, many financial institutions are unprepared for customers  in the CLOUD transacting business.  FI’s must keep customer information private and safe. For this reason, every institution should have a CLOUD strategy regardless of the level of direct involvement.
Join us for this exciting NACHA Webinar. Click here:

SPEAKERS:
Mary Ann Francis, Senior Consultant – Payments, WIPRO Banking & Financial Services
Julie Elberfeld, Senior Vice President, Commercial IT, Capital One Bank
Vinay Prabhakar, Director Global Solutions Consulting, Bottomline Technologies
MODERATOR & SPEAKER:
Maggie Scarborough,
Managing Director, FinServ Strategies

 Register Now

Fait Accompli – Fundtech and S1 Merge ——— Next? One, Two, Core

Maggie Scarborough, Managing Director, FinServ Strategies
June 27, 2011
The Fundtech – S1 merger really isn’t a big surprise to me after covering the online cash management, online consumer and payments spaces for over 25 years. The two were bound to mash up with another entity. In a consolidating bank market, larger scale is needed by both to catch more “ big fish” by serving global and domestic markets with a full suite of information, payments, trade, supply chain and liquidity products. Another scale element of the deal is the ability to serve far more community institutions, more efficiently (they both have SaaS operations in Atlanta). The pair attains both goals by combining S1’s online consumer, small business and corporate banking  and trade platforms with Fundtech’s considerable back-end or core and middle office payments and liquidity capabilities. Wasn’t this ACI’s dream?
Who will dominate and how will it go from here?
Less Choice Creates Opportunities

With fewer online cash management, consumer banking and payments choices for institutions, there is now room for highly competent and global payments and treasury management player, Bottomline Technologies to further spread its wings and for neo-tech Online Banking Solutions (OBS) to further burn into the market. Bottomline Technologies, which serves both global institutions and corporates, will gain even more traction with large and mid-tier institutions that already have core payments capabilities.  The concentration of customers with one super-vendor Fundtech-S1, also leaves room for agile players like Online Banking Solutions (OBS) with their straight through processing architecture and secure browser to leapfrog the current competition with more efficient and scalable solutions built for integration.  Players like Intuit continue to keep their collective eyes on the vision of financial integration with consumers and small business.
One, Two, Core
What about the core banking titans? Fiserv, FIS, Jack Henry, et al. They have all of the banks on their systems, but haven’t done a very good job of integrating and deploying acquired online cash management and online consumer banking. In-house initiatives, while well-conceived, have lost traction. Plus, there is a trail of less than effective past acquisitions, because the vendors acquired simply didn’t have enough scale to compete with the core’s home-grown capabilities, which they typically give away. My instincts tell me that there will be further consolidation and, like so many past mergers in fintech, the merger of Fundtech and S1 may be simply one and two of a three-base play. Hmmm…will there be a part three? What do you think?  Maggie Scarborough, Managing Director, FinServ Strategies, maggie@finservstrategies.com, 301-535-4559.

Clear the Fog About CLOUD and Payments, NACHA Payments 2011, Session 204PB, Tuesday April 5, 8:00-9:15 am

See 3 Experts  Face-Off about Cloud Computing and Payments at NACHA Payments 2011, Austin, Texas
CLOUD & Payments: Let’s Talk Business
Tuesday, April 5, 2011
8:00 a.m. – 9:15 a.m.; Room 17A
Maggie Scarborough,
Managing Director, FinServ StrategiesJulie Elberfeld, SVP, Commercial IT, Capital One Bank
Mary Ann Francis, Sr Consultant, Payments, WIPRO Banking & Fin’l Svcs
Vinay Prabhakar, Director, Global Solutions Consulting, Bottomline Technologies, Inc.
Why does cloud computing remain a mystery? It uses technology to create a business advantage. Cloud computing technologies not only enable efficiency but allow for the extension of services outside the institution’s firewalls and across nontraditional service boundaries and providers. Attendees gain an understanding of the cloud concept and learn about its players, deployment in payments and cash management, risks, audit/regulatory concerns, and business line, as well as customer issues and benefits. Attendees learn potential business benefits, competitive risks, and face-off with a banking strategy consultant, payments expert, vendor, and bank in this exciting presentation-panel combo.


FinServ Strategies on XML – Treasury and Risk Magazine

Maggie Scarborough on XML and treasury management in Treasury and Risk Magazine September 2010, “FAST FORWARD ON XML” by Richard Gamble. Click here for the article

The $64 Thousand Interface

Justifying Payments Management Investment:
The $64 Thousand Interface
- Maggie Scarborough

In banking, significant investment in new centralized payments capability known as hubs or payments management has begun at the largest financial institutions. These new centralized payments systems can provide better competitive execution as well as cost reduction through the elimination of many redundant systems and processes across the siloed payments infrastructure.  The common wisdom is that only the big financial institutions have the scale to invest in sophisticated payments hub and management systems. This isn’t a true assumption. Consider the invisible costs of an existing custom application program interface, $64 thousand a year.

You have to see it to save it. To make the business case for investment, most bankers want to use a direct cost elimination model – it’s easier to sell to senior management than a “squishy” new product sales model. That’s why scale is important. But even mid-tier banks have more scale than they realize, especially in the custom interface department. The reason the business line doesn’t see or understand integration costs and maintenance? – IT maintains custom APIs and doesn’t usually bill the business unit except during the implementation of a new system, where it is expensed as implementation costs.  Poof! Costs gone? Not really, the costs continue as the custom API must be maintained and changed as the IT infrastructure changes. There are also continued (“squishy”) opportunity costs as it becomes too expensive and time consuming to change the interface in order to advance product and services capability to keep and attract customers.

The $64 thousand interface. For illustration purposes (not that you would really do this), if you amortized the costs of a custom API over 3 years, just like a software license fee, and spread upfront outlays and ongoing maintenance fees, IT development costs, vendor charges, and change control and testing costs, the cost of a simple wire interface would be $107 thousand/year over 3 years or $64 thousand/year over 5 years.  Therefore, reducing costs by eliminating the $64 thousand interface can be significant, especially for payments where there are anywhere from 40-100 custom interfaces to/from wire transfer, ACH, check processing, card.  To be conservative – let’s say we only eliminate half of the 40 interfaces $64 thousand X 20 = $1.28 million in savings for a mid-tier regional bank. That amount would make a significant contribution to investment in centralized payments capability.

How do you know which way you’re going, if you don’t know which way you’re facing? The opportunity to reduce cost and gain better market execution requires “visibility” of IT costs combined with business line costs and a team approach that includes the business line, IT, finance, and procurement and vendor partners, so that the right cost benefit picture can be derived. There are banks doing this, now. Encouraging cost visibility and allocation can be a scary situation, I know, I experienced it while working for an institution with a fully loaded cost accounting model. It worked because of leadership that encouraged collaboration. But if you can’t see your cost and revenue structure, it’s difficult to know which way you are going, or even if you have had any success.  It might be worthwhile to ask some questions. How are your IT costs allocated to your business line? E-mail Maggie@FinservStrategies.com

IBM to Buy Sterling Commerce: Good News – Good News

IBM Plans to Acquire Sterling Commerce for $1.4 Bn: Good News – Good News

Byline: Maggie Scarborough, FinServ Strategies
May 25, 2010

In a good news-good news announcement on May 24, IBM announced its plans to acquire Sterling Commerce from AT&T in a deal valued at $1.4 billion. Former and new parents will remain friends. Sterling Commerce will benefit from new parent, IBM, keenly focused on B2B and banking spaces and in need of applications. IBM, with a ready cloud computing model, gets much needed business applications from Sterling Commerce that extend  across all major industry verticals including financial services.

Big deals don’t always have a big impact in financial services, but in this case the potential is large. The proposed IBM acquisition of Sterling Commerce from AT&T has a lot of good news in it for IBM, Sterling Commerce, and financial services.  Instead of a prior mis-aligned and fruitless partnership deal with ACI to get into the payments business, this time, IBM is betting on cloud computing, business process management, and applications to put smack dab in the middle of B2B commerce, including banks, which are in the middle of the business relationships – the virtuous 4-corner model, with IBM in the cloudlike middle enabling all. Sterling Commerce has a combination of tools including a budding bank payments hub system and well established B2B commerce transactions software and services that will allow them to extend services further into the business processes of the customers, partners, and institutions.

In the bigger competition between IBM, Oracle, and HP, this acquisition gives IBM an advantage over Oracle, which has been spinning in the core market of financial services, and gives the company added application power when competing with (or facilitating) with newly extended services of companies like SAP, which recently announced its $5.8 bn acquisition of Sybase, which hinged on mobile applications.

Why buying Sterling is a good deal for IBM:

1)     Gets IBM lift across all industry segments, not just banking. Sterling’s foundational supply chain and B2B commerce business reaches 18,000 customers across the globe in financial services, retail, manufacturing, communications, and distribution.

2)     IBM also gets a direct connection into global payments through Sterling Commerce’ SWIFT solutions and MEFG.

3)     IBM has a cloud foundation ready to go and recently tested with SAP.

4)     IBM’s Global Services needs both cloud and integrated business applications to better sustain growth.  In the age of an “app for that,” IBM needs applications for its cloud and Sterling has plenty of core B2B applications that need a cloud facelift – something IBM can do and better do if it’s their own assets they can control.

5)     IBM can leverage Websphere’s business process management and middleware assets including orchestration, and analytics capability with Sterling Commerce’ trading partner network and B2B supply chain capabilities to build collaborative cross channel applications.

Why this deal is good for Sterling Commerce:

1)     Although AT&T has been a good parent for Sterling Commerce, its new parent better understands and is closer to the business process management and collaboration needs of the Sterling customer base.

2)     IBM will provide sustained investment in Sterling’s product and network portfolio needed to complete its modernization of B2B commerce applications and network products.

3)     Sterling Commerce’ B2B network will ultimately have a home in the cloud, which should enable the firm to more quickly execute in the marketplace and extend applications into the mobile cloud. IBM has a cloud foundation ready to go and recently tested with SAP.

This deal between IBM and Sterling in Commerce makes sense. IBM will help bring Sterling Commerce into the bank at the highest strategic levels and Sterling will help bring IBM into the applications market in a cloud market where there is an “app for that”. At the deals center, though, is the idea of cross collaboration (B2B), bank to B, B to bank) is a critical need for institutions wishing to keep their largest corporate customers happy and the mid-market stickier, and the small business market more engaged and a source of new revenues. We have been talking about the integrated financial supply chain for years, this combo may work.  But like everything, the devil is in the execution.

—end of document

Please comment

Maggie Scarborough, Managing Director
Maggie@FinServStrategies.com, +1 410.685.2324

www.FinServStrategies.com
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