November 05, 2003

Tidbits from Financial Service

Great wrap by Ann All on recent goings-on at Financial tradeshows.

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Shows full of industry intelligence
by Ann All, editor 04 Nov, 2003
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Do companies time their announcements just to give folks at industry trade shows something to talk about?

I have to wonder, after last week's announcement of the proposed merger of Bank of America and FleetBoston Financial, which came during the Thomson Financial-sponsored ATM & Debit Forum in New Orleans.

One observer, noting that the banking monoliths are both Visa board members, said they would wield quite a bit of collective network influence. "Maybe they'll make Triple DES go away," he sighed.

Rumors notwithstanding, there was plenty of interesting fodder on the agenda at the well-attended Thomson event, and at the ATM Industry Association's Future Summit and Awards in sunny Indian Wells, Calif., which also took place last week.

Here are some interesting tidbits from a busy week:

New opps: Ruth Ann Marshall, president of MasterCard's North America Region, identified monthly recurring payments, person-to-person funds transfer, loyalty programs and products targeted to growing markets such as the Hispanic community as among the biggest opportunities for debit card issuers.

Room for more: Scott Betts, First Data Corporation's president of Merchant Services, predicted that the payments landscape -- impacted by slowing growth and consolidation, regulatory pressures, changing technologies and consumer demands -- will become too complex to be centrally managed by a few entities (such as Visa and MasterCard, perhaps?)

Full price admission: Industry gadfly Don Jarecki said the ATM & Debit Forum was the first event in years he's attended as a paid registrant. Guess that means Jarecki, who recently became vice president of business development for Palm Desert National Bank, which provides vault cash for some 11,000 ATMs, will retire such tricks as "recycling" past event badges.
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Indian Wells, Calif., site of the ATM Industry Association's Future Summit and Awards.

Ah, irony: Bob Whyte, in announcing his move from managing debit card products to ATM/merchant services for Bank of America, said, "I guess it's poetic justice that a former manager from the issuer side is now responsible for the acquirer side." BofA believes there is a "unique, powerful interplay" between debit and ATM products," Whyte said.

Pick me, pick me: Whyte's five criteria for selecting a payments network: 1) Heed the clich about putting all of your eggs in one basket. "The ability to talk to vendors in a competitive environment is Risk Management 101," he said. 2) Look for an alignment of strategies between issuer and network. Ensure the network has 3) broad card acceptance/geographic footprint and 4) attractive pricing. 5) Seek a governmental structure that offers ability to control your own destiny.

It's all good: While BofA once devoted marketing dollars to trying to convince cardholders to use signature rather than PIN-based debit, the bank now takes "a more holistic view," Whyte said. "We just want to encourage card usage." The elimination of costly checks presents an attractive business case no matter how much interchange income is earned, he said.

Cards a keeper: "Demographics are in our favor," said Whyte, when asked if he thought retailers would drop any card products in the wake of the Wal-Mart settlement. "At the end of the day, they want to sell products; they don't want to turn away any sales."

Serving up service: What can the electronic payments industry learn from the Brennans, New Orleans' great restaurant family? After meals at three different Brennan-owned eateries, it's clear that the Brennans are masters at anticipating their customers' needs and going out of their way to meet them. In a town full of great food, outstanding customer service is what really sets them apart from other restaurateurs.

Two reasons to like Six Sigma: JP Morgan Chase gave an ATM & Debit Forum presentation on how it used the quality control methodology to make improvements in its ATM program. It was also mentioned in the BofA/Fleet announcement. "Both Bank of America and FleetBoston Financial have used Six Sigma successfully in recent years to streamline processes, improve quality, efficiency and accuracy, and to free up capital for strategic investment. The leadership team of the newly combined company is committed to continuing the Six Sigma program in all areas of the business," the announcement read.
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The crowd listens to a speaker at the Future Summit and Awards.

Research refresh: Time for another Dove Consulting study on ATM deployment. The firm is recruiting banks, credit unions and ISOs to participate in a new study, which will include data on cost benchmarks, ATM performance metrics, transaction levels and mix, drivers of new deployments and projections for future placements, among other information. As in 1999 and 2002, several leading EFT networks are sponsoring the study.

The road to knowledge: New research firm PurchaseStreet plans to focus less on generating what SVP Karen Cone calls "FUD" -- or fear, uncertainty and doubt -- and more on "drilling down to actionable advice" for its clients. A MasterCard company, PurchaseStreet employs five analysts who focus exclusively on the payments industry.

Lack of vision: Curtis Chong of the National Federation of the Blind (NFB) said technology isn't the issue in bringing audio to ATMs. "It's the will and the money and the mindset," he said. "(The blind) don't figure as a line item on anybody's balance sheet."

Daniel Goldstein, a partner in the Brown, Goldstein & Levy law firm which is assisting the NFB in its effort to advance "talking" ATMs, said the industry would have spent less to equip ATMs with audio if it had been more proactive. "No thought was given to design issues before the technology was deployed. It's like installing an elevator. It's going to cost a lot more if it's installed after a building is constructed rather than before."

Expanding options: Goldstein said he is considering broadening the definition of who operates ATMs so that companies such as transaction processors could be included in future legal actions over ATM accessibility.

Middle of the action: Thomas Laabs, VP of deposit services for Charter Bank, said Charter positions an ATM in the middle of its teller stations. It's a subtle yet effective way of showing customers there is a readily available alternative to waiting in line, he said.

Strength in numbers: Jim Hanisch, Co-Op Network's EVP of corporate development, said that transactions conducted by Co-Op Network members at Co-Op branded ATMs managed by eFunds have grown by 400 percent since 2002. Noting that a combined BofA/Fleet would have some 16,500 ATMs to Co-Op Network's 17,500 (with more than 8,000 of them managed by Access Cash/eFunds), he said, "I think we've got them beat by just a few."

Giving them what they want: John Brinnon, vice president of ATM products for Visa USA, said that Visa's research shows that 42 percent of consumers are "very or somewhat interested" in accessing multiple accounts at ATMs -- including machines not owned by their banks.

Tried and true: Despite the industry's attempt to promote new transactions such as prepaid phone top-ups and bill payment, Brinnon said they earned only lukewarm interest from consumers in a recent Visa survey. What really interests consumers, he said, is convenient locations, surcharge-free transactions and highly reliable ATMs. "They really haven't paid much attention to innovation. They're not at ATMs to watch pretty screens."
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Jason Kuhn shows off one of his company's ATMs in the WRG Services booth at the Future Summit and Awards.

Mixed motives: Brinnon noted a "push/pull scenario" with both prepaid phone top-ups and money transfer at the ATM. Phone carriers would prefer to entice consumers into monthly contracts, and companies like Western Union reduce their revenue opportunities by moving money transfer from behind counters to ATMs, he said.

Lifetime achievement: Cardtronics founder Ralph Clinard was the second recipient of the Lyle Elias Lifetime Achievement Award at the ATM Industry Association's Future Summit and Awards. Doug Deitel, Cardtronics' EVP of corporate services, poked fun at Clinard's aversion to computers among other idiosyncrasies before saying seriously: "If you want to know the kingdom, look at the king. Cardtronics is a success because of you."

Not just the flavor of the month: You can call Cardtronics employees "the Blackberry boys" because of their nearly constant use of the handheld devices. Rumor has it that Cardtronics, which manages a number of non-branch ATMs for both Citibank and JP Morgan Chase, is about to announce a similar deal with another high-profile financial institution.

Miffed and mobilized: Dave Schneider, general counsel for the Pulse EFT Association, said that in the wake of the Wal-Mart settlement, networks are facing "an energized class of merchants, highly educated about payments issues at our expense." In other countries, including the UK and Australia, the concept of interchange is under fire, with the government stepping in to regulate fees rather than leaving it up to networks.

A solid platform: Tidel EVP Mike Hudson told Future Summit attendees that a 2400 baud modem "just isn't going to cut it anymore" in the world of ATM communications. It lacks the ability to transfer large, complex files from the ATM to the host; can't communicate with peripherals such as check scanners; and can't be used to create advanced user interfaces.

Acquiring insurance: Lyle Elias, ATMIA chairman and executive director of Value Payment Network, said that ATMIA is working with insurer American Special Risk to try to create a program that would cover acquirers' losses in cases of employee infidelity. While such coverage has long been available for issuers, "insurers and re-insurers don't understand the risks" of the acquiring side of the business, he said.

Driving new transactions: Mark Grossi, NCR's chief technology officer, noting that the latest BMW models run on a Windows XP operating system, said this creates the possibility of building enterprise-wide applications that would allow consumers to initiate transactions while in their vehicles, then communicate with ATMs using Bluetooth or a similar wireless technology.

ATMs and amore: Perhaps the most unusual concepts floated by NCR in its Room 504 research lab was the idea of connecting ATMs to the database of an online dating service so that cardholders could get information on potential matches via their ATM receipts.

Paying for it -- one way or another: Several panelists from the "Valuing Your ATM Portfolio" discussion mentioned Triple DES compliance as one way for sellers to boost the value of their contracts -- in much the same way that a seller can fetch a better price for his home by updating a kitchen or bathroom.

After an audience member said he expected his merchants to foot the bill for upgrades, panelist Doug Falcone, CEO of Access to Money, said that would open the door for attrition if other ISOs came in and offered to cover the cost. "And they will," he said.

Truth or dare: Sandra Hartfield, president and CEO of electronic banking for Palm Desert National Bank, presented Future Summit attendees with four myths and corresponding truths about the ATM business.

Myth number one: the market is saturated. The truth, she said, is "the market is more vibrant than ever" because of the introduction of advanced-function ATMs.

Myth number two: we are becoming a cashless society. The truth, she said, is that some 20 percent of the American population is unbanked and a prime market for new ATM-based services such as money order sales and prepaid cards.

Myth number three: check cashing is a bank market. The truth: President Bush's signing of Check 21 into law on Oct. 28 created an opportunity for ISOs to deliver deposit services to financial institution customers at their ATMs. Such partnerships would allow FIs to reduce their overhead and expenses while making customers happy with expanded services, Hartfield said.

Myth number four: no one is watching us. "If you believe no one is watching, you are hurting our industry," said Hartfield, whose comments certainly rang true. "When sponsors and networks let you know of changes, take them seriously. Know your responsibilities and be a good partner."

Posted by Craig at November 5, 2003 04:57 PM