Category Archives: Alacriti Blog

The Second Pillar of Information Security: Risk Management Lifecycle

In my last blog, I introduced readers to the two pillars of Alacriti’s information security program:

  1. Strong information security policies
  2. A comprehensive risk management lifecycle

There I detailed the information security policies that comprise our current approach, including how they’ve helped us present a sustainable security and compliance posture to scores of annual certification audits and client assessments. I also wrote briefly about the importance of a comprehensive risk management lifecycle, which is the second pillar of our program. I’ll now go into more detail about the risk management lifecycle and how we approach it here at Alacriti.

Security policies, procedures, logging and monitoring systems, incident handling, and internal audits are all necessary tools to achieve and sustain a strong security posture. However, they also pose a risk for organizations. These tools allow us to go deep into the target domain (for example firewall controls, encryption, or incident management) to achieve a strong capability. However, they can also blind us to the breadth of the canvas. Or to put it another way, we can run the risk of missing the forest for the trees.

A good risk management framework (RMF) helps create a complete picture of an organization’s risk canvas so we know that we’re expanding the breadth of our view at the proper rate. Of course, there will never be resources (the good old troika of time, expertise, and money) to do it all. Therefore, priorities must be made according to risk levels, regulatory priorities, and current audit issues. The beauty of the RMF is that it will remind organizations of the major gaps in their defenses that require attention. This can help prevent organizations from thickening the fort walls in one area while leaving others unintentionally exposed.

Alacriti adopted the NIST body of knowledge as the foundation for our risk management program. Over the past decade, we built our risk management program upon a foundation that’s comprised of RMF, policies and procedures, controls (by family), and evidence gathering and management.

This body of knowledge also comes with a huge set of topical guidance that we use to develop topic-specific policies and procedures. A special publication called the NIST SP 800-37 is the foundation of the RMF. Several American information security regulations are either based on this or draw on its framework including FISMA, HIPAA, FedRAMP, FIPS, DoD, and others. This has given us the advantage of being able to comply with multiple regulations from the same baseline effort.

A quote from The Office of the Chairman of the National Strategy for Cyberspace Operations (DoD) made in relation this standard is a useful point of reference for decision makers from all sectors. It says, “For operational plans development, the combination of threats, vulnerabilities, and impacts must be evaluated in order to identify important trends and decide where effort should be applied to eliminate or reduce threat capabilities; eliminate or reduce vulnerabilities; and assess, coordinate, and deconflict all cyberspace operations.”  It helps us focus on the entire canvas from threats to impacts, trends to experiences, and eliminating to resolving. That is the heart of risk management.

The NIST SP 800-37 presents the following risk management lifecycle for practitioners:

The cycle does not need any explanation however I will share a few lessons that we’ve learned along the way. First for foremost, make sure your technology and legal/compliance functions come together to define this and prevent it from being “thrown over the wall” amongst groups. Secondly, make sure they don’t try to win the day with jargon because both sides have plenty of it. Thirdly, don’t try to boil the ocean – you can never have a large enough fire to do that. Start by addressing low-hanging fruit like immediate audit items but be sure to use the RMF so no one loses sight of the full picture. Finally, make sure to keep this process iterative. It is a program, not a project.

 When you mesh the control families that the NIST defines (see SP 800-53), a cohesive picture will begin to emerge that empowers you to make progress with decreasing effort over time. Most importantly, the experience of our compliance efforts waxing and waning (as many of the efforts are risk or topic driven) has changed to a sustainable posture over time. This has created a solid foundation in the face of changing regulations, infrastructure, applications, and over events outside of our control.

 Here is a quick overview of the NIST Control Families. You can designate different teams to focus on specific families and use the risk management lifecycle approach to achieve continuous improvement in their respective areas. This allows the team to adjust their speed based on other pressures while also ensuring that nothing falls through the cracks.

The Bottom Line: At Alacriti, we live with 24x7x365 real-life risks. Our infrastructure and applications are under constant threat from entities that mean us harm. In addition, we must comply with ever-expanding regulations that apply to our clients in the financial services, healthcare, payment processing, and government realms. Our experience shows that adopting a comprehensive, flexible risk management framework provides a powerful toolkit to your technology, security, and compliance professionals.

Please Note: All quotes, references, and diagrams related to NIST are from NIST’s official documents and websites.

Debit Cards, Credit Cards, and Bill Payments

Credit cards and debit cards may look the same, but there are important differences between the two. These differences not only affect the bill payment experience you deliver to customers, but they can also impact your business’s bottom line. Let’s examine the major differences between these two payment methods and how they can impact your billing and payments program.

Credit cards

It might seem obvious, but credit cards are just that – they extend a line of credit to cardholders, so cardholders can purchase goods and services and pay for them over time. Credit cards are typically issued by banks, credit unions, retailers (think department stores and gas stations), and directly by credit card companies such as American Express. The cardholder agrees to the associated fees and interest rates associated with the card and pays a minimum amount (or more) on a recurring basis, usually monthly. Many credit card products also offer rewards programs, which allow account holders to rack up points and rewards including free merchandise, cash back, and travel perks.

Credit card issuers are distinct from credit card networks, which include Mastercard, Visa, American Express, and Discover. These four companies operate payment networks that connect the banks that issue credit to consumers (issuing banks) and the banks that collect money on behalf of merchants (acquiring banks). The card networks “run the rails” between these entities, making sure that customers have enough credit before a purchase is approved, and wiring money between the various entities. Businesses will typically display logos for the card network brands they accept – either at physical storefronts or on their online checkout pages – to communicate the types of payment brands that customers can use at their establishments.

Debit cards

The primary difference between debit cards and credit cards is that debit cards withdraw funds directly from the cardholder’s bank account. Because funds are extracted directly, debit card cardholders do not have the opportunity to pay for goods and services over time. While debit card transactions are generally limited by the amount of available funds in the underlying account, the time lag associated with the transfer of funds can open customers up to the possibility of overdrawing their accounts.

Debit cards are generally accepted wherever credit cards are, and in-person payments can be completed with either a signed receipt (signature debit) or by entering a personal identification number (PIN debit). In addition, debit cards typically give cardholders access to their bank accounts at ATM machines and certain debit card products may allow them to receive cash back at specific retailers.

Costs of acceptance

For businesses that accept payments via credit cards and debit cards, the single biggest difference between the two is the cost of acceptance. Credit cards have fees associated with them that the underlying merchant must pay per transaction.

There are three major fee categories for credit card transactions:

  • Interchange – interchange is paid to the credit card issuer and is typically calculated based on a percentage of the total sales price plus a flat fee; interchange is not one set rate and can vary based on factors including card type, merchant category code (MCC), and processing type (chip/swiped, keyed, online, etc.)
  • Assessments – these fees are paid to the card brands (Mastercard, Visa, Discover, American Express) to maintain the payment operating network, fund marketing programs, etc.
  • Processor fees – these are the fees that merchants pay to their payment processor to provide authorization and settlement services on their behalf; these fees are determined directly between the merchant and their payment processor

This is not an exhaustive list, and there are other fees that can apply depending on the merchant and the nature of their transactions. However, a merchant will typically pay an average of 2.0-2.5% of the total sales price in credit card fees per transaction.

The fee structure for debit cards is different. When the Durbin Amendment was implemented in 2011, debit card interchange for large issuers was capped at $0.21 plus 0.05% of the transaction (and an additional 1 cent to account for fraud protection costs). This is a simpler fee structure and can be significantly less expensive for merchants depending on the nature and size of their transactions.

Credit cards, debit cards, and bill payments

Customers may have specific reasons for choosing a credit card or a debit card for their bill payments. For some, it might be more convenient to pay monthly expenses like utilities, mortgage payments, and auto insurance via a debit card. This can help customers better manage their budgets and keep a close eye on their personal finances. For these customers, automatic payments can be a valuable billing option so they have peace of mind that they’ll never miss a payment.

While debit cards might make sense for some transactions, credit cards can come in handy for bigger ticket items that need to be paid over time. For example, if a customer has a large medical bill from a healthcare provider that they can’t pay in full, they can charge it to their credit card and pay it off over time. This is an example where flexible billing options like recurring payments and payment plans can help your customers pay their bills without having to take on the interest rates and fees associated with revolving credit card debt.

The Bottom Line: Both credit cards and debit cards are convenient ways for your customers to pay their bills. It’s important to understand the differences between the two, including the fee structures for each. Consider how billing options like automatic payments, payment plans, and recurring payments can work together with debit cards and credit cards to provide the best experience for your customers.

How Do the Underbanked Pay Their Bills?

Not so long ago, banking relationships were a staple of American life. Local banks and credit unions were a critical component of local communities, where tellers and customers or members often knew one another by name. Banks and credit unions fueled the American Dream by helping fund everything from new homes and automobiles to college tuition and vacation funds. These high-touch relationships were an integral part of the American economy and something that citizens relied upon for their financial well-being.

With the deregulation of the banking system and the digitization of everything from cash withdrawals to check deposits, banking relationships are not what they once were. Customers and members can get away with rarely setting foot inside a brick and mortar location. They may seldom (or never) interact with the employees at their branch locations. And there are many Americans who cannot afford the cost of having banking relationships at all. These people are often referred to as the “unbanked” or “underbanked”.

The numbers 

The FDIC publishes a biennial report that explores the reality of people who are unbanked or underbanked. Here are some key findings from the most recent 2015 study:

Why choose AFS over traditional checking and savings accounts?

Choosing AFS over traditional checking and savings accounts can be attributed to many factors, the most pressing being the minimum balances associated with traditional banking accounts. In the FDIC study, not having enough money to maintain an account was the most often cited reason (57.4%) for not having one. Many banks require high minimum balances to get the most basic services for free or at a low cost. If customers are being charged for basic services, these deductions can add up quickly and leave them with less money in their accounts than they might expect.

High account fees were also cited frequently at 27.7%. The fees associated with bounced checks and overdraft protection can be of particular concern. If a banking customer does not have sufficient funds to cover a check, they may be slammed with an average overdraft fee of $34. The Consumer Protection Financial Bureau (CPFB) reported in 2016 that US customers paid fees totaling $15 billion for bounced checks or overdrafts. For many customers, these fees and the uncertainty that comes with them is simply too much for their budgets to handle.

Option 1: Prepaid debit cards

Prepaid debit cards give customers the option to make card payments without traditional banking accounts or credit cards. They simply buy the prepaid card, load money on to that card, pay the associated fees, and use it like a traditional debit or credit card. It provides them the user experience of a traditional credit or debit card – including the ability to make payments online – without maintaining an underlying account.

Option 2: Cash

Despite the growing buzz around moving toward a cashless society, cash remains a go-to method for the unbanked and underbanked to pay their bills. This is where walk-in services and kiosks can be invaluable for businesses with customers that require a cash option to pay their bills.

Option 3: Check cashing

Check cashers do just that – they deposit endorsed checks into their business bank account in return for immediate cash to the customer, less a transaction fee. They can also provide other financial services including bill payments, money transfers, and money orders. Thanks to the highly transparent fee structure for these services, in addition to the immediate receipt of money, check cashing can be a viable alternative for people without traditional bank accounts.

The Bottom Line: Not every American has, or wants, a traditional banking relationship. That’s why it’s so important to offer a variety of payment methods (including cash and prepaid debit cards) and payment channels (including walk-in and kiosk options for cash transactions) that serve the diverse needs of all consumers.

The Big Question About Fintech

The financial services industry has been working diligently to deliver personalized, seamless, and on-demand customer experiences through digital and emerging channels. This is perhaps most evident in the explosion of FinTech for everything from online loans to peer-to-peer payments. Financial transactions that once seemed impossible are now commonplace, like paying bills via mobile devices or depositing checks with the snap of a picture.

Use of FinTech is becoming more widespread

A recent EY study estimates that in 2017, the overall adoption rate of FinTech was 33% among digitally active consumers. This is more than double the adoption rate reported in 2015, which was 16%. In addition, awareness of FinTech grew at a rapid pace. The study shows that 84% of digitally active consumers were aware of FinTech services in 2017, compared to just 62% in 2015.

And FinTech users don’t rely on digital channels just for their financial needs. The same study reports that 64% of FinTech users prefer to use digital channels to manage all aspects of their lives, compared to 38% of non-users.

Financial institutions are thinking differently, thanks to FinTech

Financial institutions are taking notice of today’s fluid digital landscape and the impact it’s having on consumer expectations. A study by PWC shows that more than 80% of financial institutions believe their business is at risk due to emerging FinTech and 88% are concerned that they’re losing revenue to these innovators. However, this increasingly competitive landscape is also encouraging them to think differently. The study shows that 77% of financial institutions will ramp up their efforts to innovate internally and 82% expect partnerships with FinTech companies to increase over the next three to five years.

The most popular categories of FinTech

FinTech encompasses many different categories of financial services. The EY study indicates that money transfer and payment services are the most popular categories of FinTech, with 50% of FinTech users leveraging these services in the previous six months. This number rose from a mere 18% in 2015 and represents the highest uptick among all categories of FinTech. Insurance services also saw a significant jump from 2015 to 2017, rising 16 percentage points in just a two-year period. Other popular services include financial planning, borrowing, and savings and investments.

The rise of digital-only business models

The FinTech revolution has given rise to new consumer environments that exist exclusively as digital storefronts. Neobanks, for example, are one-stop-shop financial institutions that have no physical retail footprint. Their entire business strategy – including goods, services, and customer engagement – are strictly delivered via digital interaction channels.  These “digital-spinoffs” are distinct from traditional banks and have differentiated offerings that focus on transforming the customer experience. Being relatively new, it is yet to be seen if neobanks can independently scale or foster profitable businesses, but the concept is gaining traction with consumers. Given their increasing comfort with digital-only businesses that lack any true storefront identity, one can only predict that these types of business models will continue to gain momentum.

The generation gap

Is FinTech only for the young? The EY study shows that Millennials (25 to 34-year-olds) are the generation that’s most likely to use FinTech. Globally, 48% of Millennials use FinTech and the number in the US is even higher at 59%. This is perhaps unsurprising considering that these “digital natives” grew up with the internet and are now reaching milestones that require financial products, such as home loans and college savings plans.

However, digitally active consumers in the 35 to 44-year-old age group aren’t far behind. The study shows a usage rate of 50% in the US and 41% globally. The older generations are increasing their adoption rates as well. Forty percent of digitally active US consumers who are 45 to 64-years-old use FinTech and 17% of those who are 65 and older do so as well.

The big question

Millennials are clearly in the driver’s seat when it comes to the adoption and evolution of FinTech. They are new customers for many of the services that FinTech companies offer and they demand similar user experiences they find elsewhere online. But an overemphasis on this generation might mean that FinTech providers are missing out on revenue opportunities with older generations. Or perhaps they’re overlooking the up-and-comers who might have different needs and wants than the Millennials of today.

So, the big question is this: How can FinTech providers put forth strategies that encompass all generations? This requires a collective, cross-functional strategy that reaches valuable consumers who might find themselves outside of the FinTech circle. FinTech providers must be focused on developing strategies that help identify these prospects, offer solutions that meet their needs, and ultimately convert these non-users to bring them into the fold.

To paraphrase my father, it’s crucial to learn as much as we can from those that are different from us because the world is changing, and the rate of change is only getting quicker. It’s time for us to get outside of our comfort zone and anticipate changes before they happen. The availability of information at the speed of light and the ability to reach people literally in the palms of their hands makes everyone demand more. And we, in turn, should demand more of ourselves as technology providers to meet these diverse needs.

The Bottom Line: FinTech has revolutionized financial services, from peer-to-peer payments to online loans. This is especially true for Millennials, who are the generation most likely to use FinTech. But what about everyone else? FinTech providers must employ collective, cross-functional strategies to serve the most diverse audience possible.

Alacriti provides financial services and payment technology solutions to companies in the financial services, healthcare, insurance and utility industries. We offer payment processing solutions and provide software, services and outsourcing of the technology for our clients. Alacriti has a successful track record in delivering several technology solutions for some of the world’s largest financial services organizations in the areas of global payments, retail banking, wholesale banking, credit cards, and international remittances.

Are You Adapting to Consumer-Driven Payments?

Over the past decade, technology has infiltrated consumers’ lives in a profound way. Consider that in 2011, only 35% of Americans owned a smartphone. As of 2018, that number climbed to 77%. Americans ages 18-29 are almost completely saturated with smartphones, with 94% of young adults owning them. And let’s not forget about tablets. Over that same seven-year period, tablet ownership jumped from approximately 10% to 53%. (Source: Pew Research Center)

Mobile commerce is rising…

This explosion of mobile technology has changed how consumers gather information, communicate with one another, and conduct commerce. While ecommerce has been around since the early days of the internet, more and more consumers are paying for goods and services with their mobile devices. In fact, Business Insider projects that by 2020, mobile commerce will account for 45% of the total ecommerce market in the United States, with an approximate value of $284 billion.

…and creating payments disruption

Mobile technology has also changed consumers’ expectations for how they pay. Again, thinking back a decade ago, traditional banks and financial institutions were the mainstays of consumer finance and money movement. Since that time, new payments technology has emerged from industry disruptors that are focused on changing the game. Payments can be made with the tap of a smartphone via digital wallets, money can be transferred easily among individuals through peer-to-peer (P2P) payments, and formerly cash-dependent transactions like parking meter fees can be paid through apps. As more and more technology fuels alternative payment methods, the old “top of wallet” mindset has evolved to become “preferred payment method.”  

This plethora of options can provide highly efficient and personalized experiences for consumers. But it can also create headaches for retailers and billers. With so many ways to conduct commerce and make payments, expectations may vary wildly by consumer. And trying to keep up with their changing expectations can feel like an insurmountable task for many businesses. According to Baymard Institute, payment issues are among the top reasons for consumer frustration.

How can retailers and billers adapt to the new normal?

The truth is, there’s no “one-size-fits-all” model for accepting payments. Years ago, payments strategies weren’t as dynamic as they are today. The pace of change was slower, and trends were more visible over time. There were fewer channels and methods to account for when managing a payments strategy.

However, in today’s world, payments strategies must be highly fluid and respond quickly to new trends that develop seemingly overnight. Consumers’ preferences can be so dynamic that they may vary according to the specific retailer or biller. And customer experiences must respond seamlessly to meet their diverse needs.  

So much of the business world revolves around the old mantra, “If it ain’t broke, don’t fix it.”  Even as it relates to the receivables that companies depend on for cash flow, adoption of new payments technology oftentimes takes a backseat to other business initiatives. When retailers and billers face resource constraints that prohibit them from quickly responding to this changing landscape, collaborative partners can offer the technology that’s needed to meet the needs of modern consumers.

The ripple effect of negative customer experiences

It’s important to remember that savvy consumers have easy access to tools that can broadcast one negative experience to a large population of potential customers. Twitter, for example, gives users 280 characters to deliver brand-specific messages to over a billion audience members. Customers can post negative reviews on a variety of websites and search engines. And word-of-mouth travels quickly on social media platforms.

For retailers and billers, technology that facilitates positive customer interactions and counteracts negative experiences before they happen is more important than ever. Enhancing your payments strategy to offer quicker, more convenient ways to pay is just one way of streamlining the customer experience. Not only can this create positive brand interactions for your end users, it can also empower your business to collect its money faster.

Conclusion

Customers’ expectations are changing rapidly, and businesses must habitually find new ways to serve them. Commerce and payments technology that’s used widely today wasn’t even in existence yesterday and this rapid evolution continues to drive a new era of customer relationships. Adopting a comprehensive yet easily adaptable payments strategy has never been more important and will only continue to grow in importance over time.  

Whether retailer, biller, or bank, we’re all stakeholders in today’s ecommerce world. It’s up to all of us to come together and provide new customer experiences that are fast, secure, and, most importantly, satisfactory to our patrons.

The Bottom Line: Technology is changing consumers’ expectations when it comes to their payments. Retailers and billers of all sizes can find it challenging to stay at the forefront of these changes. When they face resource constraints that prohibit them from responding quickly, collaborative partners can offer the technology that’s needed to evolve strategy and deliver tailored customer experiences.

The Elegant Future of Payments

Bill presentment and payments have undergone monumental changes over the past 15 years. Electronic billing has helped both businesses and consumers “go green”. Balances can be paid easily online through user accounts and one-time payment options, reducing the dependency on paper checks. Add to that the power of mobile devices to make payments anytime, anywhere. So, what’s next on the horizon for bill payments?

Alacriti’s CEO, Manish Gurukula, recently talked with PYMNTS.com’s Karen Webster to discuss how voice-activated user experience (UX) is the next big thing in bill payments.

In the midst of all these changes related to bill payments, chat-based interfaces – including those using voice activated commands – are emerging to streamline the bill payment process even further. Alacriti was at the forefront of this sea change, developing a chatbot named Ella that’s powered by artificial intelligence (AI). Customers communicate with Ella naturally, via Facebook Messenger, to perform common bill-related tasks like making account inquiries and paying balances.

But conversation is not limited to messaging platforms. Alacriti is looking ahead to the next generation of transactions powered by conversation on voice platforms like Amazon Alexa and Google Assistant. “As we were contemplating how to move our text-based Messenger chatbot capabilities to voice and Google [Home] and Alexa, we had to first answer a few key questions: Where does the user data reside, how is it handled [and] how is the flow from one endpoint to another managed?”, Gurukula says in the interview.

Learn how Alacriti is answering these questions by reading the full article. In it, Gurukula also discusses Alacriti’s solutions for both one-time and recurring payments, and how they protect the most sensitive of data. He goes on to examine the inherent potential of intelligent personal assistants like Amazon Alexa and Google Assistant to offer better, more elegant ways of interacting with consumers and streamlining bill payments.

READ THE ARTICLE

The Pillars of Information Security

Digital transformation is sweeping across all facets of our lives. From complex business and financial transactions, through to hailing rides and streaming media, seemingly nothing has been left untouched. Businesses from street-side vegetable vendors to the largest global banks are performing a wide variety of financial transactions on the web or mobile web that were impossible barely a decade ago.

With this digital transformation comes users or account holders, and with them comes their data. Companies like Amazon or Netflix can store hundreds of millions of financial and personal information records in their systems. A single security breach of this massive amount of data could impact their business, reputation, and stock value in ways that can be difficult to overcome. Add to that the time and expense of recovering the data, for those who can recover it, and it’s no secret why information security is a critical component of every business.

Information security is now a large body of knowledge and there are hundreds of disciplines within its gamut. Many large companies that suffer security breaches are very knowledgeable about security, have invested huge sums of money over many years to build their security systems, and carry impressive certifications and credentials. So, what goes wrong?

At Alacriti, we grapple with this question all the time. As a payment processing technology provider, our clients, auditors, and regulators expect us to maintain a very high standard of data security. Over the past decade, we built security systems and processes designed to live up to these expectations. In our experience, we’ve learned that there are two pillars of a strong information security program:

Pillar #1: Security Policies

The first pillar is to have a comprehensive, clear, actionable, and measurable set of security policies that cover all aspects of the organization’s operations. Without these, security efforts can grow sporadically in the organization.

Pillar #2: Risk Management Lifecycle

The second pillar is a comprehensive risk management lifecycle that allows us to view the entire spectrum of activities needed to maintain our security posture. Without this, security efforts tend to focus on solving today’s problems rather than anticipating the needs of tomorrow.

I’ve written this blog to provide some insight into Alacriti’s security policy suite. We have developed different policies that help our employees understand the organization’s security principles, practices, and their responsibilities. At the root of all policies is our Information Security Policy which describes the basic rules of engagement, organizational directives, and consequences of non-compliance.

Each of the major subject areas in the Information Security Policy are further developed into separate policy documents that provide specific guidance in individual operational areas. Our current policy suite includes:

  • Anti-bribery
  • Segregation of duties
  • Secure SDLC
  • Patch management
  • Pandemic events
  • Incident management
  • Ethics and whistle-blower protection
  • Business process assurance
  • Business continuity and disaster recovery
  • Employee background checks and drug screening
  • Vendor risk management
  • Data privacy
  • Human resources
  • Access control

Some important control points built into our policy management process are:

  • Adopting an industry framework (we adopted the US Government’s NIST SP 800) that allows a balanced view of enterprise security. This helps reduce the risk of becoming topical or sporadic.
  • Mandatory annual review and updates of all policies to reflect changes in both the company and the technical/regulatory environment in which we operate.
  • Mandatory annual training of all employees that explains our policies, expected behavior, and consequences of non-compliance. Each training is followed by a written test to ensure that employees have assimilated the learning.
  • A strong suite of procedural and process documents for each business unit or group that facilitates policy compliance in their day-to-day work. This includes collaboration tools, ticketing systems, logs, and evidence chains.
  • On-going internal audits to perform risk-based assessments of all functions in the context of behaviors and controls mandated by policies.
  • Review of the policy suite by an external auditor in the context of our business, technology, and regulatory obligations to validate that our policies are adequate for the purpose.

The combination of these efforts has created a reasonable assurance that we are comprehensively covering our bases. There is also an organization-wide understanding that meeting these goals and obligations has allowed us to adopt new technologies without losing control over our security and privacy commitments.

A case in point is our recent migration to the cloud for some of our large application products. Our policy suite became the binding glue for all our technology and business leaders to pursue a common agenda of non-negotiable principles, processes, and best practices to achieve our cloud migration efficiently and cost effectively. While many organizations struggle with the security challenges of the cloud, we can say confidently that cloud migration allowed us to take our security posture to the next level.

The Bottom Line: A strong set of security policies is a pillar of sustainable information security. At Alacriti, there is a comprehensive, ongoing effort to keep these policies aligned with emerging technical and business scenarios. In addition, a comprehensive risk management framework helps us keep our policies balanced and measurable.

 

Why Should Businesses Embrace Disruption?

Customers today are much different from yesterday’s customers. The way we discover, communicate, and connect with businesses is dramatically different than just a few years ago, and the customers of tomorrow will be different still.

Technology evolves quickly, and the rate of change has incredible implications for the business world. These changes not only disrupt roles, structures, competitive environments, and the markets and societies in which businesses operate, but also the overall evolution of customer behavior, values, and expectations.

It’s becoming difficult for businesses to navigate what customers want and expect. Many institutions view recent shifts as a time of ‘Digital Darwinism’ — an era where technology and society are evolving faster than businesses can naturally adapt. Often bound by resource constraints, budgets, and even fear of the unknown, many institutions shy away from necessary digital transformation.

It’s natural for businesses to hesitate – change is difficult, and the road to digital transformation at the current rate of disruption is far from easy. As a result, much of business today is geared around the status quo or business as usual. Fear of the unknown leads many businesses to disregard the current state of digital maturity within legacy systems and solution sets and ultimately strains the customer experience.

This ever-changing wave of technology brings challenges, but it’s an important movement in the business realm. Businesses need to get outside their comfort zones to better understand the customer experience and how it might need to change in the future. Disruption forces businesses to look beyond their traditional norms and adapt their strategies as technology and consumer behavior evolve. While it can be argued that financial technology or “fintech” contributes to disruption, this sector is also key to finding solutions that can help businesses overcome technology challenges and uncover opportunities to improve operations.

Digital transformation can help businesses better relate to and engage with customers along the entire value chain. Albeit a difficult obstacle to embrace, digital transformation can help businesses grow, discover new market opportunities, and scale efficiently. Embracing disruption ultimately fuels strategic changes within internal systems while creating unique solutions to meet the needs of today’s digital customers.

Ultimately, the only constant is change – technology is not going away, so it’s time for businesses to embrace it. Disruption, change, and digital transformation is all integral to the future of business and necessary to meet customer expectations. Emerging technology can, and should, be integrated into business strategies to help meet these modern challenges. Even the smallest investments in digital transformation can help improve customer adoption rates, customer retention, and the overall digital experience. Seen as an obstacle, technology can bring a lot of frustration; it’s up to each business, however, to figure out how to harness technology to remain relevant and uncover new possibilities.

Referral Partnerships: A Mutually Beneficial Relationship

The payments space is always evolving as new technology emerges. Demand for fast and convenient electronic payment options will continue to increase within the next decade. With so much changing so quickly, businesses with vested interests in helping customers meet payment-related needs often find it particularly challenging to keep up with the latest trends.

Today’s hyper-competitive economic markets require businesses to think creatively and strategically to be successful. Print and mail providers, financial service organizations, and other businesses may find that their clients need a better electronic bill presentment and payment (EBPP) platform in addition to the services they provide. An EBPP solution can help these companies enhance customer relationships and offer more value, but they might not want to incur the development costs or force major changes onto internal staff. Due to high charges for operations and technology support, a reseller arrangement might not be ideal either.

A referral partnership with a technology provider is a cost-effective option for businesses that want to meet more of their customers’ payment needs without developing an EBPP solution in-house. Such an arrangement can be mutually beneficial – both partners can refer each other for business opportunities that more closely align with their respective areas of expertise. Because the development and related IT costs are absorbed by the technology provider, a referral partnership drastically reduces the cost of entering the payments market. It also ensures access to the partner’s resources and expertise while enabling a business to test the market before making a stronger commitment.

It isn’t necessary to specialize in payment technology in order to offer customers an innovative electronic bill presentment and payment solution. For some companies, the best option is to simply refer clients to a reliable payment technology partner. A referral partnership enables both parties to capitalize on their individual strengths to expand business opportunities. Contact our sales team to find out if a referral partnership is right for your business.

Healthcare Providers and the Transition to a Digital World

Due to the complexities of the industry, it’s often challenging for healthcare providers to make the transition to an increasingly digital world. Healthcare costs continue to soar for reasons ranging from federal legislation to higher equipment and service expenses. Furthermore, outdated technology can be a source of frustration for practitioners and patients alike. Mounting expenses, outdated technology, and a lack of convenient service options can combine to negatively impact patient satisfaction and ultimately hurt a healthcare provider’s bottom line.

Healthcare is becoming more of a business than ever before, leading patients to behave more like consumers. Many insurance plans push increased costs from providers to patients. Expensive advertising for pharmaceuticals and specialized care also contribute to higher medical costs, which are passed on to patients as well. As a result, more patients are shopping around for health insurance plans and options that best align with their needs, making the entire industry more competitive. Patients also expect to receive more value from healthcare providers as their personal financial responsibility for medical care increases.

It’s important that providers make a concerted effort to retain patients amid soaring costs and increased competition. Technology can give providers that are struggling with administrative excess and decreased patient satisfaction the opportunity to level the playing field. For example, an electronic bill presentment and payment (EBPP) solution can help providers deliver a modern bill payment experience to patients.

Once a patient leaves a provider, collecting payments can become a challenge. An EBPP solution allows for better electronic communication with patients after the point of service while consolidating all payments activities into a single platform. This not only creates more stickiness between patients and providers but can also help increase patient satisfaction. Conveniences like modern payment channels (Pay by Text, Facebook Messenger, Amazon Alexa, etc.), the ability to save funding methods and enroll in AutoPay, and proactive electronic communication (text messaging, email, etc.) can also increase a provider’s likelihood of receiving payments on time, thereby improving cash flow.

Patients are likely to continue facing higher out-of-pocket medical expenses as healthcare costs increase. In today’s economic climate, there are many factors outside of a provider’s control that impact the overall patient experience. The payments process, however, is one area where healthcare providers can make cost-effective improvements that increase patient engagement and satisfaction.

*This blog was edited for clarity in 2020.

Is Bank Innovation Fact or Just Fiction?

The road to banking innovation is lined with challenges as well as benefits.  At times it is difficult to differentiate fact from fiction. The fact is that growth opportunities for banks will come from innovation in technology and services. This includes adopting a mindset for innovation and investing in improving technology in departments currently utilizing legacy systems.

In some situations, banks claim to market innovation, but this is nothing more than a smoke screen. The reality is that many banks do not want to absorb the high cost to implement innovative technology solutions. This, however, is not a good strategy for growth. Banks will have to develop products and services that meet the evolving needs of their clients in order to be competitive. But dollars spent on technology to “grow the bank” must be offset with the dollars to “maintain the bank”, and disruptive technology comes with a high cost.

Many banks are finding it best to partner with a technology vendor. In recent years, startups have grown from being small and mid-size vendors to large companies working within the global bank ecosystem. The FinTech startup community is agile and continues to make inroads in new markets with their products. The buzz about banks working with startups to offer their customers new products and services in an accelerated timeframe is not a new strategy. For example, the Electronic Bill Presentment and Payment industry gained widespread acceptance among banks when the Internet became mainstream.

This past July, Startupbootcamp FinTech New York Demo Day conducted an intense 13 week program. The recent cohort represented six countries where over a dozen fast tracks were held. Criteria for selection included whether or not the teams had a product that solves a real problem, and if they were the right groups to solve the respective problems. The sponsors consisted of Santander, Deutsche Bank, RoboBank, and MasterCard Worldwide.

In this environment, competition is often tough. The FinTech Accelerator provides bank sponsors the opportunity to work directly with startups. As banks continue to employ the word “innovation” in their marketing efforts, they need to move from strategy to execution. Innovation is not only a marketing tool but also allows banks to revolutionize their current framework, and offer new products and services. It comes at a high cost to both the bank and their clients, but those who are observing from the sidelines and taking a passive role as financial technology evolves are leaving themselves at a disadvantage.

Although there is a cost involved, banks must be innovative in order to remain competitive. Consumers today want solutions that properly leverage technology, provide convenience, and are affordable.  Large banks have the budget to innovate, but what are other banks doing?  Only time will tell how it all plays out, but financial institutions should work to ensure they remain on the frontlines of this race, or they risk being left behind.

Old Habits Die Hard – Resistance to New Technology

The rise of e-commerce in recent years has stemmed the introduction of innovative new technologies, and a globalized economy as a whole.  Heather Cox, Citi FinTech CEO, once said that “Technology is eating the world.”, yet many banks and lenders continue to rely on traditional means of interaction with their customers. Much of that customer base consists of aging populations comfortable with traditional payment methods like checks and cash. Resistance to new technology, however, could alienate demographics that banks need for future growth and drive them towards emerging alternatives.

The electronic landscape continues to grow and change at an incredible rate. Smartphones and other technologies have created demand for instant information and service that is entrenched in a ‘bigger, better and faster’ mentality. Amazon began as the largest distributor of books in the United States but has since leveraged new technologies to transform into one of the world’s biggest retailers as a whole. Apple is the biggest distributor of music – also a digital product line. Much of the physical distribution and hands-on customer service models of traditional commerce are becoming obsolete. Ultimately, these demands are calling for more efficient means of communication and interaction leading to instant gratification.

The rise of digital payments is an example of this, though many financial institutions continue to offer outdated customer experiences.  Even when banks offer new apps and mobile access points, decades-old technology often lies behind these interfaces, offering limited capacity to the new age consumer holding a modern mobile device. Many of these systems were developed long before the digital age we now live in, originally built for slower ‘branch-based’ interaction and overnight processing.

Financial institutions are not immune to the rapid evolution of consumer behavior.  Consumers demand faster fulfillment, and the speed of change also continues to get faster. Banks have seen a steady decline in physical branch locations for years, and that trend will likely accelerate as consumers increasingly conduct financial activity through their smartphones, tablets, and other devices. This decline in physical interaction offers the banking world a unique opportunity to engage customers through new digital channels such as enhanced ATMs and interactive interfaces.

Doing more with less has been a cliché motto for years, and now banks can apply that same concept to how they conduct business with, and for, their customers. With an automated yet intelligent suite of digital enhancements, banks can offer customers services that save time and effort, as well as the flexibility to do things their own way whenever they want. A tailored Integrated Voice Response (IVR) system, for example, offers customers self-service options to conduct business anywhere. Digitally interactive apps and ATM screens can offer similar functionalities.

Fewer branches do not equate to fewer access points, nor does it mean fewer customers. Brett King once wrote, “The bank is no longer somewhere you go. Banking has become something you do.” New technology has changed how customers view their finances, and in many cases how they bank and manage money. Every aspect of e-commerce, payments, or banking can now be accessed from a central device that most consumers have in their pockets. Despite their reputations, financial institutions can still adapt to the changing times by making simple cost-effective improvements to their technology infrastructure.

The days of balancing a checkbook, now thought to be something your parents did, are quickly becoming a thing of the past. Technology is eating the world. Can’t wait to see what happens next.

The Battle for the Mobile Payments Space

The battle for the mobile payments space is a complex one involving a number of participants and interests. What we are seeing here is not just the expansion of the payments ecosystem, but the creation of a new one that opens the door for innovation and disruption. With so much at play, the very nature of the mobile payments ecosystem makes it impossible to be a zero-sum game. But why hasn’t a clear market leader emerged yet? Let’s take a look at the various players in the ecosystem and the expectations of the consumers and merchants who will drive mobile payments adoption.

The largest players in the mobile payments space are Apple, Google, and Samsung. Alternatively, stakeholders are parties who have a particular interest or need in the mobile payments space. Each of the players caters to one or more stakeholders. They include payment enablers, banks, card gateways, card networks, and consumer experience enhancers, but the most important stakeholders in the battle for the mobile payments space are the consumers and merchants.

What Do Consumers Want?

Consumers are looking for a payment experience that is ubiquitous and secure. They want a simple and seamless payment experience that covers offline commerce, online commerce, and P2P payments. A mobile payment platform must be able to accommodate all major credit cards, store cards, and rewards cards as consumers will be hesitant to adopt a platform that fragments their physical wallet.  Currently, none of the mobile payment platforms on the market are comprehensive enough to convince consumers to alter their payment habits. The lack of a platform that is universally accepted by merchants and retailers also contributes to low consumer adoption rates.

Consumers also want a context-aware payment experience. They might be more inclined to use a platform intelligent enough to suggest the most optimal rewards and payment methods available to them as they shop. However, richer shopping experiences will require richer consumer data collection; adoption might be influenced by security offered around personal information, and to an extent, the level of anonymity possible on a platform, as consumers will seek enhanced privacy as they consider various mobile payment platforms.  With an expected boom in connected devices and the emergence of richer shopping experiences facilitated by virtual reality technologies, the need for ubiquitous payments could become far more compelling in the long run.

What Do Merchants Want?

Retailers in the US are losing upwards of $30 billion every year in fraudulent charges. About 5 cents for every $100 card charges worldwide are fraudulent. Security and privacy are top concerns for merchants, especially as the payments landscape changes to include new digital alternatives. Widespread consumer adoption of mobile payment platforms that utilize biometric authentication may help reduce fraud, potentially saving businesses millions over time. A seamless, safe, and secure payment experience would boost consumer adoption and possibly sales.

However, upgrading payment terminals or software to accept mobile payments is expensive for merchants. For most, mobile payment platforms have not offered enough of a benefit to justify the costs thus far. Merchants may be more receptive to mobile payment platforms that facilitate a richer customer experience through loyalty and reward programs. Starbucks, for example, has seen significant success by integrating in-store rewards with its mobile app and partnering with service providers like Lyft to offer expanded loyalty programs – one in every five Starbucks transactions in the United States is now completed through the mobile app. Moreover, Taco Bell’s mobile app success shows that consumers who pay via mobile spend an average of 17 percent more than those who pay otherwise. Merchants need a mobile payment platform that helps create and capture those additional sales opportunities while providing customers with an enhanced shopping experience.

What’s in Store?

With Microsoft’s Hello and Passport services, Android’s native support for fingerprint ID, and Apple possibly adding Touch ID to the MacBook, payment platforms could enhance transaction security by leveraging built-in biometric authentication features. As consumers become accustomed to these new technologies, they will likely become more comfortable utilizing mobile payment platforms as well.

Cross-platform interoperability would likely encourage mobile payment adoption, but the various platforms would have to open up to each other in order to offer a truly seamless consumer experience. As the technology becomes more sophisticated, mobile payments may also open up new opportunities in the P2P payment space. Depending on market developments, which could occur at a rapid pace, merchants could be forced to address changing payment needs sooner rather than later.

From a consumer standpoint, however, there is still little reason beyond convenience to adopt a mobile payments platform. The fragmented nature of the ecosystem also contributes to low adoption rates. Customer satisfaction will have to be a major focus for those looking to dominate the mobile payments space and players will have to offer more than just ease of use to convince consumers to change their payment habits. Furthermore, a lack of merchant acceptance and the inability to load certain credit or debit cards can negatively impact user experience. Currently, none of the top players in the space – Apple Pay, Samsung Pay, or Android Pay – have been able to attract significant consumer attention and encourage mass adoption.

What Does All This Mean? 

A healthy mobile payments ecosystem is one that provides ample opportunity for all stakeholders to innovate and succeed. Players and stakeholders have not fostered such an environment at this point. A healthy ecosystem will require players to establish themselves as leaders in the market by encouraging consumer adoption, merchant cooperation, and interoperability with other players and stakeholders in the space. In the current market, no single player fulfills this role.

What all this means is that it is not really about mobile payments as much as it is about ubiquitous payments. It is about empowering the consumer rather than making data points out of them and providing value beyond pure convenience. Consumers are waiting, and adoption will be low until needs are met. The various market participants must acknowledge the fact that the whole is greater than the sum of the parts. They need to align better with each other to deliver a richer, more complete, and fulfilling consumer experience; doing so would foster much-needed cohesion within the mobile payments space and ultimately convince consumers to ditch their physical wallets for good.

Reflections on the Windy City Summit Conference

This past May I delivered a presentation called Cash Flow and Your Payment Strategy to an audience of treasury and cash management professionals on the final day of the Windy City Summit Conference. For the past thirty years, financial service professionals from across the country have been traveling to Chicago for 3 ½ days of sessions on liquidity, asset management, risk and compliance, forecasting, and cash flow management. Many attendees are certified cash managers and this conference provides the courses required to maintain their certification.

Surprisingly, my session on Friday morning at 8:30 am was well attended. Usually by the last day of the conference, attendance is lower than the previous days; however, a number of attendees entered the presentation room ready to learn about implementing a payment strategy to deliver cash flow results. So many thoughts were going through my head the morning of the presentation, and there was one thing I failed to plan for: I left my laptop at the hotel. Without my presentation, I had to make some quick decisions about what to do.

I decided to turn what would have been a presentation into an interactive discussion and get input from the audience about the key opportunities and challenges around cash flow management. I asked questions about their jobs, the cash flow strategies employed, their budget processes and procedures followed to solicit help from their organization around the yearly planning and budget process.

Through this interaction, it was obvious that many organizations conduct their annual planning process in silos, with little input across the functional team. I provided some real examples of how some organizations manage their budget reviews by getting all stakeholders in a “virtual room” to ensure everyone is fully aware of both the dollars budgeted and the strategies being employed to achieve their respective goals. Attendees acknowledged the challenges within their organizations and were open to making changes based on our discussion.

The goal of the presentation was to provide cash and treasury managers the objectives to increase revenues, reduce costs, accelerate product development, improve time to market, and increase business agility. The mechanics used to develop a cash flow module was out of the scope of the presentation. The real focus was on helping the attendees gain an understanding of how to build a comprehensive payment strategy. The numbers are important, but failing to implement a strategy to drive the numbers could result in a massive misalignment and increase the risk of missing the budget the following year.

Automation is one key to improving cash flow. A number of companies have implemented digital solutions to accelerate cash flow and automate payments.  I presented the audience with several examples of companies that have documented the benefits achieved when their customers migrated from check to digital remittance after implementing an electronic bill presentment and payment (EBPP) solution.

Many healthcare companies have implemented a patient portal solution to capture payments at the point of service or accept payments post service via an online portal. Electronic payment services allow healthcare providers to offer patients multiple payment options that can increase the likelihood of them getting paid for their services post care.

There are many examples of how updates in technology infrastructure can help businesses across various industries accelerate cash flow. Despite the cost to implement, improved payment rates and increased operational efficiencies provide businesses with significant returns on investment over time.

Banks and the Blockchain

Blockchain technology is a promising concept that holds exciting potential for the financial services industry and others. The most commonly known example of blockchain technology is Bitcoin, which utilizes a blockchain network for cryptocurrency exchanges. Although Bitcoin has thus far failed to go mainstream among consumers, its underlying technology is particularly useful for banks.

According to Wall Street Journal, “a blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers.” Authorized participants of a private blockchain network would be able to manipulate the structure by adding additional data blocks to the “chain” without the involvement of a central verifying entity. Instead, each participant would compare new information to previously recorded data for verification within minutes, with a majority consensus needed among participants for a new transaction to be approved and subsequently added to the chain. Although a blockchain network is decentralized in nature, banks can apply the concept in restricted environments for various internal purposes.

Financial institutions can improve the processing of cross-border payments, for example, with the proper implementation of blockchain technology. Cross-border payments are currently made possible through a number of correspondent banking arrangements that allow for inter-bank processing, and vast arrangements are necessary in order to provide adequate geographical coverage. Any number of intermediaries may be involved, with additional costs and processing times associated with each of them.

Manual intervention is often necessary to correct and properly execute incorrect transactions, further contributing to delays. Not only are these banking arrangements inefficient, but they also present major traceability issues and hinder banks from providing payment services on par with those offered at a domestic level. A lack of transparency and unexpected posting delays could also affect the financial liquidity of corporate clients and put them at risk.

Blockchain could mitigate these complications by introducing automation at an inter- and intra-bank level. It would eliminate the need for intermediaries who drive up costs and processing times, helping banks save money while improving straight-through-processing (STP) rates. Banks would then be able to pass these increased efficiencies and cost savings onto consumers and businesses by offering them faster service at reduced costs.

By utilizing blockchain technology to improve P2P remittances, for example, banks can appeal to and capture demographics that currently use third-party money transfer services to send money to family members abroad. Blockchain could also solve payment tracking issues as its very nature allows for improved traceability, creating additional value that can again be passed along to consumers.

Compliance with anti-money laundering (AML) requirements is another concern that could be addressed and possibly resolved using a decentralized ledger. Global spending on AML compliance was estimated to total nearly $10 billion in 2014. A blockchain network could enable banks to feed data related to restricted parties and suspicious AML activity and share it with other participating banks. Through this kind of data-sharing model, banks could significantly improve internal processes around AML, fraud, and risk management. With the continued rise in regulatory pressures, investment in technology infrastructure that protects against fraud and mitigates risk may be a far more cost-effective course of action.

Due to the inherently decentralized nature of a blockchain network, financial institutions are often hesitant to explore or simply unaware of the potential internal applications of the technology; however, blockchain may eventually prove to be instrumental in helping banks introduce speed, automation, and integration into processes that are quickly becoming outdated. Furthermore, cooperation between banks to establish a shared network- such as the efforts underway by technology company R3 and some of the largest banks in the industry – could present new opportunities to monetize.

Faster and more efficient processing would enable financial institutions to reduce operational costs, streamline payment processing, and minimize the need for additional checks and balances. Although it is too soon to determine whether or not blockchain will truly transform the financial services landscape as a whole, early adopters and those who are quickest to adjust to any changes it brings are likely to gain a competitive advantage going forward.

Healthcare Revenue Optimization 101

The healthcare ecosystem has evolved considerably in the last six years, since the inception of the Affordable Care Act.  Self-pay revenues and declines in insurance reimbursements for providers have become a lot more prominent in today’s healthcare environment. However, bad debt continues to escalate for healthcare providers as more consumers are now responsible for larger self-pay portions of their medical bills. This situation leaves diminishing profits for the provider and has a direct impact on their viability.

Many physicians focus on building their practice by maintaining patient ratios and providing optimal care for their patients. As the medical industry expands, physicians must also focus on maximizing patient care, delivering care in innovative ways, and shaping the industry’s future.  At the same time, healthcare is a business and physicians must ensure cash flowing into the practice is greater than the expenses to maintain it.

From the practice management side, maintaining cash flow, reducing DSO, decreasing operating costs, reducing bad debt, and building patient relationships are the lifeblood of a practice. Does this mean a physician also has to have an M.B.A. along with their medical degree to be successful? Absolutely not; however, healthcare is and will continue to be a business, making sound financial standing an integral component of a successful practice.

Healthcare providers look to the financial services industry to help them build momentum and stay afloat. For many providers, their banker is part of the business management team. Furthermore, practice management vendors, business consultants, accountants and others all have their own objectives in working with the provider. This could be confusing for healthcare providers because business management 101 probably was not a required course in medical school training.

A key problem with healthcare banking is that banks have many silos that do not work together to provide a comprehensive bank product for providers. For example, the departments or divisions that lend to physicians have little interaction with the treasury side of the bank that can help providers improve their payments through products such as ACH, Patient Receivable Solutions, Lockbox, etc.

In contrast, an integrated approach can help providers improve cash flow through an infusion of capital, and simultaneously reduce expenses through financial products and services. Banks want to be in the space of offering free consulting to the provider so they can purchase their products and services. For example, the Citizens Bank’s Healthcare Solutions web page not only identifies a host of products aimed at the healthcare community but also offers free consulting advice about key points to consider when evaluating a potential financial partner. This consultative approach has much more value and can save the provider from the brink of financial collapse.

It makes more sense for a bank to not only lend money to a provider but also work with them to implement products that will improve operating efficiencies and reduce costs. Improving bad debt through revenue cycle management is an effective approach to help providers maintain good financial health. Automating patient payment collections can also reduce margins and improve cash flow.

Over the next few years, the financial service industry will likely focus on marketing a host of services to physicians to help them improve the business of healthcare.  Payment automation has already been successful in many other industries including utilities, government, education etc. Furthermore, check remittances continue to decrease as consumers migrate to digital channels— this trend is expected to significantly impact the healthcare industry as well.

For now, we will continue to watch an industry that should have embraced digital transformation years ago. Will healthcare providers be able to focus on the business side of their practices while offering optimal patient care? Time will only tell, but I am confident the industry will be affected by technological disruption and business consequences will mount.

Partnerships Between FinTech and Big Banks: The Lessons

The role of the FinTech startup is evolving in the current economic and technological climate. I recall not so long ago, banks would tell a startup company seeking a partnership to “return when you grow up.” Partnering with large global financial institutions was out of scope for startups at one time, but now, they are often invited to take a seat at the table and participate in discussions when banks seek technology solutions. What has changed?

A number of financial organizations are including technology startups in their partnership/vendor strategies. For example, MasterCard Worldwide is evolving from a marketing/branding company to a high-tech organization. The MasterCard StartPath ™ Program demonstrates their commitment to innovation through partnerships with early-stage startups to accelerate the future of eCommerce. The program continues to team the needs of startups with MasterCard to develop new products and solutions.

Citigroup recently launched a program in which a select group of FinTech startups compete to develop a specific product for the prize of becoming a Citigroup vendor. These types of programs targeting startups have become common among large organizations seeking to outsource technology and create product differentiation.

The real issue is the speed to market for product delivery. For several decades, I held various senior product management roles at global organizations. It was obvious that developing new products in-house could take years in some instances. A key challenge, within these organizations, is to win the competition for IT resources, which are shared services. The department with a big budget often wins the battle. But the challenge today is that the payment ecosystem has changed—the industry is faced with complexities around big data, Bitcoin, AliPay, faster payments, Same Day ACH, and so on. This contributes to a high level of disruption not previously seen in the payment industry. Banks cannot wait on the sidelines to see what new payment options will win the battle; they should be active participants for change.

Since identifying talent to bring in-house is no easy task, large organizations now incorporate partnerships with startups in their strategies. In 2016, we will begin to see more programs focusing on luring FinTech startups to the financial organization’s “table”. Competition will increase and venture capital investment will accelerate. Banks will need to understand that this is not a sprint-run but a marathon and continue to be cautious in aligning with partners for the long haul.

Both MasterCard and Citigroup have gained notable momentum around their partnerships with startups. These organizations have a low tolerance for risk and realize the industry is watching to see if these partnerships are successful. But there are already a number of valuable lessons here: more and more opportunities exist for the FinTech startup to make inroads in the financial payment industry through collaboration.

As a business development executive, I continue to partner with banks and FinTech companies as banks outsource technology-based products. Due diligence is an important step of the vendor introduction process. Common questions include: Who are your clients? What is your revenue over for the last three years? Who are the individuals on the management team? However, the questions will change as things continue to evolve.

I recall participating in meeting a few years back with a global bank. My client was a software company with great technology, though still in the startup phase. I felt the discussion was doomed from the start, but during the meeting, one of the senior executives told me the bank now has a strong appetite to work with startups. Although initially shocked, I soon began to expand my bank contact network.

Times are changing! How will the Bank/FinTech partnership continue to evolve? How can stakeholders participate in the change? What are the additional lessons we can learn from Citigroup and MasterCard Worldwide? Join the discussion below.

Banks Seek New Revenue Opportunities in Healthcare

Historically, one of the ways banks have made money is by lending and charging fees to their clients. This model has expanded in recent years as banks have partnered with healthcare clients to insert themselves in the revenue cycle management process. Meanwhile, the healthcare industry is undergoing consolidations as hospitals merge or go bankrupt. Positive cash flow continues to be a problem while services and liquidity are impacted by insurance reimbursement delays. The cost of healthcare is soaring, and for many, borrowing from banks to stay afloat is the only option.

Banks realize the challenges faced by the healthcare industry and in recent years have been offering additional services to provide automation and help providers to maintain a healthy revenue cycle. For example, some banks have formed new initiatives and divisions focusing on healthcare (i.e.: medical lending) and carved out new business units to target providers to improve their revenue cycle management.

However, healthcare is a new space for banks. Many banks are finding it beneficial to partner with payment technology companies with healthcare payment expertise to deliver these specialized services. Through an outsourced model, banks can leverage their technology partner’s high degree of technological skill, speed, and expertise to capture additional revenue. Moreover, a number of large Treasury Management banks are hiring experienced healthcare professionals to increase credibility within the industry and establish a leadership position, but many others are failing to evaluate the market opportunity and remain on the sidelines as a result.

While some banks have built successful business divisions around medical banking and have sizable loans on their books, bad debt is still one of the largest problems plaguing providers.  One reason why bad debt remains high in healthcare is that medical services are often completed before the provider is reimbursed. Furthermore, any amount that remains patient’s responsibility is usually delayed or becomes bad debt if not paid at the time of service.

I recall a conversation with a small two-doctor medical practice that had over $300,000 in outstanding collections, a significant amount for a small practice. While an extreme case, many healthcare providers are in similar situations. However, providers agree that the right patient payment product can help reduce bad debt. Below are some of the benefits of patient payment solution for a provider based on industry data:

  • Reduced costs

  • Lower days sales outstanding and improved cash flow

  • Enhanced customer service and improved customer retention

  • Streamlined financial processes including collection, payment and settlement

Access to an online payment portal gives patients more control over the payments process, allowing them to set up payments based on their own preferences until the debt is paid. This enables healthcare providers to better manage cash flow and collections. Banks also benefit by providing their healthcare clients with tools to improve overall business processes as it results in closer and stronger business relationships over time.

Healthcare will remain a strong focus for banks in 2016:

  • Banks will continue to expand solutions to develop deeper relationships with their healthcare clients.

  • The volume of payments made via digital channels will increase as patients migrate from paper to digital remittances.

  • Healthcare organizations will continue to invest in technology, resulting in greater opportunities to help clients improve cash flow.

  • Patients will have more control over their healthcare management, making it more challenging for providers to build relationships with them.

  • Out-of-pocket patient expenses will increase and providers will have to develop new ways to maintain revenues and decrease bad debt.

  • Vendors will compete with banks and build stronger relationships with their healthcare clients for patient payment portal solutions.

Although 2016 represents a period of growth and transformation for healthcare, it also presents challenges. Providers will have to identify opportunities to improve cash flow and insurance reimbursement management in order to stay liquid. Meanwhile, banks should continue to seek new ways to innovate and offer clients enhanced payments services. Outsourcing payments to an organization that is a strategic fit maintains high standards of quality, and consistently meets industry compliance standards is one route to achieving a long list of mutually-beneficial business objectives.

Healthcare Providers and the Changing Dynamics of Payments

This blog was edited in 2019 for content and clarity.

Consumerism, regulation, and an aging population all affect how healthcare providers operate their practices and how much they get paid. A major area of concern is the way providers receive payments from institutional organizations (such as the government) and their patients. There are many different variables that healthcare providers must consider as institutional and individual markets change. As providers face increasing administrative management needs, let’s examine some of the forces impacting payments and their potential effects.

Market forces, changing payment models, and digital transformation have been driving providers to collect more of their patient payments electronically.  As value-based payments push into the norm and replace fee-for-service models, ensuring payments are correct, timely, and properly distributed among organizations and networks is becoming even more important.

Modern compensation models require providers to deliver comprehensive service for a fixed amount, a marked shift from payment for individual services. This fixed sum is often split between multiple providers, and funds may come from multiple sources. With so many variables at play, the lack of a centralized electronic solution to help coordinate everything could put healthcare providers at a competitive disadvantage.

Healthcare providers must prepare for the accounting, payment collection, information collection, and consumer engagement necessary to stay connected and competitive. Proper preparation can help ensure that providers get paid for their services, create efficiencies that allow for better service, and provide the individual experience that healthcare consumers seek.

To increase efficiency, paper EOBs can be turned into electronic copies. Data files can also be captured, analyzed, and uploaded to the respective PAS/PMS. Healthcare providers will have to properly account for, analyze, and disperse any ERA information internally and to their institutional partners. Electronic payments can be re-associated to claims with the proper ACH CCD+ and vCard process. Providers can work with payers who have the infrastructure in place to receive files and process multi-payment type provider requests, whether developed internally or acquired through partnerships with strong vendors (the more likely scenario). This would give providers the option to make accounts receivable payments decisions based on cash flow and operational resource needs at any specific point in time.

The growth of consumer-directed healthcare, and the patient responsibility that comes with it, creates new pressure from both payers. Changes in consumer payments will force healthcare organizations to reevaluate how they work their revenue cycles. New forces will make it imperative for healthcare institutions to institute a new RCM process in order to keep costs in check and meet the needs of the new consumer. This includes further development of a data hub, as well as increased and improved integration between the clinical, administrative, and financial aspects of healthcare organizations.

This will also require further development, advancement, and use of technology—whether it be portal and API integration, telemedicine, specific applications designed to give providers the ability to work more efficiently within the confines of their structures, or mobile applications that allow consumers to access the healthcare system when, where, and how they prefer.

Where is the Innovation With Remote Banking and Bill Payment?

There was a time when the primary means of paying a bill was stuffing a check in an envelope and going to the mailbox.  We allowed a number of days before the payment due date and immediately adjusted our checkbook to reflect the disbursement.  Although this is still the practice for many, millions have opted out and changed their method of paying bills. The motivation to change behavior is attributed to convenience, saving time and reducing expense.

But remote banking and bill payment have made significant leaps over the years. I recall a time when customer service representatives handed out free floppy disks on the street corners of New York City to anyone who would accept them. Whether they had a computer or not, people grabbed these disks because they were free.  Armed with a computer and a modem, people could connect with their bank remotely to obtain information about their account balances and even pay bills.  Of course, this would be considered the early days and only a few billers were enabled to receive electronic remittances while the vast majority of payments were sent via check and list or separate checks representing a single payment.

I have been an eye-witness to the vast changes that took place in the electronic banking and bill payment space. The involvement of the Internet and higher modem speeds along with banks offering the service for free had a significant impact to adaption.  Banks got involved and provided incentives to their customers to use the product.  Comparing “free” with getting stamps and running to the post office is a no brainer. The volume spiked liked a hockey stick as banks found new ways to create stickiness and build customer retention. After all who really wants to change their bank and start setting up new payees somewhere else?

The expansion of electronic delivery channels for the bank customers resulted in larger profits for the bank. Whether they outsourced to a vendor like most or ran the application in-house, they figured out the economics to make money. However, even with all this effort and technological improvements, there remains an opportunity for banks to better manage the customer experience and expectations.

There was a time that a customer that use a remote banking and bill payment product did not know if the payment was sent via paper or through an electronic channel such as the ACH. That is not the case today. The informed customer knows the delivery channel of their payment. However, despite this, banks send a significant amount of payments via individual checks. Imagine that, I am paying a bill through my computer or mobile device and the provider is sending out the payment via a check. How innovative is that?

In my last blog post, I mentioned the recent NACHA Bill Payment and Exception Item Research that indicated the bill payment exception items costs the industry upwards of $800 million dollars annually. Although there are opportunities to enhance the current process and provide innovation, who is taking the lead? The consumer suffers because the payment is still being sent as a check, without the remittance stub someone at the biller location has to handle this as an exception payment. This is a manual process and can take time before the payment is posted.

I enjoy working on puzzles because they challenge my mind. The remote banking bill payment industry is a big puzzle and all the pieces include the names of the banks and the billers that have enhanced their systems to accept electronic payments.  But the puzzle is not complete because not all the pieces are available. Who really is concerned about the consumer experience? These pieces are missing.

When banks work to resolve the exception payments on their end, this could reduce their operating costs and perhaps free up funds to make additional enhancements to a system that has been absent of innovation. Furthermore, billers can challenge the industry to innovate as well, since their mutual customer is impacted. However, there are opportunities to innovate and the failure to make these improvements causes consumers to become more cynical, and they begin to wonder about the real value they are getting.

We are stakeholders and have to continue to monitor the industry and applaud the organizations that continue to make a difference for the customer.  We continue to hear fascinating news about MCX, Bitcoin, Allipay and the remote banking bill payment Industry exceptions items costs the industry upwards of $800 million dollars a year. Where is the innovation?