2000 Meridien Research, Inc. All rights reserved, worldwideSpecial BriefFebruary, 2000

Top 10 Strategic IT Initiativesin e-Payment Services for the New Millennium

February, 2000 Special Research Brief - e-Payments Service

Dave Potterton, +1.617.796.2822dpotterton@meridien-research.com

Sarah Ablett, +1.617.796.2832sablett@meridien-research.com

OverviewUpon hearing the words e-payments, FSI business and IT professionals typically pause to ask, How do we facilitate the e-payment process while providing adequate security around it?. The answer is by no means clear and often leads to conflicts between security and usability. Complicating matters further for FSIs are the seemingly incompatible demands made by customers, internal business lines and the institutions own information security department. While striking a balance in this environment is not an easy task, success-ful and secure payment processes are being implemented. One need only look at the universe of escalating e-commerce numbers to recognize the fact that although e-payments are still in their infancy, there is more than enough momentum and money on hand to drive them to maturity.

Against this backdrop, we provide our list of the top ten strategic e-payment initiatives. Some of these efforts reflect the front-end evolution underway, while others are infrastructure changes necessary for con-tinued e-commerce growth. As a group, however, they reflect both the promise and challenge of e-pay-ments as we begin the new millennium.

Table 1: Top 10 Strategic IT Initiatives for e-Payment Services

Rank Business Issue/Application

1 Electronic purchasing for business-to-business procurement through electronic catalogs, storefronts and auctions will accelerate. XML appears poised to be the technology driver in this space.

2 Technology enablers for fraud prevention and detection will become even more impor-tant as the volume of e-business accelerates.

3 FSIs will increasingly need to deal with issues concerning authentication and privacy from their wholesale and retail customer base.

4 Secure integration with back-office payment systems, whether in-house or out-sourced to ASPs, will need to be defined, refined and implemented.

5 Electronic bill presentment and payment (EBPP) will realize continued acceptance among consumers and corporations as FSIs step forward to facilitate the process.

6 Multi-application chip cards will make inroads as convenience and security become linked.

7 Electronic wallets will gain momentum from both merchants and card issuers.

8 Retail/Wholesale Convergence will continue as e-payment solutions are shared across the organization. This will become increasingly important as the use of on-line banking solu-tions increases within the consumer and corporate market segments.

9 Non-credit card payment mechanisms will increase in order to support e-commerce growth beyond the United States.

10 While still in its infancy, wireless payments have a future which cannot be denied.

Source: Meridien Research

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2000 Meridien Research, Inc. All rights reserved, worldwideSpecial BriefFebruary, 2000

We project that spending on strategic technology initiatives by wholesale and retail FSIs will expand from the normal 20% of IT spending to 27% to 30% during 2000 with total spending on e-payments initiatives approxi-mating US$5.60 billion in development activity. EBPP investment will continue to be a major area of concen-tration in addition to business-to-business e-procurement and security infrastructure. As with other investments, time to market becomes a critical differentiator for FSIs. This environment will, therefore, bene-fit ASPs that can provide integrated solutions in very aggressive timeframes along with the expertise to inte-grate to the FSIs middle and back-office systems. Increased levels of activity will also be found among middleware and integration providers who can provide the EAI to legacy payment systems in a secure manner. Other beneficiaries will include network security, infrastructure and legacy back-office payments vendors who understand the rapidly changing e-commerce landscape and issues surrounding e-payment activities.

Figure A summarizes our strategic spending estimates for e-payments by industry segments and geographic regions.

Looking Ahead - The Why Behind These Payment InitiativesTwo factors place e-payment evolution squarely on the shoulders of FSIs. The first involves issues of trust and security. FSIs are viewed as trusted third parties today and should look to extend that trust relationship within the new e-commerce marketplace. The second significant factor is that payments processing is a core compe-tency of FSIs (particularly banks) which should be fully exploited. As the Internet continues to blur the lines of delineation between competitors (whether inside or outside of the industry), FSI management needs to recog-nize the significant impact and opportunity for their respective business strategies. Management also needs to ensure that internal organizational and line of business issues are resolved in order to extend any new solutions to the entire range of customer segments. Secure payment processes, which are necessary to sustain the contin-ued expansion of e-commerce activities among corporations and consumers, present the perfect opportunity for FSIs to leverage their competitive advantage. It is from this perspective that wholesale and retail financial institutions should review the why of their current strategic initiatives to ensure they are assuming a leader-ship role in e-payment development. The winners will be those financial institutions who invest in strategic e-payment technologies over the next 12-24 months to support the continuing growth of e-commerce. In addi-tion to FSIs, beneficiaries of these efforts will include consulting and integration firms who possess a knowl-edge of security and payments implementations across increasingly complex internal environments of multiple customer segments, business lines and channels.

Figure A: Strategic IT Spending for e-Payments (2000)

Source: Meridien Research Estimates

Total = US$5.60 bil l ion

Other FSIs

1 %

Banks

59%

Non-FSIs

40%

Total = US$5.60 bil l ion

Europe

39%

Other

3 %

North

America

46%

Asia Pacific

12%