Bank Technology News  |  June 2008

By Glen Fest, Rebecca Sausner, Michael Sisk and Holly Sraeel

Print Email Reprints Feedback

In the most challenging economic environment since 2001, technology is once again showing the power of innovation to solve problems and find new routes to revenue. For the seventh year, Bank Technology News has scoured the landscape for such innovative companies, focusing on technology segments of greatest interest to bankers — and alerting execs to other segments worth closer attention.

Case in point is this year’s top company, mFoundry, which is blazing a trail in the mobile banking space. Of the 70 firms BTN named to the “Ten Technology Companies to Watch” ranking over the past seven years, only three — mFoundry, Harland and SAS — have made the cut twice, a fitting testimony to the intense creative forces in the industry.

To stay ahead of the competition, regulators and thieves, banks must monitor a breathtaking sweep of technology. This stark reality is manifest in this year’s ranking of the “10 Technology Companies to Watch,” which profiles firms involved in mobile banking, endpoint security, personal finance management, remote deposit capture, authentication, device recognition, supply chain finance, rights management and ACH. It’s an impressively wide spectrum, and a showcase of creative thinking dedicated to solving banking’s most critical issues.

MOBILE BANKING

mFoundry

STATUS: Private FOUNDED: 2004 CEO: Drew Sievers

BECAUSE: Indirect deployments through major network processing partners expands its horizons plus choices for smaller banks

CLIENTS: Citigroup, BB&T, IBC, Fidelity NIS, First Data Corp., ACI Worldwide, PayPal, Sprint, PSCU Financial Services

The early stages of mobile banking have been about platform choices with compromises. Besides selecting a module preference (Web-enabled, preloaded or downloadable apps or SMS text services), there remain artificial market barriers and “exclusives” that keep banking services out of the hands of customers who belong to the wrong carrier for a certain institution—or the wrong bank for a cell-phone customer.

That’s an equation mFoundry has been changing with its downloadable Spotlight Financial platform, ever since its splashy 2007 deal with Citigroup heralded a new market alternative for the open-ended, customizable solution. mFoundry’s strategy to engage banks, carriers and processing networks, and bring them the triple play of SMS, browsing and downloadable apps, such as through a complementary partnership with two-way mobile banking/SMS firm Clairmail, gives institution options on what level of services they deliver to customers.

In the coming year, CEO Drew Sievers expects more than 100 banks to adopt mFoundry’s platform through its sell-through engagements with partners like First Data and its STAR ATM network; PSCU Financial Services; Fidelity NIS; and ACI Worldwide—each now offering mobile banking and payments to a potential end-user base of thousands of regional and community institutions. “They have relationships with the banks, they don’t want to be disintermediated,” says Sievers. “If [resellers] can sell another product through an existing account, it’s a lot easier for them.”

mFoundry is also the engine for Sprint Nextel’s MyMoneyManager digital wallet for customers of multiple institutions (BB&T and IBC of Texas thus far). That service allows funds transfers through PayPal — another vital mFoundry partner and investor. The industry also awaits what comes of Citi’s JV on mobile consumer banking apps with SK Telecom, which includes mFoundry software among the development tools.

More than half of U.S. banks plan to adopt m-banking within two years, and vendor partnering is gaining momentum. Example: Monitise Americas was launched in late 2007 as a mobile banking/payments joint venture of UK’s Monitise and Metavante that could reach up to 2,200 Metavante clients. mFoundry leads the way in this “many to many” open strategy that is breaking down fragmentation, says research firm IDC. “In this sense, mFoundry has federated the mobile banking ecosystem for both financial institutions and carriers.” -GF

ENDPOINT SECURITY

Bit9

STATUS: Private FOUNDED: 2002 CEO: Patrick Morley

BECAUSE: Unauthorized software is wreaking havoc on organizations, so its enterprise whitelisting of millions of unique applications lets the good guys in, keeps the bad guys out.

PARTNERS: BigFix, McAfee, Kaspersky, Guidance Software

It’s no surprise that the use of unauthorized software has become the bane of CIOs’ existence. For the first time in history, more malware was created in 2007 than in all prior years combined. Whether criminal malware or peer-to-peer products innocently downloaded by employees, unauthorized software is wreaking havoc on organizations. Bit9’s endpoint security is working to change that through its enterprise application whitelisting, which determines what software and devices can operate on desktops and servers without relying on malware signatures or behavioral patterns.

Changing workplace dynamics—employees connecting iPods to the desktop or downloading corporate data onto USBs, for example—are a big reason that endpoint security is hot. “Application firewalls are critical, but a lot is getting through. The endpoints are touching so many different entities outside of the organization,” says Ben Rothke, a New York-based security consultant with 15 years of experience.

If financial institutions are to control endpoint security, then they must be able to define and enforce policies regarding which software and devices are acceptable to run on the desktop and servers. Bit9’s Parity product and Global Software Registry do just that, whitelisting millions of unique applications and centrally controlling what applications and devices are allowed to operate. “In three years, we’ve indexed 6.2 billion files, representing 10 million unique applications,” says Bit9’s Patrick Morley, president and CEO, of the firm’s Global Software Registry.

And while it only began shipping product in 2006, Bit9’s hit the radar of analysts—Gartner recently named the company as one of its “cool vendors” in an infrastructure protection report—and some of the financial industry’s biggest institutions. “They’ve definitely got a well architected solution that has been designed by people who know what they are doing,” says Rothke. “Bit9 has the engineering talent to bring the product down to earth, unlike other security companies with lofty offerings not tied to reality.” -HS

PERSONAL FINANCE MANAGEMENT

Mint

STATUS: Private FOUNDED: 2005 CEO: Aaron Patzer

BECAUSE: Mint marries the ease of online financial services with the utility of personal finance management software.

CLIENTS: 250,000 consumer users

The personal finance space has gotten crowded of late as many independent starts-ups look to stake a claim on turf that might seem the natural domain of banks. Of these newbies, Mint quickly has shown itself a force to be reckoned with. Within just nine months of its launch in September, the Web site had attracted 250,000 users and secured a second round of venture funding led by Benchmark Capital totaling $12 million.

The reason for the warm reception, says CEO Aaron Patzer, is that Mint is incredibly easy to use and — tellingly — “it doesn’t look like a banking site. It doesn’t ask you to balance your checkbook.” What it does do, with lots of graphs, is roll together a consumer’s checking, savings, credit cards, brokerage accounts and retirement accounts in just a few minutes. All the consumer needs is his or her user name and password from the other financial institutions (6,500 banks and credit unions have a relationship with Mint) and Mint can pull it all together in a few minutes.

The secure, read-only account then downloads data every evening. Consumers get a very detailed analysis with lots of brightly colored charts of their assets, debts and spending habits. They can set budget goals and track them. They can compare their spending to others. They can set various alerts, such as for large purchases, overdrafts, and various fees.

But the real hook, and the way Mint makes its own money, is to analyze spending habits and accounts and offer suggestions for ways to save, such as a better credit card rewards program based on spending and paying habits. Or, for example, if someone has money in a non-interest bearing checking account, the site might suggest a balance transfer to another institution, showing the exact dollar amount in interest to be gained given the consumer’s average balance. If Mint calculates a savings of $50 or more, an ad will pop up from that institution.

It’s perhaps not surprising that a business model that reveals fees and directs consumers to any financial institution with the best deal hasn’t caught on with banks, but banks should note that it’s catching on with consumers. -MS

REMOTE DEPOSIT CAPTURE

Digital Check

STATUS: Private FOUNDED: 1994 CEO: Thomas P. Anderson

BECAUSE: The small office/home office (SOHO) market is the next big thing for remote deposit capture.

CLIENTS: Synovus (RDC, Teller Capture)

With small business cresting as the next growth wave for remote capture, banks have to make its equipment and services affordable — while still making it worth the time for treasury services to support these potentially low-check volume candidates.

Chicago-area Digital Check is taking on the role of the interlocutor with its new line of ChexPress distributed capture single-feed scanners. Built with the SOHO in mind, the machines take up little desk space, perform complex tasks like double-MICR reads and franking, and most of all don’t require a $1,000-or-more outlay—all part of Digital Check’s outreach plans to offer affordable ($16-$25 a month finance options) RDC equipment and manage it on behalf of banks. The scanners have also drawn interest from the acquirer/ISO marketplace where merchants troll for lower-cost e-payment and truncation solutions.

The small-business RDC expansion, one few analysts thought would interest banks a year ago, could now be the central driver for new corporate customers and deposits given the current penetration of only about 250,000 devices. Research firm Aite Group projects that 32 percent of businesses would take up remote capture services from banks, if offered.

Digital Check’s in a red-hot market with some heady hardware competitors, including Panini North America and Epson. “They’re in the third generation coming down with those scanners,” says Dana Gould, senior research analyst for payments with Financial Insights. “The interesting thing is, the more complicated they’re getting, the price is [still] coming down.”

CEO Thomas Anderson, a former Navy lieutenant who has taken Digital Check away from its roots in the all-but-dead microfilm storage arena, says the ChexPress models and feature sets emanated from discussions over the past year with remote deposit capture scanner clients such as M&I Bank in Milwaukee and BMO Financial Group’s Harris Bank in Chicago. “They have tended to go after the easier, larger accounts in the beginning,” says Anderson. “Now, understanding the benefit of [RDC], they are looking at penetration into a new customer base... with their need for a lower-cost, higher functional unit.” -GF

AUTHENTICATION

Positive Networks

STATUS: Private FOUNDED: 2001 CEO: Timothy Sutton

EMPLOYEES: 50

BECAUSE: They’re tweaking orthodoxy with a unique phone-based authentication product.

If your institution’s CEO has received an automated email from a customer, via Positive Networks, claiming “I Want My Phone Factor,” no doubt you’ve heard about the company’s unorthodox TV and Internet advertising campaign to draw attention to its phone authentication product. “The commercials suggest what you ought to do is tell your bank to add phone factor, then you’ll actually be safe,” says Evan Conway, evp of communications at Positive Networks. Many people have sent the faxes, he says, either because they’re interested in out-of-band 2FA, or “because everyone likes to be mad at their bank for one reason or another.”

Positive Networks came to be selling phone-based authentication in a roundabout way. The company has provided VPNs in a software-as-a-service model since 2001, but in working out ways to secure customer VPNs came to the idea of using a cell phone as the hardware mechanism. “It was such a completely obvious thing, why not just ring their phone?” Conway says.

So that’s exactly what PhoneFactor does. When a customer enters their username and password to an online banking site, PhoneFactor intercepts the signal and sends an encrypted message to the PhoneFactor voice response unit. The customers cell phone rings, and they’re asked to push a button or enter a code if they’d like to login. If not, some configurations allow users to immediately report fraud.

Conway is mum on banks currently using the technology, but says, “We’ve got a dozen bank clients, and of the bigger brands we’re probably in trial with half a dozen of the biggest brands in the country.”

Only about three percent of companies surveyed by Aberdeen Group use the phone for out-of-band authentication, with another three percent planning to deploy it in the next year. But, surprisingly, 14 percent of Aberdeen’s respondents said they’re currently evaluating it. “That’s pretty high, relative to all others,” says Derek Brink, vp and IT security research director at Aberdeen Group. -RS

DEVICE RECOGNITION

iovation

STATUS: Private FOUNDED: 2004 CEO: Greg Pierson

BECAUSE: Device reputation is an interesting piece of the authentication puzzle and likely to be added in one form or another by most banks.

CLIENTS: Obopay, PayByCash, online gaming and dating sites.

There aren’t a lot of niche players left in the online anti-fraud market—or at least not compared to two years ago, before the FFIEC frenzy. One of the coolest still standing is Portland, OR-based iovation, which conducts warp speed device recognition during online transactions and compares the device ID to the iovation reputation database in order to block transactions originating from devices with histories of fraud.

“We allow companies to identify and re-recognize devices; track their history of fraud and abuse; and provide the ability to share that with their peers without sharing any personally identifiable information,” says Scott Olson, director of marketing at iovation. “This allows you to catch more fraud, you’re able to see more quickly that this device didn’t look suspicious before, but now I know it has a history of chargebacks...”

iovation has 50 million device reputations in its database, processes more than two million reputation requests each day, and recently deposited $15 million in new venture capital funding—$10 million in funding from Intel Capital, and another $5 million from SAP Ventures and European Founders. That said, the company is still tiny, with just over 70 employees.

Part of the beauty of iovation’s Reputation Manager is that, like many leading anti-fraud solutions, it allows customers to draw on peers’ experiences with individuals or devices. The software-as-a-service is integrated into a company’s Web transaction server, and when a transaction request is being processed iovation “sends an answer back in milliseconds” says Olson.

Jon Erickson, a senior consultant at Forrester Research, created a case study with an iovation client, in this case a third-party card issuer. After looking at two years of data, Erickson found a total benefit of $8 million not lost to fraud, compared with a $1.4 million total investment. “That’s a pretty large gap between the cost and the benefit,” he notes. -RS

SUPPLY CHAIN FINANCE

Orbian

STATUS: Private FOUNDED: 1999 CEO: Thomas Dunn

BECAUSE: Supply chain finance frees up capital and increases liquidity even when global credit is tight.

INVESTORS: Benchmark Capital, J.A. Kinghorn Family Trust, Raglan Capital and Ritchie Capital.

Orbian Corp.’s success is proof positive that no matter how tough the economic environment, somebody’s always making hay. Orbian is a supply chain finance company whose Orbian System platform allows buyers and sellers to settle commercial trade transactions. In May the private company, founded by SAP and Citibank in 1999 and spun out in 2003, announced it had processed $22 billion of transactions for many of the world’s largest companies in the automotive, retail, aerospace and manufacturing industries.

But Orbian is more than a transparent platform where buyers and sellers transact. It’s also a funding operation. Keith Gilroy, Orbian’s vp of sales, explains that when a buyer commits to a purchase from a supplier on the Orbian System, Orbian can offer the supplier cash for those receivables at a slight discount. Typically a supplier gets 99 percent of its money upfront and non recourse from Orbian, instead of waiting weeks or months to get 100 percent directly from the buyer. Orbian makes this commitment knowing only the highest quality corporate credits, the Fortune 1000, are buyers on the system.

Orbian then securitizes these receivables, selling short-term bonds to investors that want exposure to Fortune 1000 companies. A benefit of the transaction, particularly in this day of tight credit, is it creates enormous liquidity for small suppliers by looking past their credit worthiness and instead focusing on a specific transaction and the promise to pay by larger, often much more credit-worthy buyers. Orbian also offers this as a white-label service that can be branded by financial institutions that want to offer such financing without setting up their own back offices.

Gilroy says that Orbian was a bit ahead of its time and had some lean years early on, but since 2005 volume on its platform and the amount of receivables bundled and sold has been growing 35 percent per annum. “When the corporate treasurers realize it doesn’t cost them a dime, the discussion gets going pretty fast.” -MS

RIGHTS MANAGEMENT

BeyondTrust

STATUS: Private FOUNDED: 2006 CEO: John Moyer

BECAUSE: Enterprises need to crack down on admin privileges and this is one of the most flexible ways to do so.

CLIENTS: Liberty Mutual, KPMG, Federal Home Loan Banks, U.S. Department of Defense.

Maintaining standard desktop configuration is a major compliance issue these days, and that’s just where Portsmouth, NH-based BeyondTrust finds its sweet spot. The company appears to be the only one offering enterprises the ability to create flexible application access policies, turning local admin users into least-privileged standard users who still have access to all their necessary applications.

It’s old news that by giving every end user admin rights banks expose themselves to malware installations, malicious tampering with security software, installation of unapproved software, and the compromise of corporate networks. Yet, many companies continue to operate this way. “It’s still a pretty big issue,” says Dan Blum, svp at the Burton Group. “I think in some ways the malware situation has gotten a little less obvious, you don’t have as many spreading worms and viruses causing mass infections, but you still have concerns with targeted malware.”

BeyondTrust’s flagship product, Privilege Manager, plugs directly into the Window’s security infrastructure, Group Policy. It is transparent to the end-user, without pop-ups or dialogue boxes, and supports Windows 2000, XP, Server 2003 and Windows Vista, the company says.

Not everything Microsoft says about security is the gold standard, but when the company said in an August 2007 press release that Privilege Manager, in combination with Windows Vista, were a “best of breed” solution to the least-privilege problem, the market seemed to agree. BeyondTrust’s enterprise customer base grew 43 percent last year to several hundred, about a quarter of which are financial services companies, says marketing director Scott McCarley.

“Organizations are moving more towards deploying locked down desktops than ever before,” Blum says. “I think the message has become that deploying a standard user rather than a local admin is one of the best security measures you could take.” -RS

REMOTE DEPOSIT CAPTURE

Mitek

STATUS: Public FOUNDED: 1985 CEO: James D. DeBello

REVENUE: $5.6 million (2007), $1.3 million 2Q2008

BECAUSE: Using a common cell-phone camera to snap and transmit a check image for deposit or billpay could be a great niche for mobile corporate clients.

CLIENTS: Georgian Bank, Atlanta (Pilot)

Mitek Systems has a potential reach that few other providers in remote capture imaging can match. How does 30 million endpoint devices sound?

Through its ImageNet Mobile Deposit platform, the image analytics/pattern recognition firm turns a two-megapixel cell phone camera into a distributed capture gadget that can photograph and transmit the image of a check for deposit or to pay a bill. Sounds far-fetched, considering truncation usually requires pricey, specialized scanners. But Mitek CEO James D. DeBello, a former Harvard defensive end who’s not easily deterred, has demonstrated to several now true believers since the product’s launch in January that it’s a viable and potentially profitable commercial-banking niche.

“We think banks can add this capability to their existing remote deposit capture infrastructure,” he says.

But who wants to take a picture of a check? Celent senior analyst Bob Meara says the product might appeal to mobile commercial clients like beer distributors, who handle dozens of daily COD checks on the road.

And how does it fit with the complicated image quality and control demands of truncation? “That was my first reaction,” admits Danny Jett, president of the Georgian Bank of Atlanta, where an inaugural internal pilot of the service is underway. “But look at what Mitek’s real claim to fame is — their recognition technology and their analytics. That brings a little more to bear there.”

DeBello, who joined Mitek in 2003, is betting on mobile deposit and expansion of wireless image recognition technology to turn around Mitek’s unprofitable status. And with a background that includes leading one of the first firms in developing wireless LANs in the ’90s (Solectek), observers say don’t bet against DeBello successfully tackling this concept.

“As they incorporate more of their analytics in this,” says Jett, “they’re going to have a potential blockbuster.” -GF

ACH

Pariter

STATUS: Joint Venture (Wells Fargo, Bank of America)

FOUNDED: 2008 CEO: Stephanie Sturgis-Griffin

BECAUSE: When two of the largest players in ACH transactions decide to pool their resources for their own “on-we” network, the rest of the industry takes notice.

CLIENTS: Wells Fargo, Bank of America

Stephanie Sturgis-Griffin gets to the point, because she knows what’s coming. When Wells Fargo and Bank of America, the two largest originators of automated clearing house transactions, form a joint venture combining their ACH operations, there are going to be questions.

“It’s very easy to get into lots of discussion and speculation, as has been created in the last week,” says Sturgis-Griffin, a Wells Fargo svp who’s been installed as CEO of the new venture called Pariter Solutions. “You have to be careful about getting a little bit too far ahead of yourself when you haven’t reached your first successful milestone.”

Her reticence to speculate hasn’t quelled industry buzz on what this game-changing move for the ACH industry means. With so much volume from both banks—about 2.5 billion in originations, and two billion receipts—leaving the Federal Reserve and the Clearing House Payments Co.’s EPN, the costs for everyone else may rise.

Pariter is also likely to pitch ACH processing to other high-volume players, so “it’s definitely going to impact the processing software providers,” says TowerGroup analyst Jennifer Roth. “And is Pariter going to become an ASP provider for [just] tier-1 top 100 banks on down, or is it the top 10 they’ll look at?”

Pariter will have offices in both San Francisco and Charlotte, NC, and bring much-needed cost efficiencies for both banks as they migrate to Wells’ scalable in-house ACH system. BofA is to go online in late 2009 and Wells Fargo following in 2010.

Roth points out the arrangement will also be a data goldmine for building risk management and market-trending metrics.

Maybe that raises questions about how Pariter would share that with two parents still warring on the retail side, but Sturgis-Griffin says she and her BofA-side cohort, COO Walter Taylor, aren’t looking that far ahead. -GF (c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved. http://www.banktechnews.com http://www.sourcemedia.com

 

(c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved. http://www.banktechnews.com http://www.sourcemedia.com

More articles in Bank Technology News

Subscribe to Bank Technology News