CheckFree Corp. has provided additional details about how it plans to integrate Carreker Corp., including expanding Carreker's consulting operations and naming its chief executive a vice chairman of the Atlanta bill-payment provider.
CheckFree purchased Carreker, a Dallas payment software vendor that also had a small consulting unit, on Monday, and has named John D. "Denny" Carreker, the chairman and CEO of the company his father helped found in 1978, as CheckFree's vice chairman of strategic payment initiatives. Related Links
CheckFree is known mainly for its dominance in bill payment, but it has bigger ambitions, which rest largely on the Carreker acquisition and a pending deal to acquire the online banking software vendor Corillian Corp.
"We've been a little more reactionary than innovative," Mr. McCoy said in an interview Monday. "We want to be much more consultative than we have been. Carreker's expertise in business process consultancy give us a very nice suite of consulting services that we think the banks will be interested in."
Of course, CheckFree also has designs for Carreker's software. CheckFree says it supplies ACH software to 43 of the top 50 U.S. banking companies; Carreker has said that its check processing software is in place at all of the top 20 U.S. banks, 75 of the next 100, and many smaller financial companies.
Mr. McCoy outlined a series of projects that CheckFree plans to tackle in the next six to 12 months to incorporate Carreker's check processing systems with CheckFree's software for automated clearing house processing. Mr. McCoy called the linking of the two types of payments technologies "pragmatic convergence."
Mr. Carreker elaborated, saying that banks have only begun to grapple with the issues that result from the growing number of checks that are converted to ACH transactions. For example, exception items and adjustments for checks that become electronic payments can be very tricky, and often require new procedures.
Though check conversion can reduce costs, it also opens the door to new types of risk, and both these factors have banks rethinking their payments strategies. "Mitigation of risk is a very pragmatic thing. Least cost routing is a very pragmatic thing," Mr. Carreker said, and "each bank will have a different journey."
CheckFree spent $206 million for Carreker. It expects to close the $245 million deal for Corillian, of Hillsboro, Ore., on June 1.
Those deals are part of a wave of transactions that are likely to reshape the payments technology market this year. On Monday, First Data Corp. announced it was being sold to the private-equity company Kohlberg Kravis Roberts & Co. for about $29 billion, and the next day the Milwaukee banking company Marshall & Ilsley Corp. announced it planned a $4.25 billion spinoff of Metavante Corp.
Mr. McCoy said CheckFree is especially eager to link Carreker's software for processing checks and check images with CheckFree's ACH systems.
"Capture is a hot space," Mr. McCoy said. He noted that banks are capturing check images not only in item processing centers, but increasingly in branches, at automated teller machines, and at their business customers' offices.
"You're going to see a lot of emphasis on capture from the combined company," he said.
In the next few months CheckFree plans to introduce a system to maintain an "all transactions file" to catch duplicate payments and fraudulent items that may show up as both check and ACH.
"Checks have always had very specialized risk systems, very sophisticated systems for check fraud identification and prevention," Mr. McCoy said. CheckFree will turn Carreker's risk-mitigation system into a "cross-silo risk-mitigation system" that will be ready in three months, he said.
Within six months, Mr. McCoy said, CheckFree plans to have a "payment portal" offering that will target banks' corporate customers. "Their demands are increasing at a rapid rate," he said.
Companies that have seen the impact of remote capture and check conversion systems are demanding faster clearing, more sophisticated information reporting, and better integration with their corporate cash management systems.
"The industry will drive least cost routing for payments and receivables. Their corporates will insist that their banks serve them well," Mr. McCoy said. "We'll be about solving that pain and aiding the banks."
Colin Kerr, an analyst at TowerGroup of Needham, Mass., an independent research group owned by MasterCard Inc., said CheckFree's strategy of converging payments software rather than pushing for replacement "is the right approach."
Payment processing is too essential to banks' operations to rip out existing systems, Mr. Kerr said. "The idea is to put some building blocks in place that you can build out over time, rather than continuing to build in silos or doing a complete re-engineering effort all at once, which really isn't feasible."
He pointed out that companies such as International Business Machines Corp. and Unisys Corp. also are promoting integration frameworks for payments, but the general-market vendors want to overlay a services-oriented architecture on existing technology rather than the bottom-up integration of specific banking applications, as CheckFree plans.
"They're all thinking along the same lines," Mr. Kerr said. "I'd say no one vendor has all the pieces."
Carreker's consulting services could be critical, he said. "If this is the new way of doing business, by definition they're going to have to be more proactive and consultative in their approach. The first key is understanding the problem the customer has."
