There is a sea change in payment processing, and it possesses all the attributes of an intriguing riddle.
It concerns Check 21, the legislation making it easier for banks to transfer check images electronically instead of physically transporting paper checks. It brought innovation into the payments system and enhanced its efficiency by eliminating some of the legal impediments to check truncation.
In the months preceding it, much speculation arose on the impact the law would have. A few implementations of image technology by early adopters appeared to foretell wide adoption by others. A deluge of Requests for Proposals, or RFPs, even emanated from banks that sought to image-enable their enterprise and gain the promised efficiencies. Technology vendors scrambled to respond to the deluge, some forecasting revenue windfalls as the opportunities moved toward fruition.
What happened next? Nothing. The much-heralded bonanza morphed into a series of pilot projects and proof-of-concept exercises. Murmurs of "yet another Y2K" emerged, an allusion to the Year 2000 computer bug that never occurred when clocks rolled over into 2000. With Check 21, the financial services industry appeared adrift in becalmed waters for a couple of years before, suddenly, awakening with a start and rapidly accelerating.
While attempting to explain past events and predict the future may be akin to "driving by looking in the rear-view mirror," a plausible solution exists to the mystery. We give credit to Geoffrey Moore and his theory of Technology Adoption Lifecycles which he terms "crossing the chasm." Moore is founder and chairman of TCG Advisors, a consultancy that provides marketing strategies and organizational services to many high-technology companies. Indeed the "chasm" theory is well known in Silicon Valley as a mantra for vendors of emerging technologies.
Moore believes a chasm exists between early adopters of new technology-its enthusiasts and visionaries -and the pragmatists he calls "the early majority." He envisions phases in technology adoption, with leading roles played by decision makers with vastly differing motivations. Moore argues that in the Early Market, decisions are made by visionaries prepared to take risks to achieve breakthroughs, while the pragmatists want proven solutions that are comprehensive and provided by stable suppliers that can support the product adequately.
The gulf between the two phases is crossed when many supporting pieces fall into place, such as industry standards, interoperability and a greater number of successful executions, thereby creating a "proven" base of adoption. The length of the chasm can vary widely by industry and extraneous factors.
It is interesting to examine the check-imaging industry in the context of the chasm model. The early years saw initial adoption of image technology as a substitute for microfilm, and then later to yield workflow efficiencies. The implementations largely were "spot solutions" addressing isolated parts of the value chain. Check 21 acted as an extraneous catalyst to activate significant interest in the possibilities of imaging. The interest, supported by an RFP torrent, extended outward from the traditional back office in two directions-to distributed capture at branches, ATMs and merchants and, even more so, to image exchange between banks.
Several factors explain why the expected momentum did not materialize. Among them: the lack of image-exchange standards; too little infrastructure to process received images; challenges associated with integrating the new distributed capture technology with legacy systems; and the politics of transcending chasms of a different sort - "turfdoms" within financial institutions. Check imaging was stalled in a limbo of "one hand clapping."
While the industry was conquering the chasm, activity occurred on several fronts. Image-exchange standards were put in place, and financial institutions employed image technology, slowly at first, but with increasing momentum as the months passed. It is difficult to pinpoint a seminal event as the tipping point that jump-started check imaging again.
Arguably, a confluence of imaging infrastructure and technology price/ performance triggered the sudden advent of remote deposit capture-the capture of check deposits at merchant locations. Similarly, the presence of several image-exchange networks and of exchange standards also set image exchange on an exponential path upward. The RFPs from financial institutions are now geared toward enterprise implementations as opposed to the "perennial pilot."
So, what does this mean for the industry? If Moore's model is right, then the industry has moved into the Early Majority phase of rapid growth in adoption. The decision making has moved from the domain of the visionaries to that of the pragmatists. This implies that decision makers are seeking comprehensive solutions that address all their needs. The "whole solution," as Moore calls it, extends beyond technology-it includes a business model with efficient and effective service delivery and support. The pragmatist is interested in dealing with providers that offer solutions across the value chain and prefers to return to a trusted supplier. The pragmatist also is keenly interested in the supplier's fiscal stability, unwilling to take a risk with a financially vulnerable organization.
This does not mean, though, that a need no longer exists for innovation. Competitive pressures and the rapid evolution of technology will continue the inexorable demand for "better, faster, cheaper." This post-chasm phase requires a unique combination of innovation, scale and reliability. As if to answer Moore's paradigm, the check-imaging industry has consolidated, with large banking and payment solution providers making strategic acquisitions to field broad solutions.
Using the chasm model to peer into the future, ever-greater demand will emerge for proven, yet flexible, solutions that address broad needs and are backed by stable business models. But before heaving a sigh of relief that a perilous chasm has been crossed and the spoils will go to those who can best serve the pragmatists, keep in mind that this holds true only until the next disruptive innovation unleashes more uncertainty.
Vijay Balakrishnan is vp of strategic marketing at Metavante Corp.
