The financial software provider ACI Worldwide Inc. says it will rebuild its applications using technology from International Business Machines Corp. to make its retail and wholesale payments applications work together more effectively.
As part of an agreement the companies announced Monday, IBM of Armonk, N.Y., will supply people and technology to aid the effort and will host ACI’s applications in its data centers worldwide. It also is to get warrants to buy up to 8% of the New York software company’s outstanding shares.
Charles Linberg, ACI’s chief technology officer, said its ultimate goal is to use service-oriented architecture, or SOA, to integrate its wholesale payment systems, used for high-value wire transfers, with retail systems for processing credit and debit cards.
“This alliance enables us to accelerate that strategy,” Mr. Linberg said in an interview.
The first elements of the service-oriented payment systems will begin to come to market in 2008 and 2009, he said. An early priority will be to develop a wholesale payments hub that uses SOA, Mr. Linberg said. It already offers payment card-processing systems based on the technology.
The companies asserted that the $224 billion U.S. payments market is the nation’s third-largest, behind only commercial banking and telecommunications.
June Yee Felix, IBM’s general manager of banking solutions and strategy, said that SOA technology enables banks to avert the redundancies of siloed payment systems by sharing common functions, such as fraud scoring or the screening required by the Treasury Department’s office of foreign assets control.
“Customers can more easily use a single set of payment systems to support multiple business units,” she said.
Mr. Linberg said that banks today offer “in-line” fraud scoring for card transactions at the ATM or point of sale only 5% to 15% of the time but that ACI believes SOA can lift this to 80% and eventually to 100%.
The two companies have long worked together, with ACI’s applications running on IBM’s hardware, but this alliance will mean a deeper level of integration between their products, especially IBM’s Z series of data servers, Ms. Felix said.
Early target markets include emerging economies such as China, Korea, India, and Brazil, the executives said.
Red Gillen, a senior banking analyst at the Boston research and consulting firm Celent LLC, said the SOA approach could allow banks to pick and choose the payment services they offer.
For instance, if the bank was handling direct deposit for an employer who pays underbanked workers with prepaid debit cards, it could automate an employee’s remittance to another country as part of the same process.
“A piece of that payment could be split off and sent to Mom back in Mexico or wherever,” he said. “If you combine it with payroll, it becomes very sticky,” drawing the underbanked more fully into the financial system.
ACI announced the IBM alliance as it reported preliminary financial results for its fiscal fourth quarter, ended Sept. 30. It said it anticipated a pretax loss of $10.4 million but could not yet report net income because it is still resolving income tax issues that will delay the filing of its official results with regulators. Revenue fell 4%, to $84.7 million.
