Technology companies have always faced keen pressure to deliver the next best thing while fending off stiff competition. The current market's no different. But What's new is the far-reaching security dialogue that's now touching all corners of the financial world. Because What good is a promising payments platform if it's vulnerable to attack?
That said, Not every firm on this year's list is a security company. The breadth of the ranking's Information technology firms is as wide as their wares-everything from smart software that makes it easier to obtain a loan to a platform that speeds entry into the health-savings accounts business.
In 2005, the 10 technology companies to watch are safenet, fiserv, wholesecurity, pay by touch, efunds, celequest, ellie mae, harland financial solutions, messagegate and baker hill. When it comes to technology innovation, necessity continues to be the mother of invention.
(ONE)
SAFENET
Anthony Caputo, CEO
Industry: Information Security
Product: Security Toolkits
Status: Publicly traded (Nasdaq: SFNT)
Businesses have been worried about security for Years, but that Fear casts a much darker shadow today, with the news more dire than ever on fronts that are global, domestic, traditional and, of course, electronic-all creating a special demand for firms that sell security.
And while SafeNet's been in the safety business for more than 20 years, its line of business has never been hotter than right now. Revenues for the first quarter increased nearly 150 percent-or nearly $60 million, compared to $24 million during the same period last year.
Much of that growth has come from a series of new products and customers, including work for the Department of Defense, which signed a contract with the firm for delivery of the Enhanced Crypto Card; and Tally Solutions, India's largest business-accounting software firm. In the financial services sector, Fifth Third turned to SafeNet to provide encryption technology for the institution's banking, investment and electronic payment services. SafeNet's clients also include Bank of America, Cisco and the Department of Homeland Security.
Jason Leupeen, vp of intranet network architecture for Fifth Third, says that, like most institutions, customer data is paramount, as is providing protection and security. "The encryption is a key component," he says. "We've used the SafeNet encryption hardware as a solution to provide customer protection wherever we can."
In the past year, SafeNet has expanded its QuickSec products, which are a key component of its systems for VPN, firewall and intrusion prevention. It has also introduced its borderless security platform, a new approach to information security that combines authentication, authorization and confidentiality wrapped in a management system that enables granular authentication of applications, files and networks.
The firm's strategy is one that suggests the best way to fight advanced criminal activity is with equally advanced innovation. "The threat is getting more sophisticated for sure," says Chris Fedde, svp and general manager of SafeNet's enterprise security division. "We're used to that, because the government is part of our vertical." And Fedde says nearly every phone call brings a request for information about SafeNet's ID theft prevention technology. - John Adams
(TWO)
FISERV
Leslie M. Muma, CEO
Industry: Business Software and Services
Product: Premier HSA
Status: Publicly traded (Nasdaq: FISV)
It's not very often that a new line of business pops up for banks with the potential to yield hundreds of millions of dollars in deposits.
Rarer still is such a product that does not merely shift money from some other account in the bank, but actually comes out of another industry's pockets. That seems to be the promise of health savings accounts, which first appeared in early 2004, and effectively allow consumers to shift some of the money spent on insurance premiums to tax-advantaged, lifetime healthcare accounts that can be invested in a variety of ways. It's a burgeoning area that Fiserv is jumping into with both feet, working to blend its banking functionality with the operating units of Fiserv Health, which last year handled $6 billion of payments to healthcare providers and patients.
According to Forrester Research, based in Cambridge, MA, there were roughly 391,000 HSAs as of March 2005. That number is expected to explode to 6.3 million accounts by 2008. By 2012, Forrester estimates that assets will reach $35 billion, from just $173 million in 2005, and total fees will total about $1 billion.
Jim Sizemore, CIO of Information Technology Inc., a subsidiary of Fiserv, says blending consumer access to their HSAs, which might be invested in an equity mutual fund, along with healthcare payments and proper tax reporting is no small task. Its Premier HSA is intended to get banks up and running quickly. Sizemore says that features include deposit account tracking and reporting, debit-card access and card ordering, tax reporting, direct-deposit capabilities and automatic ACH access.
But to hear Sizemore tell it, the future does not necessarily end with these banking functions. Through Fiserv Health, the company will build a database of valuable healthcare information, where certain services are available, for instance, and the corresponding price levels. Why would all this information interest consumers?
The advent of HSAs means consumers will be spending more of their own money on health care since HSAs are opened in conjunction with a high-deductible healthcare plan. If their blood tests are going to a lab, why not send it to the lab with the best rates? - Michael Sisk
(THREE)
WHOLESECURITY
J. Peter Selda, CEO
Industry: IT Security
Product: Confidence Online
Status: Private
Crimeware attacks, whether they are worms, Trojan horses, spyware or phishing, are not only occurring more frequently, they also are more targeted. In such a security environment, standard virus protections are becoming less and less useful. Why is that? Because traditionally to stop a virus, that virus must be identified, a signature devised, and that signature sent to all the companies using that particular virus-protection product. Pretty slow going, really, and not much use if a hacker is targeting one particular company.
That's where WholeSecurity's technology comes into play. Instead of identifying malicious code or a phishing site by a signature, it identifies the problem by behavior. "Trojan horses and keystrokers will never have a signature," says J.T. Keating, vp of marketing. "They are targeted at individuals or companies and they will never be widespread enough for antivirus companies to catch and give it a signature. Our core strength is to accurately detect malicious attacks by behavior instead of a signature."
About 50 percent of WholeSecurity's 100 clients are in the financial services arena. They include Deutsche Bank, Visa, Comerica, Ameritrade, Raymond James, and Anheuser Busch Employee Credit Union. No less a heavyweight than eBay has tapped WholeSecurity for its anti-phishing capabilities. Investors include New Enterprise Associates, Venrock Associates, Trellis Partners and Parker Price Venture Capital.
"We can provide zero-hour protection against unknown threats," says Keating. What's more, WholeSecurity can quickly verify the security of unknown computers trying to access the network. This is absolutely essential for managing a mobile workforce that could be working from a hotel or a business partner's office.
Among the red flags, says CEO J. Peter Selda, is a program logging keystrokes, or stealing screen captures, or written in a suspicious code, or asking for Social Security numbers, or originating from a foreign ISP. "I don't think bank robbers stop robbing banks," Selda says, "and in the future robberies will be more sophisticated and will happen more quickly. You want to prevent it, but you also have to acknowledge it will happen-to go after them when the attacks occur." - Micheal Sisk
(FOUR)
PAY BY TOUCH
John Rogers, CEO
Industry: Biometric Payments Processing
Product: Pay By Touch
Status: Private
Call John Morris crazy, but he thinks people are clamoring to get fingerprinted.
In the grocery and convenience stores where the president and COO of San Francisco-based Pay By Touch has seen the rollout of his firm's finger-scanning payment system, Morris insists people are enamored with the chance to buy stuff with their index finger.
"Not just 25-year-olds with Blackberrys on their belt," said Morris. "It's very much across all demographics. It's busy working moms, it's retired people. We've got surfers in Kiawah Island [SC] near the Piggly Wiggly locations, who like coming into the store with a bathing suit and not having to carry a wallet."
Morris thinks banking customers will want the same opportunity and has opened "very productive discussions" with institutions that may announce deals this summer or fall. "We're talking to them as card issuers, ...[and] we're talking to them as acquirers," working with commercial customers to offer biometric payments, says Morris, a former IBM executive who joined the biometrics firm in May. A national retail agreement is also in the works, he says.
The current rate of the financial industry's adoption of biometric payment solutions-near zero-has kept finger, face-pattern, iris-scan and voice-recognition payment tools in the sci-fi realm. Another hindrance is the biometric industry's lack of open architecture for compatible hardware standards, even though the marketplace has pushed the field toward finger-scanning technology. The retail POS footprint being laid out by Pay By Touch and Herndon, VA-based BioPay is showcasing enhancements to biometrics to improve its chances of widespread adoption, such as tighter account security for customers and validation/identification services for merchants wanting to cut down on fraud.
Although rollouts at regional grocery store chains like Piggly Wiggly and Cubs Foods is Pay By Touch's bread and butter, the company has also focused on building a presence for online PIN-debit purchases through the November 2004 acquisition of ATM Direct. It also owns the iPay payments processing system for retailers and banks.
Pay By Touch was formed in 2003, after retail payment processor Solidus Networks purchased Indivos, the developer of the PBT system. - Glen Fest
(FIVE)
eFUNDS
Paul F. Walsh, CEO
Industry: Risk Management, Payments, Verification, Outsourcing
Product: eFunds
Status: Publicly traded (NYSE: EFD)
Three years ago, one complaint about eFunds was the transaction processor didn't know what it wanted to be.
Was it a software company, an ATM network or a debit firm? A check verification provider, or a call center outsourcer? And what's up with wanting to expand its government funds transfer business, just a year after wanting to get out of it?
Enter Paul Walsh, the new chairman and CEO who established a new priority for the Scottsdale, AZ firm under an SEC investigation and facing competitive duress in its high-profile ATM business. "The first thing he focused on was to make sure we had control," says Tommy Andrews, svp of corporate development. "That we understand and can measure our business, and understand the performance of our businesses."
Since 2002, that business has rapidly transformed eFunds, which now hones in on higher-return lines of activities like risk management, fraud prevention, compliance, and even prepaid solutions for high-transaction-volume financial institutions. The company's electronic funds-processing business remains a core asset, but only after the consolidation of its three payment systems and the sell-off of its ATM deployment network-one that formerly had the distinction of being the largest in the country, but was now bringing in less than half a million dollars in quarterly income. At the same time, eFunds' electronic payments, risk management and outsourcing businesses had nearly doubled the previous year's income.
The risk-management offerings of eFunds reflect the change in the company's corporate strategy, says vp Rob Evans, "allowing us to go to market with a solutions approach instead of a product-deployment approach." Outsourcing has exploded to include more than 150 back-office processes, both domestically and offshore, according to Andrews.
The ATM sale, which garnered eFunds $150 million last September, has seeded three acquisitions totaling more than $60 million since January. Each deal provided eFunds both a product-suite expansion and a key market entry in card-not-present fraud prevention, as well as enhanced bankruptcy and criminal information support for its three-billion records in the DebitBureau database. They also provided foreign debit and ATM-management services in India. The company recently completed the purchase of profitable prepaid-firm Wildcard Systems, prompting eFunds to revise its 2005 revenue forecast of between 8 percent and 12 percent to 18 percent and 22 percent.
Andrews says eFunds will focus on integration work for the remainder of the year, and probably won't be "filling the pipelines" with any new deals. - Glen Fest
(SIX)
CELEQUEST
Diaz nesamoney, CEO
Industry: Business Intelligence
Product: Celequest 3.5
Status: Private
Knowing when and how a broker exceeded his trading limit or a mortgage processor went outside underwriting criteria helps a Bank's frontline managers to ascertain how things went wrong. A forensic analysis, however, is not the best means to meet the demands of today's business environment, in which mistakes can cause regulatory and bottom-line headaches.
Anxious C-level administrators are demanding better risk-mitigation tools for preventing losses, fraud and compliance trip-ups. Celequest, of Redwood City, CA, hopes to fill that demand with a solution that allows these executives the control to keep the company's performance within pre-set bounds. The firm's executive risk "dashboards" are part of a new business intelligence strategy coined BAM (business activity monitoring), providing aggregated and near real-time view of operations.
The dashboards, via the desktop PC, scrutinize changing liquidity, compliance and credit issues against business strategy and send regular updates, alerts and root-cause analyses to executives for regular monitoring from the desktop. "In the new regulatory environment, there is pressure on management to track, measure and disclose any risk exposure or compliance issues proactively," said Diaz Nesamoney, president and CEO of the Redwood City, CA firm near San Francisco.
Companies are stating a growing need for instantaneous data, evidenced by a 2003 Gartner survey showing that firms expected to require real-time updates of almost a third of their data by 2006. Celequest's dashboard tools were rolled out in May for the financial services industry during the TowerGroup 2005 Financial Services Business & Technology conference.
Nesamoney, a co-founder of enterprise data integration giant Informatica, launched his Celequest venture two years ago as part of a low-key rebirth of Silicon Valley entrepreneurism, as well as a foray into business intelligence software. "The data warehouse and reporting architecture had too much latency in it. Most of the tools were batch-oriented," says Nesamoney. Business intelligence "required real-time, proactive detection of specific events and trends that could proactively alert managers."
The dashboards are integrated with Celequest's operational platform and give senior management teams an eye on not only internal operations, but alerts to market events and the ability to change risk rules and thresholds. Most importantly, the dashboards allow intraday decisions that route quickly to workers in the field to take corrective or preventative action. It's a tool that Nesamoney thinks will work well with second-tier regional banks that have diversified into brokerage, asset management, and other fields requiring enhanced and quick-turn risk mitigation. - Glen Fest
(SEVEN)
ELLIE MAE
Sig Anderman, CEO
Industry: Origination and Processing
Product: Encompass, ePass
Status: Private
It was about 18 months ago when Ellie Mae found cause to brush up its business model with a subtle expansion in focus, beyond technology for loan processing, to added functionality for the loan officer.
"The majority of the industry was being underserved," says Jonathan Corr, svp of products for Ellie Mae, who adds that loan officers make up 80 percent of the target audience for his firm's technology, making the decision to target loan officers a salient one. "We have spent thousands of hours talking to customers, and our competitors' customers; loan officers, processors and brokers...trying to understand what they need to do in business," Corr says. "It's the loan officers who make and drive relationships with consumers."
The subsequent adjustment to promoting adoption of software that helps originators make loans faster and at lower cost has not only helped Ellie Mae capture more business on the front end, it's simultaneously giving its back-end processing operations a shot in the arm.
The firm's success in the loan origination software market has grown dramatically. More than 30,000 mortgage professionals have switched to the firm's Encompass software in the past 18 months, and 86 of the top 160 brokerages are using the product. The firm's transaction platform, ePASS, also enjoys deep penetration, with 21,000 brokers on board and 2.1 million loans sent to lenders in the past 12 months alone. Inc named the firm the 118th fastest-growing private company in the U.S. in 2004, and it was recently profiled in Tom Peters' book Re-Imagine as one of the five companies that are changing the way business is done, joining the likes of Microsoft, Dell, EBay and Wal-Mart.
Ellie Mae's customers have been particularly pleased with the ability to track loans through the entire origination process, which is key in a time when compliance can be a heavy burden.
"It all goes back to compliance in this industry," says Mitch Freifeld, president of Global Branch Solutions, a lender with 300 branches and 5,000 loan officers throughout the U.S. "With Encompass, I can see loans in real time. Everybody needs to be on the same page in this business." -John Adams
(EIGHT)
HARLAND FINANCIAL SOLUTIONS
John O'Malley, president
Industry: Bank core processing, loan
origination, CRM software
Product: Encore Enterprise Services Platform
Status: Publicly traded (NYSE: JH)
The quest to better serve customers is being won-hands down-by smaller institutions, a point that is not lost on large banks. While big banks got tripped up in unwieldy customer relationship management initiatives, smaller banks, aided by core systems vendors with products scattered throughout the organization, have begun to make real progress in the integration of branch and call center systems. One standout in the field: Harland Financial Solutions, which in April introduced an enterprise services platform that gives tellers, loan officers and call center representatives a single navigational point with which to serve customers.
If the premise sounds simple, its execution in the market is anything but. With 6,500 bank and credit union customers and a host of acquisitions under its belt, Harland spent 18 months developing its Encore Enterprise Services Platform, nine months of which were dedicated solely to creating the common architecture, according to Harland Financial Solutions president John O'Malley. "Wallet share growth comes to organizations that can bring efficiency to customers." And Harland, noted by Celent Communications as being in the top quartile in terms of the depth of its customer intimacy when converging teller, platform and CRM solutions, is set on helping financial institutions achieve that efficiency.
The platform allows employees to interact with customers using single log-on and common browser-style navigation to move from one system to another to complete transactions. From a sales and service perspective, the framework enables the bank to present one complete view of the customer relationship and requires that customer data be entered only once. O'Malley also says the cost of maintaining the system is reduced because of unified administration of system and user set-up parameters, as well as the ability to introduce new applications (even from third parties). The upside for institutions is "much tighter workflow so that they can have better relationships and streamline operational efficiency," he says.
The platform is live at First Citizens, a $13.3 billion-asset bank in North Carolina, and Banknorth, a $3 billion-asset institution in Maine. A third, American State Bank, with $1.8 billion in assets and 39 branches in Texas, is in the implementation phase. With a deep customer well to draw from, Harland is presently in discussions with 35 institutions. - Holly Sraeel
(NINE)
MESSAGEGATE
David Weld, CEO
Industry: E-Mail Security, Management
Product: MessageGate E-Mail Compliance System 4.1
Status: Private
For the last five years, a CTO of a top 20 U.S. bank struggled to keep the firm's in-boxes free of spam, porn and bandwidth-wasting frivolity. Now those cute pics of pandas in KISS makeup may be the least of his worries, according to Bill Buckey, vp of business development at e-mail security firm MessageGate.
"My focus for the next three to five years is to make sure I'm not sending out information inappropriately," Buckey recalls the company's executive confiding to him. Regulatory, legal and privacy issues these days are bringing as much to bear, if not more, on what a company's employees send out into cybersphere than on what they receive. A mortgage processor including a customer Social Security number in an internal e-mail, or a CFO forwarding proprietary financial statements to personal e-mail can be potential alarm bells with SEC audits or FFIEC exams for Sarbanes-Oxley, Gramm-Leach-Bliley or compliance with any number of other statutes that govern how an institution is to safeguard data.
Banks, particularly larger institutions with thousands of employees and e-mail accounts to police, are turning to firms like MessageGate to provide e-mail security and management services, including cost-saving archiving methods. According to Buckey, many companies are surprised to learn the archaic and chaotic nature of their e-mail systems. The number of forwarded e-mails in a typical organization is double those originated in-house, and half the archives are bottlenecked with non-business e-mails, like commercial newsletters and chain e-mails.
MessageGate, which spun out of Boeing Corp., provides an end-to-end solution with an assessment to pinpoint weak spots, policing of 40 types of message attributes and 270-plus attachments. The company's software can also adjust content and context, so the Excel spreadsheet mailed by the mailroom clerk to his supervisor is less scrutinized than the one between the CEO and CFO. "One of the big problems with monitoring e-mail is false positives" that disrupt business flow, Buckey says.
So do lawsuits and audits, which is why Michael Osterman of Osterman Research says that legal discovery and storage management will be an important drivers for banks and other companies in introducing electronic archiving due to cost factors (processing back-up tapes can be "extraordinarily expensive," Osterman says) and simple efficiency. - Glen Fest
(TEN)
BAKER HILL
Mark Hill, CEO
Industry: Commercial, consumer lending
Product: Benchmark reports, analysis
Status: Private
For more than two decades, Baker Hill's made its bones on the firm's commercial and consumer lending technology, but the past couple of years have seen it make dramatic moves into the applied science side of the equation.
"We're focused on what I would call a move from a tech company to one that's focused on process improvement," says company chief executive Mark Hill. "How do we take our technology and apply it to our clients."
One way is with its Small Business Lending Benchmark Report, which saw a second installment in April. The report gives bankers a peer-to-peer comparison of origination processes based on more than 260 metrics for small business lending. A new report on consumer lending includes nearly 150 metrics.
An important part of its strategy was its April acquisition of Insight Analytics, a management consultancy specializing in the science of business measurement and analysis. That purchase allows Baker Hill to add IA's structured metrics methodology to measure business processes and performance.
Hill says all of that data allows the firm's 1,200 clients to compare the performance of its processing to that of 100 other banks. "It gives us evidence to show a client what we can do to improve their processing."
Baker Hill's shift coincides with the sea change in the banking industry toward ROI, or technology adoption that must be preceded by definitive proof that the investment that goes in will come back, and then some. "Five years ago, people bought technology because it was cool, but a lot of it didn't fly and didn't work," Hill says.
He says having access to the sort of data that comes out of the benchmark reports not only improves the performance of the banks, but gives Baker Hill a strong sales platform with which to cash in on that appetite for ROI. "It's not a matter of a sales guy saying you can improve your operations 20 percent. It's your own data saying you can."
It's that combination of data and end-to-end technology that produces a battle plan that converts like Liberty Bank (CT) evp Eugene Shugrue swear by. The bank's using Baker Hill's small business suite to step up origination, underwriting and risk management for small business finance. "We were able to find a turnkey solution, and one that we knew would be scalable." - John Adams
