Top 10 Strategic IT Initiatives

in e-Payment Services for the New Millennium

February, 2000 Special Research Brief - e-Payments Service
Dave Potterton, +1.617.796.2822
dpotterton@meridien-research.com
Sarah Ablett, +1.617.796.2832
sablett@meridien-research.com

Overview
Upon hearing the words e-payments, FSI business and IT professionals typically pause to ask, How do we
facilitate the e-payment process while providing adequate security around it?. The answer is by no means
clear and often leads to conflicts between security and usability. Complicating matters further for FSIs are
the seemingly incompatible demands made by customers, internal business lines and the institutions own
information security department. While striking a balance in this environment is not an easy task, successful and secure payment processes are being implemented. One need only look at the universe of escalating
e-commerce numbers to recognize the fact that although e-payments are still in their infancy, there is more
than enough momentum and money on hand to drive them to maturity.
Against this backdrop, we provide our list of the top ten strategic e-payment initiatives. Some of these
efforts reflect the front-end evolution underway, while others are infrastructure changes necessary for continued e-commerce growth. As a group, however, they reflect both the promise and challenge of e-payments as we begin the new millennium.

Table 1: Top 10 Strategic IT Initiatives for e-Payment Services

Rank

Business Issue/Application

Electronic purchasing for business-to-business procurement through electronic catalogs,

storefronts and auctions will accelerate. XML appears poised to be the technology driver in
this space.

Technology enablers for fraud prevention and detection will become even more important as the volume of e-business accelerates.

FSIs will increasingly need to deal with issues concerning authentication and privacy
from their wholesale and retail customer base.

Secure integration with back-office payment systems, whether in-house or outsourced to ASPs, will need to be defined, refined and implemented.

Electronic bill presentment and payment (EBPP) will realize continued acceptance
among consumers and corporations as FSIs step forward to facilitate the process.

Multi-application chip cards will make inroads as convenience and security become
linked.

Electronic wallets will gain momentum from both merchants and card issuers.

Retail/Wholesale Convergence will continue as e-payment solutions are shared across the
organization. This will become increasingly important as the use of on-line banking solutions increases within the consumer and corporate market segments.

Non-credit card payment mechanisms will increase in order to support e-commerce

growth beyond the United States.

10

While still in its infancy, wireless payments have a future which cannot be denied.

Source: Meridien Research

2000 Meridien Research, Inc. All rights reserved, worldwide

Special Brief
February, 2000

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We project that spending on strategic technology initiatives by wholesale and retail FSIs will expand from the
normal 20% of IT spending to 27% to 30% during 2000 with total spending on e-payments initiatives approximating US$5.60 billion in development activity. EBPP investment will continue to be a major area of concentration in addition to business-to-business e-procurement and security infrastructure. As with other
investments, time to market becomes a critical differentiator for FSIs. This environment will, therefore, benefit ASPs that can provide integrated solutions in very aggressive timeframes along with the expertise to integrate to the FSIs middle and back-office systems. Increased levels of activity will also be found among
middleware and integration providers who can provide the EAI to legacy payment systems in a secure manner.
Other beneficiaries will include network security, infrastructure and legacy back-office payments vendors who
understand the rapidly changing e-commerce landscape and issues surrounding e-payment activities.
Figure A summarizes our strategic spending estimates for e-payments by industry segments and geographic
regions.
Figure A: Strategic IT Spending for e-Payments (2000)
Total = US$5.60 billion

Total = US$5.60 billion

Other FSIs

Other

1%

3%
Asia Pacific
12%

Non-FSIs
40%

Banks

North

59%

America
46%

Europe
39%

Source: Meridien Research Estimates

Looking Ahead - The Why Behind These Payment Initiatives

Two factors place e-payment evolution squarely on the shoulders of FSIs. The first involves issues of trust and
security. FSIs are viewed as trusted third parties today and should look to extend that trust relationship within
the new e-commerce marketplace. The second significant factor is that payments processing is a core competency of FSIs (particularly banks) which should be fully exploited. As the Internet continues to blur the lines of
delineation between competitors (whether inside or outside of the industry), FSI management needs to recognize the significant impact and opportunity for their respective business strategies. Management also needs to
ensure that internal organizational and line of business issues are resolved in order to extend any new solutions
to the entire range of customer segments. Secure payment processes, which are necessary to sustain the continued expansion of e-commerce activities among corporations and consumers, present the perfect opportunity for
FSIs to leverage their competitive advantage. It is from this perspective that wholesale and retail financial
institutions should review the why of their current strategic initiatives to ensure they are assuming a leadership role in e-payment development. The winners will be those financial institutions who invest in strategic epayment technologies over the next 12-24 months to support the continuing growth of e-commerce. In addition to FSIs, beneficiaries of these efforts will include consulting and integration firms who possess a knowledge of security and payments implementations across increasingly complex internal environments of multiple
customer segments, business lines and channels.

2000 Meridien Research, Inc. All rights reserved, worldwide

Special Brief
February, 2000