IBM To Begin a Push for a Central Hub to Combine Transaction Types

Sensing a trend within banks toward pulling together credit, debit, checking, and other electronic payments-processing operations, IBM Corp. is getting ready to push an all-purpose retail payments engine for both bank back offices and third-party transaction processors. “It's a payments hub, and it's cheaper, faster, and easier to maintain,” than multiple dedicated transaction switches, says E. Peter Bearor, banking industry executive for the financial-service sector in the Americas at IBM. The technology giant hasn't yet sold a hub and Bearor declines to project sales numbers or transaction volumes, in part because the product will require considerable customization for each client. “This is not, 'I want to order one and what's the part number,'” he says. “There's a fair amount of integration.” Still, banks and processors will be able to license the technology on a per-transaction basis, avoiding big capital outlays, he says without disclosing specifics. IBM is talking to potential clients for the hub and plans to make some announcements soon, officials say. “Bank strategy guys are serious about it,” says Bearor. The new initiative from IBM follows a similar product from Hewlett Packard Co., called Open Bank, that also aims at integrating multiple retail payment channels (Digital Transactions News, Dec. 1, 2003). The concept of a central hub for all retail transaction processing is beginning to catch on as back offices and third-party processors realize that various transaction forms, whether credit card, automated clearing house, or check, have common elements when reduced to electronic formats. These points in common can make it more efficient to process all transactions in one system rather than through multiple, dedicated switches, as is often the case now. “The idea of 10 or 12 switches at the bank is going to collapse,” says Bearor. Mirroring the nascent trend toward payments convergence, Bearor points out, is the movement among at least some banks to appoint executives with responsibilities ranging across all or most retail transaction types, from cards to checks. To the extent these so-called payments czars have real authority to make changes, he says, they will help drive the consolidation of systems into single hubs. Big-bank mergers, too, are driving the trend toward such hubs, Bearor points out, as managers charged with integrating huge transaction systems look for ways to simplify the task. Within the past 18 months, for example, JPMorgan Chase has absorbed Bank One and Bank of America has merged with Fleet Financial.