Kabira Courts Acquirers, Networks for New High-Capacity Switch

Arguing that U.S. transaction processors face pressing needs for both capacity and faster rollout times for new payment methods, a San Mateo, Calif.-based software company specializing in so-called high-performance transaction-processing systems has begun courting merchant acquirers, processors, electronic funds transfer networks, and high-volume merchants for a recently released payments switch. Kabira Technologies Inc., which has sold its new switch to Japan's largest payment card processor, says it expects to have signed up a minimum of 10 U.S. clients by year's end. “That's a minimum based on the pipeline we have so far,” says Kaushik Roy, senior director of product marketing at the company. Indeed, Kabira, which has also built a transaction-processing system for Visa USA as part of that network's recent overhaul, sees the switch as the opening shot in its campaign to move more deeply into the payments-processing business. It has also introduced a real-time authorization component and in the third quarter will launch a so-called payments hub aimed at card issuers. The new technology is based on the Kabira transaction platform, which has been widely used by the company's telecommunications clients. “It cut its teeth in telecom, where it's not acceptable to be down,” says Dirk Epperson, vice president of strategic planning at Kabira and a co-founder of the company. Kabira says acquirers and processors are showing interest in the switch because they're under pressure to process more transactions and at the same time cut the time it takes to bring to market new payment platforms, such as prepaid cards, micropayments, and contactless capabilities. “Businesses are coming back [to us] and saying, 'I need to support prepaid, [health-savings accounts], rewards,' and rolling out those new services is very difficult with traditional systems,” says Roy. It can take as long as two years to roll out new payment products, a time-to-market Epperson says Kabira's software can drastically reduce. Depending on the complexity of the new service, Epperson says, the switch can enable new products within weeks. At the same time, with debit volume growing in excess of 20% annually and payment types like prepaid debit contributing steadily mounting traffic streams, these legacy acquiring systems are straining to meet the volume challenge, Roy and Epperson argue. “All of these systems are on the verge of falling apart,” warns Roy. Most processors, they say, can probably get from 100 transactions per second at their peak to 200 with some adjustments. But many are starting to hit peaks as high as 200 to 300 transactions per second, says Roy, requiring more hardware. “If they see in the next several years that they need to get to 500 to 2,000 transactions per second, then it's game over,” says Epperson. Adding to peak capacity by bolting on more computers, he argues, is increasingly inefficient. “The problem is you've got buy another mainframe just to get to that new peak,” he says “It doesn't make the bean counters happy.” By contrast, he says, Kabira has achieved peaks exceeding 50,000 transactions per second with commodity hardware, yoking together as many as 24 central processing units, the maximum the company can use with current operating systems. Kabira's methodology is to push up processing speeds by simplifying the architecture of its switch. Typically, payments applications require separate components, such as an application server, a database, middleware, and a transaction monitor. “That's a pretty big stack of stuff you have to glue together, and each touchpoint also creates friction [between the layers] and also friction in maintenance,” says Epperson. Instead, Kabira weaves the key features of each component into a single product, producing a single development environment. This helps when it comes to coding for changes and new products. “We're reducing the number of lines the developer has to build, typically by huge amounts,” Epperson adds. Kabira's pricing for its switch is based on expected annual transaction volume. Says Epperson: “They tell us what they expect, and that's the contract.” At a volume of 1 billion transactions annually, the cost of the switch comes to $1 million, or one-tenth of a penny per transaction. CAFIS, the payment-processing arm of Japan's NTT Data, which has just installed the switch, handles 2.4 billion transactions annually, a number that is growing 20% year over year. Visa USA processed 24.1 billion point of sale transactions in the year ending Sept. 30, 2006, up 15% over the year-ago period. Now Kabira is targeting acquirers, card associations and electronic funds transfer networks, and even large merchants. Epperson figures a few installations could be the best advertising for the switch. “Folks in the payment space are inherently risk-averse,” he says. “But the fact their competitors have new [payment] products [faster] kind of puts a gun to their heads.”