The development of mobile and internet banking and payments is continuing apace as tablets and smartphones drive more and more customers into the ether. It is a process that will no doubt be aided by Santa’s presents this year and is causing a revolution in cash and payment infrastructures, end points and methodologies. Perhaps in readiness for this revolution, NCR recently announced it was buying Digital Insight Corporation, a specialist in online and mobile banking solutions, for $1.65bn and Alaric Systems, a provider of secure transaction switching and fraud prevention software, for $84m. In this interview with bobsguide’s Neil Ainger, Robert Johnston, NCR global marketing director and his colleague at Alaric, Andy Brown, explained the rationale behind the deal and the trends driving the marketplace. [for an earlier post-acquisition interview with Bottomline click here].
NCR Corporation, a maker of automated teller machines (ATMs), software and other consumer transaction technologies is expanding its financial services (FS) business by announcing its intention to buy Digital Insight Corporation, a specialist in online and mobile banking solutions, for $1.65bn, with the deal expected to close in Q1 next year. It has also completed the acquisition of Alaric Systems in the UK, a provider of global secure transaction switching and fraud prevention software, for $84m.
The acquisitions are intended to move the ATM hardware and software manufacturer into new business areas and expand its financial services (FS) business as part of a long-term strategy, says Robert Johnston, global marketing director for ATM enterprise and management software solutions at NCR. New mobile, bill pay and online banking solutions and dynamic real-time anti-fraud monitoring and payment processing software will result from the deal.
“A lot of people know NCR as an ATM company but we are much much more than that. For example, NCR is the 34th largest software company in the world and we offer a range of support services and product lines outside of the cash machine segment. This will now grow further,” says Johnston.
“The deal addresses the consumer need to interact with their bank 24x7 and provides the integrated technology necessary to support this desire. From the branch to the ATM, to the internet and now mobile banking and payments, NCR has got all these avenues to market covered. Digital Insights brings extra consumer-facing web and mobile banking end points and capabilities to our existing product offerings in this space and the acquisition of Alaric brings payment processing volumes to the equation.”
As Andy Brown, marketing director at UK-based Alaric explains, the firm’s payment processing and anti-fraud prevention software is used on more than 1.25bn transactions a month across 30 countries, principally via its Authentic payments and Fractals anti-fraud offerings. Just 5% of its £12m per year revenue is sourced from its UK-base, illustrating the truly global nature of the business, and its attractiveness to NCR. Alaric products are used by banks, acquirers, retailers and others on Point-of-Sale (PoS), online e-commerce and mobile m-payment transactions.
Digital Insight is based in Menlo Park, California, US, and has a diversified customer base consisting of more than 1,000 financial institutions (FIs) with 12m online banking users and nearly 4.8m mobile end users. They both join a technology firm that is active in 160 countries around the world, with NCR having numerous offices, thousands of staff and $6bn in revenue per annum.
The rationale behind the takeovers is obviously to give NCR a complete enterprise software platform that will deliver a comprehensive consumer experience across all digital and physical channels, including mobile, online, branch and ATMs, but that does not mean that the purchased entities will lose their identities, insists Alaric’s Brown. “NCR Have said they want to preserve Alaric’s research and development (R&D) and innovation programmes to continue to support new products and services. There is benefit in that and in our customer base to NCR. From the Alaric point of view, we get access to NCR’s reach and global clout, which as a smaller firm we would struggle to match.”
“There’s also been a trend in recent years for banks to cut the number of suppliers they deal with as part of post-crash efficiency drives,” adds Brown. “NCR’s acquisition will help Alaric get on those request for information/proposal (RFI/P) shortlists.” It is a good thing for us, he maintains, while dismissing fears about on-going support for end users and investment in future technology development initiatives.
Death of Cash Argument Spurious
According to NCR’s Johnston the takeovers are about expanding further into the growing mobile and online banking and payment processing arenas, but that doesn’t mean that he accepts the oft-repeated ‘death of cash’ argument that all transactions will soon be electronic and that notes and coins will be relegated to a miniscule niche in the future.
“There is room for both,” he maintains, dismissing as spurious the death of cash argument, “and it is also worth remembering that NCR’s ATM models and software do so much more than just cash. We also process remittances, bill payments, mobile airtime top-ups and all kinds of other transactions around the world, outside of cash. The deal allows us to support branch-based ATMs right though to mobile payment apps, serving various end points and customer demands in a holistic way as our clients demand.”
No Staff Redundancies and Senior Management to Stay
“I cannot say exactly what the combined entity’s final revenue figures and organisation will be yet because the Digital Insight takeover will not complete until Q1 next year,” says NCR’s Johnston, “but I can say that the number of employees will stay the same.”
“NCR don’t intend to cut any staff. Rather we want to continue to invest in the businesses and to grow the revenues of Alaric and Digital Insight,” says Johnston, while explaining that the senior management structure will remain largely unchanged with the former heads of both acquired companies reporting into the relevant lines of business heads at NCR. “For Alaric, for instance, that means its head, Mike Alford, will stay and report into Ruth Fornell at NCR.”
We don’t want to inhibit the firms in anyway, insists Johnston, perhaps mindful of previous tech takeovers such as the disastrous HP acquisition of Autonomy which ended up in the courts amid squabbles over accounting procedures and interference. “NCR wants to retain the innovative entrepreneurial spirit of both firms support their growth”, which is as it should be.
There are no more acquisition targets lined up for the moment, says NCR’s Johnston, although he stresses that in-line with company policy he wouldn’t talk about them anyway ahead of schedule. “I am happy to make the general technology market point though that new technologies are often developed to meet fast-moving consumer demands by smaller, more nimble firms. They innovate and bring them to market quickly, before becoming an acquisition target for a bigger firm that can help them expand globally, and that is what is happening here with these deals.”
“I wouldn’t say the acquisitions of Digital Impact and Alaric are necessarily driven by the improving economic situation in America, the UK and other developed markets either,” adds Johnston. “Rather, it is simply the old technology paradigm of smaller firm innovation being recognised and added to a larger firm’s structure, bringing more resource.”
Let’s hope that it’s a marriage made in heaven and that the companies’ independent spirit survives the transition to a larger corporate and benefits accrue all round. The development of mobile point-of-sale (MPoS), loyalty and payment apps and new banking access channels and online retail forums certainly means that the traditional banking and payment markets are changing as PayPal, Square and other newcomers fight for a slice of the action, but banks are responding via initiatives like the MyBank authentication platform and there will always be a need for good anti-fraud and end point devices. Combining them into one, more integrated company gives NCR significant growth potential for the future.
By Neil Ainger