First Data overhauling backbone for e-payments

First Data sprang to life in 1971 as a backbone for what was then an emerging credit card industry. Now the payment services giant is in the throes of a massive IT upgrade that's aimed at helping it retain its market-leading position as the industry continues its shift to electronic formats.

First Data Resources, a division of First Data, is the world's largest third-party transaction processor, with more than 1,400 corporate issuers and 311 million accounts in its portfolio. Last year, the division brought in CIO-for-hire Charles Feld to shepherd the company into the e-commerce era.

Feld, who was previously CIO at Frito-Lay Cos. and Delta Air Lines Inc., is candid about First Data's challenges and the opportunity for it to become a central hub supporting all sorts of business-to-consumer and business-to-business online transactions.

"I don't know when, but cash and checks will be as distant a memory as wampum at some point," Feld said. "Money's changing, forever. We want to be the payment and transport for whoever wants to transact business." That includes processing everything from consumer credit card purchases to multimillion-dollar business-to-business transactions.

Feld has focused on separating data from its transport. Wireless purchases, sales made through online exchanges and credit card transactions will be wrapped in uniform messaging protocols and routed through a layer of Unix machines, which will be used to help make decisions about how to handle that data. Then the information will be routed back to a cluster of IBM OS/390 mainframes, which will process the transactions.


To a degree, First Data didn't choose its business strategy.

Corporations are busy retooling their back-office environments to handle more of their sales and purchases in electronic formats. Gartner Inc. in Stamford, Conn., estimates that online business-to-business transactions totaled US$434 billion last year and will jump to $6 trillion by 2004.

Recognizing that someone has to move that money, First Data spent $40 million last year to beef up its IT operations. Feld said the company plans to spend between 3 percent and 5 percent of its card revenue this year to build on that effort. A First Data spokeswoman said that amounts to an additional $40 million investment in the IT infrastructure upgrade this year.

"There's some serious heavy lifting involved in that," Feld noted. "You're going to run into problems if the buy moves at Internet speed but the back end moves at rail speed."

According to analysts, online business-to-business transactions are often paid for with corporate purchasing cards issued by suppliers. That kind of money-handling limits the size and speed of electronic transactions.

"I think it's fair to say electronic payments have not been ready for prime time," said Laurie Orlov, an analyst at Forrester Research Inc. in Cambridge, Mass.

Orlov cited the inability of corporate accounts payable systems to process business-to-business transactions as the principal bottleneck, rather than the readiness of the banking and financial-processing world.

Still, she noted that both sides need to progress with their respective IT infrastructures to streamline the process.

Feld said he expects the work on First Data's database and Unix wrapper to take another 12 to 18 months. The move is expected to help the company process whatever types of transactional data its customers send. Once that effort is completed, the company will begin to build client-facing applications.

Leveraging Technology

First Data isn't alone in trying to carve out a position in the fast-evolving e-payments universe.

For instance, Dutch credit insurance company NCM NV has fathered a risk management services firm for online and off-line trade called eCredible Ltd.

"Everyone forgot that e-commerce isn't a brand-new way of doing business," said Jurgen Leijdekker, U.S. managing director at eCredible. "You still have to get paid at the end of the transaction, and you need to have the same support for electronic payments as you did for paper ones."

Meanwhile, Italy's largest automated interbank payment organization, SIA SpA, has contracted with Syntrex in Padova, Italy, to create a centralized method of handling all of its transactions.

Augusto Astesiano, SIA's e-business and security systems director, said that most of his company's customers will be working on TCP/IP networks within two years but that some established customers will still prefer to send information using the X.25 transaction protocols that the Society for Worldwide Interbank Financial Telecommunications' network uses.

"You have to be ready for any type of data," Astesiano said.

Bob McCullough, an analyst at Framingham, Mass.-based Hurwitz Group Inc., said the key for money-changers will be their ability to function in a technologically heterogeneous world.

"There's going to be a lot of different ways to transfer money, and someone's going to figure out how to do it if they don't," he said.

Inside First Data's Conversion

Charles Feld has spent the past decade as a CIO-for-hire at companies such as Burlington Northern Sante Fe Railroad and Delta Air Lines.

Now, as CIO of First Data's First Data Resources division, Feld is looking to update yet another legacy-system-dependent organization.

Here are some of the keys to the major IT overhaul he's currently driving:

-- Make applications easy to configure so programmers aren't required to act each time changes need to be made.

-- Standardize payments into a generic format.

-- Provide a packet of interfaces and rules options to credit-issuing companies reliant upon First Data's database, so they can change the rules and parameters on their own systems, as well as run their own customer relationship management applications based on the database.

-- Use IBM's MQSeries middleware and Palo Alto, Calif.-based Tibco Software Inc.'s infrastructure software to shuttle data from client-facing Unix machines back to IBM OS/390 mainframes.

-- Leverage existing technology, such as IBM's DB2 and WebSphere middleware, instead of tapping into new technologies. "Everything we have is a firm piece of stuff that I've worked with, or the people at First Data have worked with," Feld said. "There's no unknowns. We know exactly how that stuff works."

-- Orchestrate the overhaul using a small management team, and take advantage of institutional knowledge. "I'm a firm believer that 30 years of knowledge is worth something," said Feld. "That's a lot to rebuild, if you ignore it."

-- Set up governance processes on technology and business sides to ensure that changes are properly implemented and adopted. "Most IT organizations are pretty weak on governance," Feld said. "What's the opposite of governance? I guess it's lawlessness. Anyway, that's what we're trying to avoid."

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