Citing cost and lack of pressing need, EFT processors are holding back on their tech investments. When will the climate warm up?
  The back rooms of large electronic funds transfer processors, whether financial institutions or networks, are not exactly whirring with exciting new products. And processors are not likely to open their wallets for new, multimillion-dollar transaction-switching systems any time soon, the results of a recent survey by Boston-based Celent Communications Inc. suggest.
  Cost and the lack of an imminent need will keep most large processors from purchasing new systems, despite some key advantages in migrating to systems that are easier and cheaper to maintain, says Gwenn Bezard, a Celent analyst.
  "Some of them are interested in replacing their legacy systems, but they do not necessarily have the money to replace them," he says.
  Completed in October, the survey of 20 of the top 60 banks in terms of assets found that 94% are "satisfied" with their processing systems. While 6% said they are "unsatisfied," 10% said they plan to purchase a new platform in the next year.
  The results suggest there will be a slow migration to open-systems payment software, which requires newer hardware, as financial institutions continue to use proprietary mainframe systems.
  Celent estimates that it costs large processors from $30 million to $100 million to purchase a new platform, including fees for hardware, software, licenses and consultants' work, and to migrate transactions without disrupting existing payment-processing services. Moreover, large electronic funds transfer processors still have about 40% spare capacity with their legacy systems, which operate relatively smoothly and offer customers well over 99% uptime, says Bezard.
  One of the largest purchasers of EFT processing hardware and software during the past year was the Houston-based Pulse EFT network. Pulse built its own switch platform after deciding to discontinue outsourcing its switch operations.
  Pulse is using eFunds Corp.'s Connex switching software to run its HP Nonstop hardware. HP Nonstop, formerly called Tandem but renamed by its current owner, Hewlett Packard Co., has been the workhorse for large processors for many years and requires specially designed software.
  Pulse decided to purchase a time-tested system for use by the thousands of processors and financial institutions that depend on the Pulse switch, says Cindy Ballard, Pulse executive vice president.
  HP Nonstop is known for its ability to switch large numbers of transactions simultaneously. Pulse, for example, switches at least 2.4 million PIN-based debit transactions per day. Ballard would not say how much Pulse spent, but she says the network wanted to ensure that its users migrated to the new system without disruption.
  Still, most major EFT software players are counting on an eventual migration to platforms that can seamlessly use so-called open-system processing software written for Microsoft Corp.'s Windows or varieties of software produced for Linux-based operating systems. Indeed, all of the top players are now marketing open-system software.
  Scottsdale, Ariz.-based eFunds, for example, last month completed its $30 million purchase of Oasis Corp., which markets Linux-based processing software. Before that purchase, eFunds marketed only its proprietary Connex software.
  The nation's largest EFT software producer, Omaha, Neb.-based Transaction Systems Architects Inc., the parent of ACI Worldwide, which produces Base24 software, last year introduced its Base24es Linux-based open-system software. And Deerfield Beach, Fla.-based Mosaic Inc. recently announced plans to promote a Linux-based version of its Windows-based Postilion transaction-switching software.
  These offerings hinge on a belief that processors eventually will need to connect to other financial self-service channels, such as online banking, and that open systems will be easier to maintain and upgrade than proprietary systems, says Bezard. "There are fewer and fewer people who are familiar with the legacy systems," Bezard notes.
  Open-systems software for automated teller machine processing already has scored some minor victories for smaller, low-volume back-office operations. Maynard, Mass.-based Stratus Technologies Inc., for example, is marketing a new processing server for about $25,000 per unit, a hardware price unheard of in the EFT processing arena. Tampa, Fla.-based GTE Credit Union recently purchased the entry-level Stratus server and is using it to take processing on GTE's eight ATMs in house, says Phillip Izzo, Stratus director of business development.
  However, large-volume processors, in particular banks and EFT networks, still have security concerns about open systems, particularly Windows-based systems that have been shown to be vulnerable to virus attacks. As a result, the market share for software makers likely will stay the same for the next few years, with ACI and eFunds controlling more than 80% of the market.
 

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