Four Options for Financial Institutions with Base24

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Industry Research Publication Date: 25 July 2008

ID Number: G00160051

Four Options for Financial Institutions With Base24 Kristin R. Moyer

Financial institutions (FIs) that use ACI Worldwide's Base24 have four options to choose from now that the product is to be sunsetted. CIOs at affected FIs should take the sunset announcement as an opportunity to reduce system complexity and migrate to the payment services hub. Key Findings •

Approximately 300 FIs globally leverage Base24 for payment transaction processing.

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Now that ACI has announced the sunset of Base24 and other legacy products, financial institutions are concerned about how to respond.

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While the migration from Base24 to Base24-eps is being treated as an upgrade, it is essentially the installation of a new application with the associated hardware, operating system and database.

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Gartner has identified four options for FIs with Base24 — support Base24 with in-house resources, migrate to Base24-eps, migrate to a rival payment engine or outsource to a third party.

Recommendations •

Avoid supporting Base24 with in-house resources if possible. It will be difficult and expensive to keep up with compliance issues and mandates from the card networks.

•

Treat the sunset of Base24 as a new product acquisition. Execute a vendor evaluation that compares Base24-eps to competitive payment engines.

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Evaluate the benefits of a partial migration to Base24-eps or alternative payment engine. For example, some FIs are having success migrating authorization but continuing to run device management on Base24.

•

Outsource to a third party if the FI desires to avoid the capital expense of migrating to an alternative software solution or desires to offload nondifferentiating business processes.

© 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

TABLE OF CONTENTS Analysis ............................................................................................................................................. 3 1.0 Overview of Base24 and ACI's Announcements............................................................ 3 1.1 Base24 .............................................................................................................. 3 1.2 ACI's Announcements ....................................................................................... 3 2.0 Four Options for Financial Institutions............................................................................ 3 2.1 Option 1: Support Base24 With In-House or Outsourced Resources............... 5 2.2 Option 2: Full or Partial Migration to Base24-eps ............................................. 5 2.2.1 Multiple-Platform Availability ............................................................. 6 2.2.2 Innovation .......................................................................................... 6 2.2.3 Migration Planning............................................................................. 6 2.2.4 Migration Costs and Risks................................................................. 6 2.3 Option 3: Full or Partial Migration to an Alternative Payment Engine ............... 7 2.3.1 ACI Alternatives................................................................................. 7 2.3.2 Migration Planning............................................................................. 7 2.4 Option 4: Outsource to a Third Party................................................................. 8 3.0 Recommendations.......................................................................................................... 8 Recommended Reading.................................................................................................................... 9

LIST OF TABLES Table 1. Options for FIs With Base24 ............................................................................................... 4

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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ANALYSIS

1.0 Overview of Base24 and ACI's Announcements 1.1 Base24 Base24 is a global retail payment engine that acquires, authenticates, routes, switches and authorizes automated teller machine (ATM) as well as point-of-sale (POS) financial transactions.

1.2 ACI's Announcements ACI has announced that it will sunset Base24 by November 2011 as part of a progression of its retail payment strategy and ongoing product life cycle management. Two more releases of Base24 are scheduled to include functional enhancements: •

Release 6, v.9 in November 2008

•

Release 6, v.10 in November 2009

After November 2009, ACI will continue to complete card scheme mandates and error corrections until November 2011. After that, support fees will cover error correction and help desk support, but not enhancements (including mandates). Customers will have the option to seek customerspecific enhancements on a time-and-materials basis. Once Base24 customers have reached the end of their initial license periods (typically five years), most will move onto a one-year renewal term, although some may have longer fixed-term agreements. ACI has also announced product life cycle plans for additional retail banking payment engines — with the designation of sunset time frames for OpeN/2 and ASx, and end-of-life time frames for OCM24, Trans24-eft and ON/2. System redundancy is a big challenge for payment institutions and many vendors. While this announcement is causing angst among some ACI customers, this life cycle progression results in multiple, redundant systems being brought down to one. This will enable ACI to focus its energies, attention and resources on its payment services hub strategy and execution on a single, multiplatform solution — Base24-eps.

2.0 Four Options for Financial Institutions Approximately 300 FIs leverage Base24. Gartner clients are saying, "We know Base24, we love it, it works." They are also asking, "What do we do now?" The challenges for affected FIs are common across IT system areas: •

Building an in-house solution is expensive. In this particular case, payment engines have commoditized functionality and capabilities.

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Supporting the sunsetted solution often costs more money. An FI would have to allocate resources to compliance/mandate-related development instead of new business opportunities.

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Buying and using vendor support with the next-generation product (in this case Base24eps) or an alternative vendor product (such as Postilion Realtime) leaves an FI at the vendor's mercy for sunsetting.

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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•

Outsourcing to a third party leads to internal resource atrophy. An FI would be at the outsourcer's mercy.

With the sunset announcement of Base24, FIs have four primary options (see Table 1). This research reviews the pros and cons of each option. Table 1. Options for FIs With Base24 Option Support Base24 with in-house or outsourced resources

Full or partial migration to Base24-eps

Full or partial migration to an alternative payment engine

Pros •

Delays change and investment.

Cons •

Difficult to keep up with card scheme mandates.

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Challenge to find developers with payment experience.

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Difficult to retain programmers with Transaction Application Language (TAL) experience compared to more-modern programming languages.

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More platform flexibility and stronger customization capabilities than Base24.

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Significant time and cost to migrate from Base24 to Base24-eps.

•

Flexible high-availability options for clients.

•

•

Product performance consistently rated by customers as outstanding.

Flexibility and extensibility not as strong relative to some alternative payment engines.

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Total cost of ownership (TCO) can be higher at times for some FIs.

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Significant time and cost to migrate from Base24 to an alternative payment engine.

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Few alternative payment engines support the payment services hub.

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Consistently supports market innovation (for example, the payment services hub).

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Tight integration to other ACI solutions.

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Stronger flexibility and extensibility for some alternative payment engines.

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TCO can be lower at times for some FIs.

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Application-level fault tolerance.

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For some vendors, more years of experience with open-system payment engine environments.

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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Option Outsource to a third party

Pros •

Offload nondifferentiating capabilities to focus on core business.

•

Ability to avoid the capital expense of software acquisition.

Cons •

Loss of control of operations, including data and the ability to leverage it for value-added purposes.

Source: Gartner (July 2008)

2.1 Option 1: Support Base24 With In-House or Outsourced Resources The fact that ACI is sunsetting Base24 does not dictate that FIs must migrate to alternative payment engines. FIs can choose to support Base24 with in-house or potentially outsourced resources, which a few ACI clients are doing. Base24 is also not yet at end of life, and ACI will continue to cover error correction and help desk support. One potential outsourcing option is ACI On Demand, in which ACI operates and maintains the system on behalf of the customer in a dedicated delivery model (as opposed to shared). Supporting Base24 with in-house resources enables FIs to delay the time and investment involved in migrating to an alternative payment engine. However, it will be difficult for FIs to keep up with compliance issues (such as Single Euro Payments Area [SEPA]) and card network mandates (such as Visa's Payment Application Best Practices [PABP]). In addition, the code base for Base24 is Tandem TAL. TAL is a proprietary code language for HP NonStop platforms that is similar to Algol or PL/1. Retaining TAL expertise over time could be more challenging compared to more-modern programming languages such as Java and C++. An even greater issue is finding programmers in general with experience in card payments.

2.2 Option 2: Full or Partial Migration to Base24-eps FIs with Base24 will have the option to migrate to Base24-eps. ACI will provide all Base24 customers with a like-for-like replacement of viable strategic business functionality, funded by product support fees if they choose to migrate to Base24-eps. Customizations will be supported by Base24-eps; however, ACI will not automatically uplift customizations to Base24-eps (although this could be achieved through a time-and-materials basis). This is the same policy as moving from release to release. The scripting features of Base24-eps enable many of the existing customizations to be managed as scripts, rather than custom code, which provides easier maintenance and moving forward with releases. Many Base24 customers are not aware of the penetration of Base24-eps in the market and are skeptical of its ability to match the capabilities of Base24. Base24-eps was first live in production sites in October 2003 (with Transaction Security Service [TSS]) components in production in July 2003). Customers using TSS (more than 100) have the foundation layers of Base24-eps. As of July 2008, ACI also has these customers on Base24-eps: •

Full environment — 25 customers

•

Enhanced authorization — 18

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Migrations (from Base24 and other ACI products) in process — 20

•

Faster payments — five

Base24-eps is driving 3,000 ATMs. One customer used it to successfully handle more than 26 million transactions in one day. Base24-eps provides more platform flexibility. While Base24 runs only on HP NonStop, Base24-eps runs on IBM System z and System p, Sun Solaris, and HP Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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NonStop. Base24-eps also enables easier customization through scripting and configuration capabilities.

2.2.1 Multiple-Platform Availability Some financial institutions believe that the sunset of Base24 means they must migrate to IBM System z. This is not the case. Base24-eps will continue to operate on IBM System z, IBM System p and Sun Solaris, as well as on HP NonStop. ACI plans to continue with its multipleplatform availability of Base24-eps. ACI's relationship with IBM does not require exclusivity, but rather, ACI is working strategically with IBM to optimize its solutions to operate on IBM System z and leverage additional IBM products such as DB2 and Tivoli.

2.2.2 Innovation ACI and Base24-eps readily adapt to changing market conditions and needs with innovation. For example, ACI was one of the first vendors to begin providing and executing against a payment services hub strategy with Base24-eps, the payment services hub being the most critical architectural initiative and innovation in the payment industry today. ACI has also begun experimenting with customers to leverage data for value-added purposes, data being a key differentiator in retail payments now and in the future (see "The Payment Hub Evolves Into the Payment Services Hub: Banks' Most Critical Payment Innovation"). Its product performance is consistently rated as outstanding by customers (see "MarketScope for Multiregional Card Management Software").

2.2.3 Migration Planning ACI plans to engage with each Base24 customer to develop a migration plan to Base24-eps. Base24 customers can do a gradual migration to Base24-eps. For example, one Tier 1 European bank is using this stepwise approach to migrate to Base24-eps: •

Authorization (for transaction approval)

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Links to core banking systems (such as Infosys [Finacle])

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Links to card networks (for example, Visa and MasterCard)

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Device processing (for example, ATM and POS)

The bank is consolidating redundant payment engines across the organization as part of this effort. Other clients may choose partial migration. For example, another Tier 1 bank with Base24 is moving to Base24-eps for authorization but continuing to run device management with Base24. Approaches such as this reduce the risk of migration. The partnership IBM has established with ACI will provide access to a deeper bench of resources for hardware, software and testing issues for FIs that migrate to Base24-eps on System z. ACI also provides many enterprise capabilities for FIs, such as Internet banking. For clients that leverage multiple ACI products, one benefit to migrating to Base24-eps is tight integration across these products.

2.2.4 Migration Costs and Risks Despite its advantages, migrating to Base24-eps is not without cost and risk. In fact, significant cost and risk are inherent in any initiative such as this. Addressing customizations will be a significant portion of the total effort. Many FIs have been leveraging Base24 for 10 or more years. During this period, they have customized Base24 to meet their unique needs. To migrate to another solution means that Base24 customers must ask themselves:

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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•

What customizations did we make?

•

Why did we make them?

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Do we really want them anymore?

For most organizations, implementation will take nine to 18 months (potentially longer for very large institutions with complex implementations) and could be a costly effort. With pressure on the cost of card operations, it may be difficult for some FIs to make the business case for migration to Base24-eps (or alternative solutions).

2.3 Option 3: Full or Partial Migration to an Alternative Payment Engine FIs may want to migrate from Base24-eps to an alternative vendor solution. Although the migration from Base24 to Base24-eps is being treated as an upgrade, from an implementation perspective it is essentially a new application because, among other things, it runs on different platforms (rather than HP NonStop only) and has a different code base. For this reason, FIs should execute a formal vendor evaluation that includes Base24-eps as well as alternative payment engines. The key requirements for payment engines are reliability, performance and scalability. Other requirements include features/functionality, flexibility and cost. One of the primary differentiators of Base24 was that it ran on HP NonStop, enabling stability and fault tolerance. Now that Base24eps runs on the same platforms as alternative payment engines (although it continues to run on HP NonStop), this is no longer the differentiator for ACI. However, Base24-eps does have 12 high-availability options for customers to choose from, one of which is active/active. Several Base24-eps customers that Gartner has spoken with report strong reliability, performance and scalability. A few areas of strength for alternative payment engines are: •

Application-level fault tolerance — for example, the ability to run active/active with application-level synchronization and in-memory processing.

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Flexibility and extensibility — for example, through a higher degree of product flexibility and software development kits.

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TCO — for example, through more product flexibility and easier customization.

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More experience with open systems — for example, some alternative payment engines have been running open systems for many years.

2.3.1 ACI Alternatives Postilion (Realtime) stands out as the most direct competitor to ACI. Like ACI, it supports POS as well as ATM transactions. It also has a vision, strategy and execution experience with the payment services hub. Kabira (Payment Solution Suite) is an emerging payment engine (POS) with experience with Tier 1 FIs in the U.S., Japan and Russia. A few examples of other alternative payment engines to consider include Metavante Technologies (Cortex), OpenWay (Way4) and TSYS Card Tech (Online).

2.3.2 Migration Planning Some alternative payment engines have toolkit scripts and resources with Base 24 experience. These scripts automate the process of moving things such as configuration, terminal and card data during a migration process. In some cases, these alternative payment engines are replacing

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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Base24 or other ACI solutions outright. In other cases, FIs are executing partial migrations. They are continuing to leverage Base24 for traditional transactions and are implementing the alternative payment engine to process new, emerging transactions (for example, mobile payments). FIs may choose to take this more stepwise progression to reduce risk and deal with years of customization on their current payment engines. Migrating to an alternative payment engine is not without cost or risk, just as migrating to Base24eps is not without risk. In addition, few of the alternative payment engines have production-level experience with (or even a vision and strategy for) the payment services hub. FIs should consider the vision, strategy and execution of the payment services hub as one of the most important capabilities of a payment engine.

2.4 Option 4: Outsource to a Third Party FIs also could outsource transaction processing to a card processor or other third party. A few card processors are: •

Atos Origin

•

Euronet Worldwide

•

Fidelity National Information Services (FIS)

•

First Data

•

SiNSYS

•

TSYS

One ACI customer is considering using ACI On Demand as a phase toward migration, in which ACI manages the conversion to Base24-eps. With this delivery model, the customer could take the system back in-house or have ACI continue its management. With downward pressure on interchange pricing, it may be difficult for many FIs to justify the business case for full migration. Outsourcing can enable an FI to avoid the capital expense of acquiring new payment engine software. Outsourcing transaction processing also enables an FI to offload processes that do not differentiate the firm. In addition, outsourcing enables FIs to scale more easily with demand. The ability to leverage data for value-added purposes will be the key differentiator for FIs in the future. Outsourcing results in a loss of direct control over operations, including data. Some large U.S. FIs have brought processing back in-house to have greater control over data. Organizations that have developed strategies to leverage data for value-added purposes and are executing against them may be wise to keep transaction processing in-house.

3.0 Recommendations No one strategy stands out as "the best option" for all FIs as they consider alternatives to Base24. Rather, FIs must evaluate the pros and cons of each migration approach relative to their payment strategies, IT strategies and market needs. In addition, they should use this opportunity to drive change and improvement in their payment architectures. Change is needed because most institutions have redundant payment applications across their organizations. They are sorely in need of more-flexible payment architectures that enable them to leverage data for value-added purposes. Affected FIs:

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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•

Avoid supporting Base24 with in-house resources if possible. It will be difficult and expensive to keep up with compliance issues and mandates from the card networks.

•

Treat the sunset of Base24 as a new product acquisition. Execute a vendor evaluation that compares Base24-eps to competitive payment engines.

•

Evaluate the benefits of a partial migration to Base24-eps or alternative payment engine. For example, some FIs are having success migrating authorization but continuing to run device management on Base24.

•

Outsource to a card processor or other third party if the FI desires to avoid the capital expense of migrating to an alternative software solution or desires to offload nondifferentiating business processes.

RECOMMENDED READING "The Payment Hub Evolves Into the Payment Services Hub: Banks' Most Critical Payment Innovation" "MarketScope for Multiregional Card Management Software"

Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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Publication Date: 25 July 2008/ID Number: G00160051 © 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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