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22 октября 2014

Tieto: Looking Into the Future Together With our Customers


The issues concerning bank cards issuing and acquiring, the development of a national payment system today is one of the most talked about topics in Russia.

Software Product Line Manager Tieto Cards Parsla BETHERE told in NBJ interview about the risks for such processes and about the ways these risks can be mitigated.

NBJ: Your Company provides a full range of processing solutions to financial institutions. Is this service highly demanded by the Russian financial organizations now?

P. BETHERE: Due to the oversaturation of the payment industry market the interest for the complete solutions concerning credit card processing is reduced. At the same time the regular change of financial institution course in terms of processing models continues, that is, banks are moving from in-house processing to the outsourcing of third-party processing centres and vice versa. This process was always the case. Besides, in Europe and America there is still a transition from the systems of the past century, which do not meet the requirements of security, business and technical aspects to advanced solutions.

But there is a growing demand for niche products at the near market. Today alternative services, such as e-commerce and self-service terminals are rapidly developing in Russia. Credit schemes are becoming increasingly complicated, so a demand was created for online-integration with Retail Banking systems.

In 2013, the most popular solutions among our customers were Person-to-Person payments and contactless cards. Banks started to pay a lot of attention to the range of services expansion and the card product technologies development. Also a great interest was observed in relation to Business Intelligence solutions: the requirements for a simpler and more intuitive access to analytical data are actually an urgent need in the age of mobile phones and tablets.

NBJ: Tell us about the risks of electronic payment use. Strict requirements for processing security and card circulation are put forward today. Can the Company develop and offer solutions that meet all these requirements?

P. BETHERE: Nowadays the acquiring networks with new and different channels of card reception are in trend. However, each time you select a new channel a bank must take into account the potential risks and the investment needed for safety provision. Tieto offers its customers the service of traditional communication channels (ATMs, POS-terminals) and such channels as e-commerce and contactless mobile commerce. The company takes quite a proactive approach concerning security: the use of EMV-standards, 3D Secure technology, the interaction with Trusted Service Manager solutions in combination with an effective risk management in real-time. These solutions are recommended to our customers and not without a reason – they take our advice into account. I should add that we closely follow PA DSS standards compliance which varies according to the current needs.

NBJ: Software developers have the goal to create a product that meets the requirements of a large number of banks. Is it possible to develop a versatile product that will meet all the stated requirements?

P. BETHERE: I would like to note that the requirements depend directly on the region. Since Tieto operates in several regions (Russia, CIS, Africa, Eastern Europe), the card business in every region is different. A universal product can't meet the customer requirements. The competition among banks is increasing. The credit institutions and, accordingly, vendors whose systems have a single platform are the winners and will be able to develop different business solutions without significant time costs.

That is our task. We have solved it and continue to address. Card Suite system flexibility helps to optimize business processes and expand traditional payment services. Tieto provides banks and processors the ability to monitor and obtain financial profit from each payment card business component: issuing, acquiring, routing, clearing, fraudulent transaction prevention, dispute management, mobile and electronic commerce.

NBJ: What are the main competitive advantages of your company compared with other suppliers of processing solutions?

P. BETHERE: For 22 years payment card business experience of Tieto, we have participated in the development of ten national payment systems. In these cases Tieto developed the business concept or provided software. The key to success of our Company is the development of flexible and easy integrated solutions. Despite the fact that all ten payment systems were developed using the existing industry standards as a basis, each payment system is a unique one because of the region location, domestic legislation and business requirements.

Every time we share our experiences and try to find an optimal solution to provide the viability of a payment system not only at the moment of its implementation, but also with the regard to potential development – the expansion of operations, the introduction of new services and advanced technologies support.

NBJ: In your opinion, why are NPS developing so rapidly nowadays? In your opinion, what products have future potential?

P. BETHERE: National payment systems allow us to offer the most attractive services within an interbank market and contribute to the rapid introduction of new solutions, as well as improve the interbank communication. If the most part of transactions is a local traf­fic, then I do not see any particular reason to issue the cards of international brands that do not leave the country. Banks have to pay license fees for branded cards, solve inconsistency problems of LPS rules with local laws and regulations, as well as put up with rather slow implementation of specific services to address local business challenges.

NPSs are developed according to one of two scenarios.

  • Banks decide that there is a business ben­efit to create a local processing system, which eventually develops into NPS and jointly agree on the terms of such a sys­tem operation. According to this princi­ple the local system in Latvia was devel­oped.
  • According to the initiative of the state bodies: National Bank makes the propos­al to establish a national card, determines the payment system rules and chooses a national processing centre.

Experience shows that NPS are devel­oped successfully if they started with sim­ple technical solutions, for example, the issuing and acquiring of magnetic stripe cards with a national brand, got the pop­ularity and only then switched to the lat­est technology and services for card users. However, when advanced technologies are introduced it is better to choose the inter­national standards as the market (acquir­ing devices, infrastructure and the systems of banks and processors) is ready to pro­cess the information of these standards. Today, many local cards are being trans­ferred to CPA standards and successfully continue to be served on a variety of card acquiring devices. If a bank has a system for issuing and acquiring of MasterCard cards, I do not think that the introduction of a national standard technology card will create problems in terms of software.

When a national processing is be­ing created the challenge of routing and clearing system flexibility arises. There are two different approaches connection of the system participants: processing de­termines its standards for the connection formats (authorization and file exchange) or the processing is adjusted to the partici­pants at the maximum. In both cases, there are pros and cons. The first option pro­vides the opportunity of very rapid devel­opment for national processing and oper­ation cost reduction. Tests are necessary only for one connection format. New ser­vices may be implemented regardless of the participants' number. But it's a com­plicated option for system players: the de­velopment and implementation of new standards is necessary. The second option is more convenient for the system partici­pants, but it's more technologically com­plex for the processing.

Tieto in its practice has implemented both of these types of processing and offers it's own universal format for integration as well as other formats. The last implementa­tion project was based on the option when the processing is adjusted under participant formats. We have implemented such a proj­ect from scratch in less than a year and con­nected ten banks during the first stage. This was possible thanks to the fact that we had different developed interfaces for almost all payment card processing systems, known in the industry as standard products.

Then the question arises about the en­suring of payment card acceptance outside of its state? In the market have been ob­served three scenarios. The first one is the long known Cobrand-products that com­bine both local national system and IPS. This option was chosen by the national card of Belarus - BelCard. The second scenar­io is the cooperation agreement for the im­plementation of authorization and trans­action transfer with international payment systems. Such service is used by JCB card (Japan Credit Bureau), combining this ap­proach with the development of its own in­ternational network of acquiring. And third scenario, the most ambitious one: the de­velopment of a national card into inter­national payment system. The example of this scenario development in recent years is China Union Pay system creation. Ten years ago CUP used the first scenario to serve its cards abroad. Seven years ago it started to develop its overseas network of acquiring, and today it's the largest payment system in the world.

NBJ: You have listed quite a range of require­ments, which a national payment system should address. What, in your opinion, is the most important for such systems operation?

P. BETHERE: The presence of interfaces is not the only requirement for NPS devel­opment: since one system accumulates the traffic across the country, it cannot afford even a few minutes of inactivity. During the implementation of such projects, we pay a special attention to implemented sys­tem availability, primarily for the real-time operating systems. 99,999% system avail­ability is the necessary standard, which we consider as absolutely obligatory for national payment systems.

Of course, we should not forget about interbank settlements provision. The whole world became accustomed to the standards of international payment sys­tems concerning the calculation of obli­gation reimbursement positions and inter­bank fee calculation. When you start these projects the obligatory stage for us is to reconcile financial settlement models be­tween banks - the NPS participants. We understand the need of these solutions and offer them to our customers for for their business success. Moreover, each partic­ipant of a payment system or a group of participants can have an individual mod­el of fee application, security deposits and calculation scheme.

NBJ: Your Company uses advanced technol­ogies which are available on the market at the moment. Did you provide the other side with such an experience?

P. BETHERE: Our Company's activities in different markets, as well as cooperation with various card organizations has made it possible for Tieto to accumulate rich experience. At the moment, we actively provide consultations and participate not only in the implementation but also in card business solutions development for various financial institutions. The approach to each client is different. The solutions are selected on the basis of cus­tomer business model and the possible development trends. Besides, we regular­ly inform our customers about all the updates, which we have, as well as orga­nize events where Tieto business and technical consultants not only inform customers about the company products, but also touch upon and discuss the mar­ket and card technology development trends. We look into the future together with our customers.

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