Blog
Hell's Bells — no more transaction fees!
Payments software giant ACI Worldwide has acknowledged that, in the future, users of licensed payments solutions won't look favorably upon vendors charging transaction fees.
June 26, 2015 by Richard Buckle — Founder and CEO, Pyalla Technologies, LLC
Readers who picked up on my antipodean perspective on the night sky in a recent blog might have recognized in the post's title a song by a popular band out of Australia, INXS. When I put together (and titled) this post, I just couldn't help but think of a song by another Sydney, Australia, institution. AC/DC.
What has me reacting this way was the recent acknowledgment by one of the biggest software providers in the payments solutions space, ACI Worldwide, that perhaps the future of licensing payments solutions isn't going to look favorably upon vendors charging transaction fees.
To be clear, not the fees charged to merchants but those additional fees payments solutions vendors charge on top of license and maintenance fees just to run their products.
Having spent a considerable amount of time in the employ of ACI, I know firsthand just how dependent the company has been for decades on income generated by transaction fees, and while this may not be as well known among tier two and tier three financial institutions, for the really big FIs these fees are a big issue.
To see payments solutions vendors backing away from this tried and true model, something dramatic must be happening in the marketplace. Indeed, throw in the accelerated move to an SaaS model for payments solutions offered from out of a cloud (now becoming attractive even to the bigger tier one FIs), and you'll understand the strong exclamation point in this post's title.
In my last post, I wrote of my experience at 2015 HP Discover; now I am in Dallas for another HP NonStop-focused user group event. In a short time, I will be participating in the semiannual sales kickoff for yet another public company in the payments industry.
I gravitate to such events, where you get a good sense for where IT is headed. Unfortunately, though, timing was poor for me to consider attending the ACI Exchange User Groups Payments Conference in New Orleans.
However, I did hear from sources present and I was surprised to hear two things: 1) The interest in payments solutions has seen the emergence of more than 1,000 new solutions vendors in just the past 12 months; and 2) The transaction fee model is not likely to hold for much longer.
As much as I still retain a warm spot for folks I know at ACI and the experiences we all shared when I was part of the team, when it comes to a business model, I turned to Yash Kapadia, CEO of OmniPayments Inc., who has eschewed transaction fees from the very first OmniPayments product release.
"From the outset, we designed and implemented the OmniPayments product to be supplied to customers on a nontraditional model based purely on license fees with software maintenance and consulting services offerings pretty much the only options," Yash told me. "Today, of course, there are many more components to OmniPayments than just supporting payments transactions but the inherent license-maintenance-consulting services model remains."
Even more relevant to me was Yash's explanation of why OmniPayments elected to steer clear of pricing models that included transaction fees:
[T]he basis for this was all rather simple. At first it was in part to differentiate OmniPayments from some of the biggest payments solutions providers already well established, but also it was because among second and third tier financial institutions we saw considerable resentment of such a model. ... [O]ur move to providing OmniPayments on the basis of a service model was welcomed by the community we serve.
I reported in the post, "Changing my central nervous system," that a "major tier-one bank in the U.S. with a network of 15,000 ATMs (and thousands of POS devices) and a longtime customer of ACI Worldwide that had depended upon BASE24 to support its ATM (and POS) network," had moved to OmniPayments.
So the transaction fee-free model isn't an issue solely for the small FIs; even the biggest find such a model attractive.
"Now our services model is attracting the majority of our prospects and the absence of any transaction fees factored into our services offering is providing us with a very big advantage over our competition" Yash said. "I just don't see any future in the transaction fee model over time and certainly, I am glad we didn't go down that path."
No future in the transaction fee model! While I am not familiar with the offerings of all 1,000-plus new entrants into the payments solutions space, I dare say there wouldn't be any promoting such a fee (as part of their license).
Indeed, from what I can tell, the emergence of confidence in the cloud — in whole, or in part — in combination with hybrid computing models, is really the bigger talking point. Certainly even ACI with its ACI On Demand, an in-house developed SaaS solution, is witnessing substantial growth and clearly foreshadows what is to come.
My own observation is that there is a lot of pent-up expectation about the potential for a raft of open source products or, at the very least, far more price-competitive solutions, opening the doors for FIs big and small to negotiate far cheaper solutions.
Yes, the future of transaction fee based solutions looks bleak indeed, and for venerable ACI to even hint at changes to come ... well, Hell's Bells!
About Richard Buckle
Richard Buckle is the founder and CEO of Pyalla Technologies, LLC. He has enjoyed a long association with the Information Technology (IT) industry as a user, vendor, and more recently, as an industry commentator, thought leader, columnist and blogger. Richard participates in the HPE VIP Community where he is part of their influencer team.
