Chargebacks within ACH Payments Processing

March 23rd, 2010 No comments

ACH processing allows a business to receive money by directly debiting a consumer or business account directly using the accord number and bank sort code.

The consumer or business is protected from unauthorized debit by having the ability to dispute a payment at their bank for 60 days from the payment. For a period of 60 days during which the authorization of a payment can be disputed or during which they may “revoke authorization”. The consumer should attempt to resolve the matter directly with the supplier but if they are unable to get a response or resolve their issue they may attempt to have the bank return the money. The consumer signs an affidavit and the bank issues a chargeback. The payments processor’s account is debited by the bank and they attempt to obtain the money from the supplying company. If a company fails and large numbers of customers request chargebacks the payments processor can be left with significant losses.

The business can to an extent try to protect itself from customers having buyers remorse and unnecessarily committing “friendly fraud” by having a physically or digitally signed agreement is mandatory for recurring payments and can go some way to defending yourself and having the chargeback reversed by your payments processor.
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Should I use Outsourcing?

March 9th, 2010 1 comment

Outsourcing, the reallocation of tasks to a remote location, normally in a cheaper region, has been with us for over a hundred years in the textile industry but has also been growing in IT for nearly twenty years. It has been powered by the arbitrage between the living costs in countries with high costs of living (Over $3,000 per month) and locations where living costs are often below $1000 per month. The savings are not 66% though, particularly where the process is being driven from the client location as extra definition, training and communication steps and governance are added in order to manage the workflows and service levels. The end process is better managed and more repeatable and retains a 20 to 50% saving for IT build or maintenance. As it is the communication at the interaction point that requires more management the larger the project the smaller the interface proportion allowing significantly greater savings to be achieved.

The subject of outsourcing is unfortunately mired in prejudice, self interest and nationalism. People tend to be behave is if they had one of two strongly held views. One that people in country C can do anything, and one that people in country C can’t do anything. Both ideas are foolish and clearly say more about our predispositions than the facts. Vendors who train and manage their people are needed,  the vendors need to have the right skills sets and the projects need to be setup with governance models which allow the relationships to work. Established vendors have far greater experience at making this work and have significantly higher success rates and quality metrics than first world consulting companies just because they are handling more projects and know that the quality of their project delivery is what their brand depends upon.

There is a, frequently unstated, objection regarding the moving of work offshore or to less expensive communities in terms of preserving local jobs. The consequences of job relocation can be survival in a competitive market but it can also be a loss of jobs in areas which have been use to having a larger proportion of the better paid jobs and as a result are higher cost locations. From an ethical perspective though the idea that available work shouldn’t be done in less wealthy locations is clearly self interest as the geographical equalizing of labor costs is caused by numerous instances of families and communities in less privileged areas receiving work and being able to put money to much more important basic uses than in expensive locations.

Software development as a process is well understood in terms of the factors that effect its outsourcing and which systems are going to require special treatment. When it comes to more general Business Process Outsourcing (BPO) you outsource a function as a series of processes that perform some service. Processes need to be assessed for their suitability. The number of interaction points that are going to become remote are a significant factor; the latency of steps in the process etc. etc. The incredible advantage of business process outsourcing is that the supporting services be they administrative, human resources or IT can all be provided locally at tremendous saving.

All of this setup and management is a critical part of a successful outsource relationship.  Some processes do not have sufficient regular work to give a sufficient return on the setup and management though it has to be said that this is a problem for the business even performing the tasks in house and it may be that an outsourcing assessment is an opportunity to eliminate some of these. Rapidly changing significant processes can also be a problem not so much because the structures can’t be dynamically changed but more because of the contractual nature of the arrangements used. If your business is doing different activities in different month unpredictably it would need to be possible to renegotiate SLAs repeatedly which would only be productive for large relationships.

Smaller units of work can be outsourced as tasks but there is a need to describe the tasks and set parameters around them for them to be successfully completed. As a result the tasks need to be repeatable or easily describable and assessing the effectiveness is difficult if the tasks are not recurring. Functions involving less than three full time employees are difficult to outsource other than on a per task / piecework level though. Below that point the management of the relationship and governance are going to be too significant an overhead. The benefits of per task allocation would have to be assessed by reviewing a selection of the tasks below that size.

Another decision point of discussion is if key functions should be outsourced. When most companies have started outsourcing they have begun with less critical functions or internal support functions. This allows the organization to learn how to manage the relationships. It is critical that these early relationships are setup successfully because if not the organization can become soured to the process for many years. The choice of these early functions though does not imply that the primary functions of the organization shouldn’t be outsourced. They clearly should be as they are the major cost drivers and are likely to have sufficient scale to realize benefits. Where the business process is the primary source of brand uniqueness there may be a wish to carefully manage the visibility of the process or to retain key stages involving for example pricing disclosure.

Security can in general be a concern. Some regulatory frameworks allow subpoenas more easily than the client location so there may be a need to mask and anonymize data before it is transferred. Regulatory concerns or management preference can also be cause for masking data. In general the more common regulatory processes are reproduces by the larger outsource vendors and adherence to security procedures is better than in many organizations resulting in the offshore locations having fewer cases of criminal use.

An additional advantage of outsourcing, particularly with larger vendors, is the scale of the campus environments that you are working with. For any particular skill set there will be many more people on their campus who have any particular skill than in most organizations. For the larger vendors the individual campuses are over 5,000 staff allowing somebody to seek guidance from a similar person working for another client.

If you think you have a function which may benefit from outsourcing we would be very happy to discuss the options with you. +1 (646) 402-6500

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Should I use ACH payments?

March 1st, 2010 No comments

If you are processing payments, either collections or disbursements in tens per day or hundreds or thousands per month then you are likely to be able to reducing our invoicing, collection, reconciliation and payments processing costs by using ACH transfers.

Instead of paying, for example, 3.5% for the collection of credit card transactions (including the 18c transaction fee) you will be paying per transaction at a rate from 15 to 35c per transaction. This is typically significantly cheaper depending on your average transaction cost. Even at a 35c flat fee ACH and 18c plus 2.35% for credit card transactions ACH will be cheaper for all transactions greater than $7.23. ACH transactions are setup to either collect or receive payment based on an account number and allow your customers to pay you with an e-check process. Depending on the nature of your product or service you may be able to have people pay you on a regular schedule which will improve your internal cash management.

Additionally by sending ACH data to your bank you provide more consistent data than by paying in checks so you have are able to the extent permitted by your bank to add reference information which allows you to reconcile your banks resulting statement information.

ACH transactions are different from credit card transactions in that you aren’t reserving credit in real time and are exposed to incorrect or fraudulent account information being given to you so your ability to use ACH to receive payments will depend on the nature of your business. If you are shipping goods you may be able to wait for payment to settle before shipping or you may choose to use ACH transactions only with established customers where reduced payments costs outweigh the risk. For most businesses who are invoicing and receiving payment after providing their service or product sending ACH data to your bank is an all round win.

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Consumer spending is continuing to shift to eCommerce

February 20th, 2009 2 comments

US eCommerce for Q4 2008 was down by 4.9%, as compared to Q4’ 07, according to the Department of Commerce or 3.5% according to comScore. The comScore number excludes the significant online travel sector. Q1-Q3 had shown consistent growth (11%, 13% and 6%) leaving the year as a whole with a 6% growth for non travel and 9% for travel. Travel makes up 28% of consumer online sales.

The fact that online sales grew for 2008 as a whole is heartening for eCommerce as oppose to bricks and mortar retail which saw year on year growth for each quarter of 6%,5%,6% and -4%. The -4% is very significant as bricks and mortar retailers see a higher proportion of sales in Q4 than eCommerce retailers.

The difference between online and bricks and mortar is clearer in specific sectors with sports being down 3% for Q4 year on year in physical stores as oppose to Sports and Fitness being up 16% year on year for eCommerce. Unfortunately the categories used to assess bricks and mortar sales and eCommerce are not the same and some goods are more or less amenable to online sales but for categories such as Sports and Fitness there is significant competition between online and bricks and mortar sales and the disparity shows a continued migration to eCommerce.

Within online sales there is significant variation by product for example music, movie and video sales were down 34% for Q4, year on year. Office supplies, jewelry and event tickets were also significantly down for Q4 where as consumer electronics, games and sports equipment all grew year on year even in Q4.

For January ’09 there was a 2% growth for total eCommerce over January ’08 which is very encouraging as compared to the -3% fall for Q4 or the continued significant bricks and mortar declines in January.

The better figures are due not only to convenience and the better provision of information but also due to the better demographics of the online shopper. Only 19% of online spending is from those with an income of less than $50,000 partly because they are less likely to have a home computer. Online spending by those with incomes below $50,000 declined by 9% where as the online spending of those with all higher income brackets increased in January’09 over January ’08.

The  take away message is that the retail consumer is continuing to shift to online purchasing and we should expect to see firmer numbers from eCommerce during the recession as well as significant growth on recovery. The bricks and mortar retailers will remain under pressure and be required to innovate in order to benefit from the recovery of consumer spending.

The figures above are from the Department of Commerce and comScore who released their quarterly retail commerce report including Januar’s numbers yesterday.

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Cloud Computing Space

February 15th, 2009 No comments

A map of players in the cloud computing space here.

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Providing clients and brokers with transparency

January 4th, 2009 No comments

Bernard Madoff’s last minute honesty will not be the last disclosure to be prompted by the harsh realities of the current financial climate. Clients need reassuring and that means providing greater transparency so that they know bad news is flowing with the good. Madoff’s funds were being executed and cleared by his own business so there was no independent custodial or prime broker reporting of the value of the funds. Regulators and the market will put pressure on this kind of arrangement but funds providing their own execution and clearing or with multiple brokers are left with a lot of integration work which it is difficult for them to manage internally and they are often reluctant to resort to hearsay reporting of positions to a prime broker.

Leveraged funds will to some extent be driven to disclose fuller details to their lending brokers because without a true prime broker arrangement there is not visibility of the full fund and trust is no longer sufficient to allow lending to the level of leverage that the funds had enjoyed. A lesson that was taught by the Long Term Capital experience where multiple lenders were unaware of the extend of borrowing and exposure from other brokers.

The greater significance of transparency gives added leverage to Prime Brokers and Custodians to offer reporting services and increase the premiums people are willing to pay for more regular or better integrated reporting. The challenges of integrating derivative workflows in order to provide greater confidence in the valuation and reporting process will also continue to be differentiators.

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Marketing Focus

January 4th, 2009 No comments
Doing something well or everything well enough?

Doing something well or everything well enough?

At the moment the majority of smaller outsourcing businesses have very unfocussed marketing strategies conveying expertise in a wide range of technologies, Typically .NET, Java and C++ and a wide range of business functions (Verticals). This offers little focus for the sales staff who must inevitably decide to focus on a particular industry sector. For some this is a strategy of opportunism which has some survival benefits. When there is growth in a particular industry it becomes a focus and when there is a contraction it is deprioritized. The opportunism element really plays out in working with networks of contacts as almost anything is able to look like a lead where as a better defined target customer requires a structured search.

When it comes to trying to sell higher valued work or demonstrating experience the pitch is undermined by the broad positioning of the brand. Several outsource businesses begin the sales process with cold calling which does require a selection of prospects but even for companies of very modest size the range of businesses and skills being pitched is extremely broad and fluctuates from quarter to quarter. The focus initially should be on growing within existing clients through consultative selling or selecting similar or adjacent businesses. Beyond existing customers a decision needs to be made to place the focus on a particular industry or specialized skill. The advantage of selecting particular industries is that it assists with managing the cost of the sales process. You know which industry to build a network within and your case studies will support the pitch. These prospect selection decisions can not be made on a case by case basis as the resulting brownian motion will not form something which can be defined as a coherent brand positioning. With a specialization on a technical skill rather than a vertical the focus needs to be on demonstrating leadership and assisting new clients in finding you.

It is possible that a generalized outsourcing business could thrive by continuing its ‘jack of all trades’ positioning by having a deep sales network in a geographic market. This would be by having established competence by reputation locally and therefore not being judged so closely on its applicable experience. This appears to be the accidental strategy of many but there is a lot of evidence from the number of small outsource businesses with little organic growth, that this results in clinging like a limpet to one or two clients and a failure to cost effectively grow the client base.

The answer is to develop a market positioning before a diverse inexplicable range of clients emerges and all but takes control out of one’s hands. Once in that position one needs to forma strategy and stick with it going forward. Focus marketing and sales effort long term potentially by selling off or exchanging some clients who are no longer core.

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Is Outsourcing Slumping?

January 2nd, 2009 No comments

Despite articles to the contrary IT outsourcing  is not disappearing. There is some apprehension regarding regulatory winds causing a different view on tax or immigration and putting outsource relationships under uncontrollable change but that will settle down within the first couple of months of the year. The economic drivers for outsourcing still exist and they often drive policy in practice and are likely to continue to do so. The cost savings from outsourcing of simple business processes or calling centers are overwhelming because the activity can occur almost completely offshore.

The cost saving when outsourcing more expensive tasks such as software development to India or China are only 15 to 20% due to the larger onsite and integration management component. A saving of 15 to 20% is considerable for a major IT department and this lower percentage doesn’t mean that the savings are wiped out by potential currency or cost swings in India or China. The offshore proportion of overall development outsourcing cost is relatively small. The onsite teams and employee relationship management and interaction are all onsite costs in the buyer’s own currency. The offshore component of the cost has overwhelming economic advantages far in excess of the 15 to 20% of the overall cost of the operation. If offshore costs rise by even 20% then the overall benefit of offshoring only diminishes by a couple of percent. Significant to the vendor’s margins but not to the overall rational for the process.

The other advantages of the scale of the skilled staff pools offshore and ability to ramp up and down team sizes in a very dynamic market remain completely in favor of outsourcing. As a result most large corporations are likely to want to continue to want to have the majority of their IT development staff in outsource arrangements. The BPO and KPO areas are going to account for higher growth rates and will also result over time in the complete outsourcing of the related IT support.

The significant barriers remain political but politics inevitably eventually follow the economic drivers. We will just need to see if there will be any barriers put in place.

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People Value Presence

January 2nd, 2009 No comments

By presence we mean knowing that somebody is available is if they were present. Colleagues in the office seem more engageable because we can see their availability, or the lack of it, and determine how interruptible they are. For those away from the office either on travel, in the field, or in a home office a common complaint is that people don’t contact them. Around a building when people are away from their desks we could contact people with a mobile phone but don’t because we don’t know if they are in a meeting. We could use corporate instant message tools if they are at a desk or SMS as a slightly more polite form of interruption, and the under 30s often do, but for good reasons, many don’t use SMS or mobile phones in general because the recipient may be in a meeting.

To some extent people can be encouraged to use SMS more often but there is still a strong need for presence to indicate if people are available. We can have people’s calendars but that misses the point. It is their availability that presence information tells us. The setting and delivery of the information preferably should be a mobile device.

In a corporate environment we don’t want to be mixing with many of the existing social networks and firewalls prevent use of commonly available tools so until more professional tools, possibly LinkedIn or Skype are offering the kind of presence / status information that face book provides we need to encourage the use of SMS without presence information and look out for tools like Skype and LinkedIn or others providing it on portable devices. Some major corporations are using internal messaging applications but a are generally lacking mobile integration due to cost. The business need is strong and the functionality will break out from the current implementations on mobile phones of Facebook integration or the Microsoft Live tools currently in the consumer market out into tools more acceptable in the corporate market.

What tools are you seeing people using in an office environment?

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American Competitiveness

November 29th, 2008 No comments

There has been much discussion of U.S. competitiveness lately. Michael Porter of Harvard has had the front cover of BusinessWeek and the New York technical community is a buzz with how it needs to save the economy. This comes after the demotion of media, advertising and financial services which are all undergoing structural change that has shaken their institutions and hasn’t stopped shaking them. The Hi-Tech industry in New York is smaller than that of Boston and has had difficulty achieving economic scale, particularly when it is compared with California, Tokyo, Taiwan, Israel, Bangalore or the UK. The strongest remaining business in New York is Health Care and that is not something on which the economy can be based. The surrounding area does have significant Pharma businesses and it is noticeable how many service businesses are trying to re-orientate themselves to serve the Government and Pharma businesses. You just can’t export the Health Care services and to the extent that you can their price would not be competitive.

The call for government strategy is partly in denial of the fact that the economy makes more decisions than politicians do, but there are things over which politicians do have influence. For example there is a need to better understand the impact of the split between federal and state government. The federal and state split in the US starves the funding of education and social services, as compared to defense, due purely to which side of the government tax structure they fall under. We have competition between states which drives down our education and social programs to the extent that many children have so many issues in their homes that they can not focus in the classes that are available to them. The problem is further exacerbated by the provision of so much educational funding at the township level so that wealthier towns pay only for the education of their children and not those of the adjacent poorer town.

The strategy of a strong military to control the resources that we need, rather than a skilled workforce to provide economic strength, is a strategic decision which we would do well to re-examine. Imperialism is part of our past, as with many countries, but it isn’t acceptable as part of a modern, communicating, flat Earth.

America has enormous strengths due to scale and having the world’s reserve currency. Both of these advantages, for our industry and our government, put the US economy head and shoulders above any other. Our companies can be more specialized and more efficient in their chosen market purely due to the scale of our economy and this higher level of specialized experience puts them at a huge advantage to competitors in smaller economies. Europe, as the closest competitor in scale, is in reality a series of markets fragmented by language, media, culture and law. Europe and China are however becoming better integrated and catching up.

The use of the USD as the global reserve currency allows the US government to borrow in its own currency without devaluing it. Other countries have a limited ability to borrow without weakening their currency and having resulting difficulty in repaying loans in foreign currency. This single factor will allow America to spend its way out of a recession more cheaply and to a greater extent than any other Country can safely achieve. One strategy that US governments have consistently followed is to maintain the U.S. Dollar as the global reserve currency. It has driven policy over many spheres, from the creation of the IMF, to the support of oil rich governments. While the vast majority of global trade is valued in U.S. dollars less than 18% of it is with the U.S. itself. The largest single chunk of that global trade is due to the pricing of oil in US dollars. Much world trade is also in oil derived materials, energy and transportation which inevitably track the price of oil.

Michael Porter’s article over plays the strength of the US economy having been based on our brilliance in technology, finance and the brilliance of our institutions while it ignores the advantages of sheer scale. Even issues such as U.S. companies being able to sell almost all of their product in their own currency and not having to cope with foreign exchange risks to the same extent that other nations’ businesses do, have a significant benefit across economic cycles.

The claim that America lags so heavily in access to University education is dubious. When we compare university education in different countries and across different decades we are not comparing apples with apples. America has very broad access to university education with much better access to funding than in any other region of the world. One has to note that Michael Porter is a Harvard academic.  I would suggest that U.S. university education is probably more constrained by the educational standards of those entering university than by financial constraints. Michael Porter appears to agree with this assessment of public education. The problem with this and social investment by governments, as a strategy, is that it takes fifteen years for us to start receiving the benefits and we have been soft peddling for far too long.

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