Digging Deeper with FIS: Growth Strategies of a Fintech Titan

April 9, 2014         By: Andrew Barnes

Andrew Barnes’ series, “Digging Deeper” is based in Silicon Valley and focuses on key innovators and startups and how they are disrupting digital payments and commerce. 

FIS is the world’s largest global provider dedicated to banking and payments technologies. FIS serves more than 14,000 institutions in over 110 countries, and has 39,000 employees worldwide. FIS is #1 on the annual FinTech 100 list, is 434 on the Fortune 500, and is a member of Standard & Poor’s 500® Index.

Andrew sat down with Bob Legters, SVP of Payment Products at FIS to talk about the challenges and opportunities of working with fintech startups, how he makes build, buy or partner decisions, and the new revenue share models they are bringing to the market.

 

Andrew Barnes: Bob, great to talk with you today. I’ve heard rumblings that FIS went back to the drawing board to innovate their 2014 growth strategy in payments. Can you share some of that with me?

Legters:  Great to talk with you again Andrew. In 2013 we took a new look at payments. We carved out four growth pillars. In order of importance, the consumer engagement pillar is number one for us. We had focused our development around processing platforms and tools for clients, but consumer engagement has been the missing piece. Mobile engagement, web engagement, marketing strategies, consultative support. We believe that our client base, like many of the banks, are suffering to get the full maximized potential of their card programs. That spans across credit and debit.

It has also meant getting our arms around the merchant funded deals in the offer space and starting to launch a strategy there. That has been a really tough area. The merchant funded market is all over the place in regards to value propositions and driving engagement. Anything that we can do to increase the financial institution’s relationship during the purchasing process is important. A lot of times they’re present in the purchasing decision and process but they don’t get an opportunity to show their value there.

The remaining pillars are fraud, the commercial card, and an initiative that’s geared towards the financial institutions called “integrated payments.” These are our 2014 growth areas.  This is where our capital is going, and where we believe the payment space is going.

 

As FIS builds out its growth pillars, how do you decide when to partner with startups?

That decision is the most challenging part of my job. For example, I was out at Money 20/20 and I had really interesting discussions. It’s full of startups and very creative entrepreneurial minds. But the way that you get from having a good idea to working with FIS is to help us solve a problem that drives incremental revenue for our clients, and incremental revenue for FIS, without us having to put in the lion’s share of the work.  Most of the stuff that we saw at the show, people would say “Hey, if you would only get all the banks to do this differently, then my solution is going to be great.”  That’s a tough sell.

Simply put, our decision to partner asks these three questions: Are you making it easy for our client, the bank? Are you making it easy for us to deploy? And, how much do I have to invest to get the idea to work?

To understand this, we do two processes in our product group. One is called life of the client and the other is called life of the consumer. We literally start with a white board, draw a line, and say the client’s relationship starts here where we give them a product.  We start with the questions: How do we implement it?  How does the technology upgrade?  How do they deploy it to their customers?  How does the contract work?  How does the billing work?  And then the consumer pieces – how are they going to take it to market?

Typically when we go through those 2 things, 50 to 60 percent of the startup pitches fall apart. We end up having to invest three or four times the money in order to make that idea work and also change the infrastructure of the network or the interoperability.  A lot of times when we talk to these guys, they have a good idea to get to the root of a consumer problem or a banking problem.  What they don’t have is a good understanding of the infrastructure, the design, the scalability, etc.

 

How about from a build and buy perspective?

From a build perspective, in most of these cases, we’re making a partner and build combination decision. We’re bringing on more and more talent because we know that even if we do partner with a vendor, we’re going to have to make iterative improvements to the technology and iterative improvements to the integration.

As far as acquisitions, it’s really something driven out of our corporate group and they work closely in partnership with us. This process is a little more intensive. The evaluation happens a little bit differently.  Not every investment that we make is based on a product solution we’re going to put out. Sometimes it’s an investment based on a market approach for us.

 

Do you make yourself available to startups to influence their early decision-making so that they bring things that you can actually work with? Do you have an institutionalized mechanism for that collaboration loop?

That’s a great question. Probably not as many as we would like to have. Internally, we have a triangle approach to collaboration. We have a product group where we’re life-cycling the product and saying these are the gaps that we’re going to need to find a way to fill. We have a strategic market trends group that looks at the direction the world is going, the big influencers in that direction, the things we should be thinking about. And then we have a strategic investments group that is looking at the cool technology out there.

The result is that we’re saying, “This is the way the market is going, here’s the technology that’s going to help us get there, and this is what problem it solves for our clients, or the opportunity it creates for our clients.”

When it comes to externally engaging with those guys, Finovate and Money 20/20 are two good examples where we make ourselves available to some of these other solutions. The rest of the time we’re actively seeking out solutions that give us revenue opportunities.

 

It’s clear that at the end of the day FIS is working for its clients.  When there are three of you in a room, FIS, the startup, and the client, how do the discussions go and do you act as a facilitator?

We absolutely do. We bring a client and potential partner together because we try to stay away from making assumptions on the consumer’s behalf for our clients by saying we’re going to partner with these guys and they’re going to make the client do this with their consumer.  There’s almost no situation where we’re not beta testing or bringing in some of our advisory board members.  In each of our payment lines, we have advisory groups and participant boards.

We typically bring them into the discussions early on to say “does this sound like it would be a good idea if you did this with your customers?” “Is this a segmented approach or would this apply to your whole portfolio.” Of course in our modeling, we’ve got to figure out how we do it so that we can bring it to the client at low cost but at scalability.  We find ourselves at the table many times in full transparency with the client and the vendor.  A lot of times, that’s where the truth comes out about what the vendor is asking us to make the consumer go through. The client is obviously very protective of the requirements you pass on to their customer with their brand on it.

We’re at that table playing devil’s advocate quite a bit with our clients and asking if something will work this way, or that way.  It’s brought us to the point where we’re developing some new revenue share models.

We’ll say, “we believe in this idea, but we believe that it will only make money if the consumer engages, so we’ll partner with you to lower the cost to market and then we’ll share the benefit on the back end.”  That’s unheard of in the processing space. We’ve gotten a lot of positive responses from the clients with that strategy.

 

Can you share more about FIS’s revenue sharing strategy and why you felt it is needed to keep growing?

I’ll give you a great example. This year we’re launching a product called GenNOW. It’s a mobile first prepaid card, both virtual and physical that has a complete banking suite wrapped around it with deals and offers. It offers a rewards program. It will allow remote deposit capture with instant funds availability. It’s designed to acquire that young and mobile consumer, just out of college, and just getting started in their financial world.

We’ve gone to the clients and said we realize that the biggest investment you’re going to have to make is in the branding and distribution to your existing and new customers. Instead of having a standard prepaid processing agreement where you pay monthly fees, we’re not going to have a fee structure like that. We’re going to do the processing work.  We’re going to do the fulfillment work.  We’re going to partner on the go-to-market strategy.  And regarding the fee structure and interchange that’s generated from the card product, we’re going to have a revenue share model in that.  That right there is probably the capper of the value proposition.

We’ve told the clients that in our hearts we don’t want to be in competition with you, or in that type of partnership.  What we really want to do is get you started.  When you feel the product picking up speed and becoming profitable, we want to move into our standard relationship which is what we’re great at.  Scalable processing, network, and distribution.

 

Mobile, mobile, mobile.  What are the challenges in getting your clients, the financial institutions, to embrace and implement mobile solutions even though mobile is all we seem to be talking about?

While it’s being more widely accepted, a mobile first strategy is still new for most financial institutions.  A typical financial institution wants somebody who starts with a DDA, gets a credit card, gets a home loan and a car loan, and their relationship matures through the banking product life cycle.  The new life cycle is going to start different.  It’s going to start with this type of product for the young and with mobile in mind and then eventually they’re going to have a DDA.

They’re going to have a home loan and a car loan, but if you don’t acquire them with the banking product they need now, by the time they need those other things, they’ll belong to someone else.  It is a lot harder for them to accept that “I’m going to put a lot of money into the growth of this,” which is one of the reasons why we went with the partnership approach as well.  It’s an easier sell.

We made a revenue share so they can say all the risk is in the growth of it, not in the fixed cost.  We want them to have skin in the game –they’re using their brand and their marketing and acquiring customers as it’s not a no cost solution.  It’s a shared risk solution.

 

Imagine that you are in a room full of startups, fintech types, and they are dying to crack the code of working with financial institutions.  What advice can you offer them for getting to “yes”?  

My advice would be to think about the entire life cycle. What we tend to see a lot of is that they’ve solved one part of a total life cycle problem.  They get so focused on one thing that they forget about the other things.  They hard code in the functionality of the peripherals instead of realizing there’s going to be 6 or 7 different choices, or there’s going to be a more diverse crowd or there’s going to be a greater footprint.

If you’re solving problems for people with linkable offers, the challenge of linkable offers is that you have to be able to speak to people of all demographics. It can’t just be high end or low end.  If you’re not solving the full content problem, then when you’re knocking on the door, you’re only solving a piece of the puzzle.  Make sure your puzzle piece allows for others to play so that we can solve the full puzzle and we’re not tied to your solution that only solves a piece of it.  What we end up having to do is reverse engineer the solution because they didn’t consider how different customers will react in different demographics and different size portfolios.

Regarding innovation, people are often looking for a reason to say no, not a reason to say yes.  You have to eliminate any of the emotional reasons people would say no.  In your solution, you can’t always just say “wouldn’t you just do this?” I would, but my clients would do 6 other things.  Make sure I’ve got some choices in there and you’re going to get one more iteration down the road.  One more choice means one more yes.

 

Ah, the injustice of it all.  The key for a startup is having a definable value proposition so that they get noticed in the marketplace. They want to be something to somebody instead of everything to nobody.  But they are also being required to devote valuable resources to building flexibility into their platform.  Painful, no? 

You’re hitting on a key point.  The difference between selling to a bank one at a time with a licensed software solution and selling it to one of the large processors is that we have to be a lot more of everything to everybody.  When startups come to me, a lot of times I see an idea and say wow, I could sell that to 100 clients.  But at FIS we have an interesting dilemma.  We don’t have good ideas against bad ideas. We have 50 good ideas and the time and resources to implement 25 of them.  When they bring me an idea that’s going to be really good for 50 or 100 clients, I’ve got 25 ideas that are good for 5000 clients.

You’re absolutely right about that because it’s almost unfair to the startup that I force them to solve multiple problems.  If they decide that they want to play at this level, then they’re going to have to face that reality.

 

This is not for the faint of heart.

Amen.

 

On that revival note, it’s a wrap.  Thanks for your time Bob. This has been great.

You are very welcome as always Andrew.


About FIS

FIS is the world’s largest global provider dedicated to banking and payments technologies.  With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 110 countries. Headquartered in Jacksonville, Fla., FIS employs more than 39,000 people worldwide. FIS tops the annual FinTech 100 list, is 434 on the Fortune 500 and is a member of Standard & Poor’s 500® Index.


Bob Legters

For the past two decades, Bob Legters has focused on products and services support for clients. During his time with FIS, he has held leadership roles in Consumer Servicing, Client Servicing, Strategic Planning and Payment Products. He has worked with teams in North/South America and Europe to provide award winning results in the payments efficiency and innovation space. Bob’s unique experience allows him to efficiently operate at a level that exceeds the normal executive role of understanding and recognizing client and consumer needs in the payments space.


barnesAndrew Barnes, Senior Executive Writer, Emerging Markets – Payment Week

Barnes is a self-confessed payments and commerce “geek” working in Silicon Valley and San Francisco. Leveraging his entrepreneurial background he utilizes relationships in tech, startups, retail, and financial institutions to identify emerging opportunities and analyze challenging business models in payments and mobile commerce. He has held executive business development positions in Asia with Sprint, Global One, and 2Roam Mobile. He founded the National NNN Investment Group and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from Waseda in Tokyo 早稲田大学大学院 and a BA from Penn State.  He can be reached at @AndrewinSV and Linkedin