SECTOR: E-COMMERCE ENABLERS
What CKFR does/is ..
Our electronic commerce services are primarily targeted to consumers
through financial institutions and Internet portals. We believe that our
services offer significant benefits to financial institutions and Internet
portals, including an enhanced electronic relationship with their consumers
under which they can market other products and services and, for financial
institutions, a lower cost of providing traditional banking and bill payment
services. We are continually developing new electronic commerce services and
enhancing our existing services for each of our target markets.
We have arrangements with more than 350 financial institutions through
which electronic payment services are provided to their customers. Some of the
financial institutions we serve include:
- Bank of America - KeyCorp
- Bank One - Merrill Lynch & Co.
- Charles Schwab & Co. - NationsBank
- Chase Manhattan Bank - Wells Fargo
- First Union - U.S. Bancorp
Bill Payment and Banking. Our bill payment services enable financial
institution customers and direct consumer subscribers to pay bills
electronically using a variety of devices such as PCs and touch-tone telephones.
Bills paid by consumers using our bill payment services typically include credit
card, monthly mortgage and utility bills, but a cornerstone of our services is
that we can facilitate electronic payment by consumers to anyone, regardless of
whether payment is ultimately made through an electronic or traditional paper
method. Consumers can use our services to electronically make any payment from
any checking account at any financial institution in the U.S. Recurring bills
such as mortgages can be paid automatically and scheduled in advance, as
specified by the consumer. As of March 31, 1999, we had nearly 3 million
consumers using our bill payment and home banking services.
We support home electronic banking services for financial institutions and
their customers. Among these are balance inquiries, fund transfers, customer
service, customer billing and marketing. Our service facilitates on-line
reconciliation to PC and web-based account registers, matching cleared items
with previously entered transactions.
Revenues are generated through contracts with individual financial
institutions. We typically negotiate with the financial institution an
implementation fee, a base monthly fee per customer account on the service
provided, and in some cases, a variable per transaction fee which may decrease
based on the volume of transactions. Contracts typically have three to five year
terms and generally provide for minimum fees if transaction volumes are not met.
We utilize direct sales and distribution alliances to market to financial
institutions and have the ability to customize services for each institution.
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Billing and Payment. Our electronic billing and payment service permits
billers to deliver full-color electronic bills to their customers, together with
detailed information and electronic promotional inserts. We also offer the
opportunity to market interactively, and to use one-to-one marketing techniques.
The recipients can use the service to electronically make the payment. We are
marketing the service to be incorporated into our electronic banking and bill
payment services. We have entered into a variety of arrangements with financial
institutions, Internet portals and billers to provide such services and, in some
cases, will share revenue derived from billers with the financial institutions
and the Internet portals. We believe that billers could eventually achieve
substantial savings by utilizing our billing and payment service, but we believe
that an even stronger incentive for billers to present bills electronically is
the opportunity our system offers for more effective marketing to customers.
Business Payments. We facilitate electronic payments for businesses
through our offerings of business bill payment and banking and electronic
accounts receivable processing services. As we do for consumers, we enable
businesses to make payments to anyone. We employ a direct sales force to market
the service through banks and others. Our electronic accounts receivable
collections for businesses are provided to health and fitness and various other
industries, enabling these businesses to collect monthly fees through electronic
funds transfer or credit cards. Services are typically provided under contracts
for three years with automatic renewals. For providing collection services,
businesses pay us implementation fees, transaction fees and credit card discount
fees. Investment Services
We offer portfolio management and information services for fee-based money
managers and financial planners within investment advisory firms, brokerage
firms, banks and insurance companies. Our fee-based money manager clients are
typically sponsors or managers of wrap money management products or traditional
money managers, who manage investments of institutions and high net worth
individuals.
Our full range of portfolio management services provides our clients with
portfolio accounting, tax lot accounting, trade modeling, performance
measurement and reconciliation. Our information services and software allow
traditional money managers and consultants to allocate client assets, select and
benchmark performance of money managers and report on manager performance. Each
of these features allows our clients to avoid spending time on these functions
and focus on their key business.
Revenues in our portfolio management services are generated through one-to
three-year contracts which provide for monthly revenue on a portfolio basis.
Revenue from our information services and software is typically generated
through annual license agreements.
Our integrated outsourced solution utilizes a Unix platform. The system is
highly scalable, making us the system of choice for firms managing more than
1,000 portfolios. Software
We are a leading provider of electronic commerce and financial applications
software and services for businesses and financial institutions. We design,
market, license and support software products for ACH processing, reconciliation
and regulatory compliance. In addition, we offer software consulting and remote
processing services.
Our financial application software revenues are derived primarily from the
sale of software licenses and software maintenance fees. Our software is sold
under perpetual licenses, and maintenance fees are received through renewable
agreements. We also receive revenues from project consulting services and remote
transaction processing fees. 34
In April 1998, we announced our intention to divest ourselves of many of
our software products and businesses. By September 1998, we sold our item
processing, wire transfer and cash management, leasing, mortgage, and imaging
software products and businesses.
Our retained software products provide systems that range from back office
operations to front-end interface with the clients of our customers.
Applications include ACH origination and processing reconciliation, regulatory
compliance and safe deposit box accounting.
ACH. The ACH network was developed in the 1970s to permit the electronic
transfer of funds, curtailing the growth in the number of paper checks in
circulation. The ACH network acts as the clearing facility for routing
electronic funds transfer entries between financial institutions. All ACH
transfers are handled in a standard format established through the National
Automated Clearing House Association. More than 15,000 financial institutions
participate in the ACH system. There are 31 Automated Clearinghouses, which
geographically coincide with the twelve Federal Reserve Banks, their branches
and processing centers. Our electronic funds transfer products are interrelated
and may be used by either businesses or financial institutions depending on the
services they offer their customers and employees.
We developed the Paperless Entry Processing System Plus, or PEP+, the most
widely used, comprehensive ACH processing system in the United States. PEP+ is
an on-line, real-time system providing an operational interface for originating
and receiving electronic payments through the ACH.
Reconciliation. Our reconciliation products provide U.S. banks,
international banks and corporate treasury operations with automated check and
non-check reconciliations in high volume, multi-location environments. These
systems are often tailored so that banks and multi-bank holding companies may
deliver reconciliation services meeting the specific needs of corporate
customers. Those reconciliation products are also designed for non-banking
corporations that perform account reconciliation in-house as well as companies
with many branch locations. Services provided by our reconciliation products
include: - Automated deposit verification;
- Consolidated bank account reconciliations and cash mobilization;
- Immediate and accurate funds availability data; and
- Improved cash control.
In 1995, we introduced RECON-PLUS for Windows, a client/server based
reconciliation system. RECON-PLUS for Windows is most frequently used for
internal reconciliation by large businesses, financial service firms, and
utilities, including the reconciliation of debit and credit card transactions,
checks, ATM transactions, ACH transfers and securities transactions.
Our Account Reconciliation Package, or ARP, is one of the most widely used
account reconciliation systems in the U.S. banking industry. The ARP/Service
Management System, or ARP/SMS, developed in 1995 to replace and augment the
existing ARP package, is a fully integrated on-line and real time system that
enables banks to immediately process their customer transactions to produce
accurate, timely reconciliations while streamlining back-office processes.
ARP/SMS also groups accounts across banks within bank holding companies and
allows banks to streamline their operations by reconciling their intra-bank
transactions.
Other Software Products. We also offer software products and services
dealing with safe box accounting and compliance with government regulations.
Licenses. We generally grant non-exclusive, non-transferable perpetual
licenses to use our application software at a single site. Our standard license
agreements contain provisions designed to prevent disclosure and unauthorized
use of our software. License fees vary according to a number of factors,
including the types and levels of services we provide. Multiple site licenses
are available for an additional fee. In our license agreements, we generally
warrant that our products will function in accordance with the specifications
set forth in our product documentation. A significant portion of the license fee
payable under our standard license agreement is due upon the delivery of the
product documentation and software to the
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customer, with the balance of the license fee due upon installation. The
standard license fee for most products covers the installation of our software
and maintenance for the first three to twelve months.
Maintenance and Support. Maintenance includes enhancements to our
software. Customers who obtain maintenance generally retain maintenance service
from year to year. To complement customer support, we frequently participate in
user groups with our customers. These groups exchange ideas and techniques for
using our products and provide a forum for customers to make suggestions for
product acquisition, development and enhancement.
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