ACI Fills a Big (Payments) Hole in IBM's Banking Partner Base

Implications: This announcement has been a long time in the making for both ACI and IBM. ACI's Base 24-eps fills a large solution hole in the IBM partner directory. Is this a big deal or not? Who are likely to be the winners and losers from this partnership? What is the impact of this announcement on banks?

Analysis: The ACI - IBM announcement is squarely aimed at the ACI installed base of Base 24-atm and Base 24-eft, many of which are running on old Tandem Non-Stop hardware and software (now part of HP). Base 24-eps, the newest version of ACI's retail payments solution family, is the benefactor of this partnership. Base 24-eps is a comprehensive solution suite designed to replace its older applications on a modern IT architecture.

While not a show stopping announcement, there is now a clear, long term commitment from IBM to convince bankers to make a switch to this IBM supported payments solution. Why would bankers make a switch at all? What are the benefits behind Base 24-eps? Which vendors are most likely to be hurt by this partnership?

1. The vast majority of ACI's bank customers are still running its older applications on highly reliable but increasingly obsolete hardware, primarily Tandem's Non Stop servers. These applications need fault tolerant, high availability as they support ATMs and massive EFT and POS networks. ACI has been the biggest vendor in this solution space. Bankers are finding it increasingly difficult and costly to maintain the proprietary Tandem environment. Ultimately, banks will need to reinvest by replacing Base 24-atm and Base 24-eft which operate independently of each other.

2. Base 24-eps combines these two older application solutions and several others into a single platform that runs on the newest IT infrastructure from HP, Sun and now IBM.  Banks that adopt  Base 24-eps should realize a lower cost, higher value set of capabilities over time. That is the key question: how long will it take to make it worthwhile. Bankers are looking for a 12 month (or better) payback. Some banks have begun this migration and the first wave of ROIs are expected during 2008.

3. This announcement only addressed Base 24-eps. ACI has other solutions that were not covered at this time, particularly ACI Enterprize Banker, its counterpart solution suite for the wholesale banking business. If ACI and IBM had announced that solution too, more upside would be on the table.

4. Of the major industry specific vendors (e.g., Fiserv, Fidelity, and Metavante), not one is seriously by this announcement. In fact, Metavante is probably the biggest Base 24-atm customer. Watch to see if Metavante adopts Base 24-eps on IBM.

5. IBM hopes to take business away from HP and keep Sun out of this business. Pricing is important along with services capabilities for the conversion requirements. IBM's virtualization capabilities may be a deciding factor for banks that are already heavily invested in the IBM zSeries platform.