The Green Sheet Online Edition
February 11, 2008 • Issue 08:02:01
XTP: Putting sexy into payments
XTP? What the heck is that? Is it a new Summer X Games event - Extreme Ten-speed Peloton? Or is it the name of a super group formed out of the remains of rock 'n' roll bands INXS and Stone Temple Pilots? Or maybe it is something much more mundane but hopefully useful, like extremely soft and absorbent toilet paper.
No, it is none of those things. In payments industry parlance, XTP stands for extreme transaction processing. But don't let the catchy name fool you. It's not all marketing flash and no substance, for XTP is indispensable in a number of industries today and holds great promise for the well-being of payments in the near future.
The velocity of payments
Every time a card is swiped, tapped or waved at a POS terminal (not to mention card-not-present transactions like e-commerce, mobile payments or even old-fashioned MO/TO purchases), large amounts of data perform a high-wire circus act, somersaulting through networks and automated clearing houses to process that transaction: authenticating it, switching it, authorizing it and settling it, all in a matter of seconds.
Back-end processing, therefore, is a complicated, data-intensive exercise for each and every transaction. And it is getting more complicated as time goes on. The volume of electronic transactions taking place is increasing at a rapid pace.
Consumers expect 24/7 services and the ability to access their money and pay for things almost instantaneously, anytime, anywhere. And business executives, with their eyes screwed obsessively to the bottom line, are feeling the pressure to keep up. Either businesses will handle the increased volume of payments, and do it affordably, or they will go under.
XTP is seen as a way to streamline and simplify processing, to reduce processing costs even while workloads increase. But XTP is not a new technology, just a necessary and vital evolution from an old one. And like biological evolution, where an organism retains characteristics that help it survive and abandons obsolete traits, XTP takes what is useable from the old and grafts it onto a newer, more agile body.
But, just like the study of evolution, in order to understand XTP, one must know from whence it came.
Since the 1970s, mainframe computers have dominated the payments industry. They were the processing workhorses. But, by today's standards, they are considered ponderous, obsolete systems, difficult to maintain because of a lack of useable spare parts and impossible to adapt to newer technologies.
According to Cameron Purdy, Vice President of Development of the Fusion Middleware Group at database management giant Oracle, in the old days, if a mainframe reached the limit of its processing capacity, the company would just replace it with a bigger computer. And when that one reached it's processing limit, the company would get an even bigger one.
In other words, these systems were not easily upgradeable. "They were not architected for real time payments," Purdy said.
Although "architecturally limited," these slow behemoths worked, and still do. "It is everyone's dream to always get rid of legacy systems," Purdy said.
"[But] the further back something goes, the harder it is to replace. ... You want to throw it away, but you can't."
Since legacy systems still work and are too expensive to replace, XTP is not meant as a replacement for legacy systems, but as a way to connect the old systems to faster, newer processes with greater functionality.
Purdy likened XTP to a "giant buffer" between the user on the front-end and the tried-and-true database systems on the back-end.
Therefore, XTP is not about replacing systems, but rather "limiting how tightly tied you are to legacy systems," Purdy said.
But XTP platforms must do much more than just connect to commodity hardware such as legacy systems; XTP must be able to crunch an astounding amount of data every second.
A small amount of information is generated when a card is swiped at the POS, roughly only one kilobyte worth. But, from that data, a huge volume of processes are spawned, as many as 1,000 queries for each transaction. On top of that, XTP must be able to handle tens of thousands of transactions per second.
Various strategies are being deployed to meet that demand. An XTP platform may be based on service-oriented architecture, grid-based architecture, event driven applications, distributed caching platforms, complex event processing platforms and others.
Software designers have taken different approaches to building XTP models because, currently, not one size fits all. The requirements for a system that processes telecom payments, for instance, is very different from one designed to handle securities trading on Wall Street.
But all XTP platforms have certain characteristics in common. They must be high performing, scalable, durable and always available.
- High performing means each transaction is processed in real time, within a time budget of two to three milliseconds.
- Scalable means servers can be added over time to the system as transaction volumes increase.
- Durable means the system must be resilient with redundancies built in; if one server should fail, the data from a transaction in the act of being processed is not lost, since that data is duplicated across many servers.
- Always available means the platform must be accessible for processing around the clock.
Perpetual transaction machine
In a SourceMedia webinar, Paul Sutton, President and Chief Executive Officer of Kabira Technologies, a San Mateo, Calif.-based maker of XTP software for the telecommunications and financial services sectors, including Visa Inc. and AT&T Corp., recognized the importance of a platform that performs 24/7.
"Your business just used to follow the sun," Sutton said. "Well, now we all know, we're seeing it in the trading world - global trading networks that can operate across the world. We're seeing the same in payment systems. We're seeing it in banking. We're seeing it everywhere. It really is an 'always on' world."
According to Sutton, the networks that handle the increasing speed and expanding volume of electronic transactions taking place day and night are breaking under the stress to keep up.
Systems are compartmentalized (also known as siloed), complex, redundant, and inefficient.
A financial institution (FI) may have its credit processing outsourced to Company A while its debit processing is outsourced to Company B. That same FI may have its customer authentication for its prepaid cards handled by a third party vendor. All these processes must communicate with the FI's internal systems as well as the payment networks.
"Connectivity is very difficult," Sutton said. "There are lots of points that could break. ... You can see why financial institutions and card payment organizations are suffering. It's almost like a perfect storm."
The challenge of XTP is to ease that storm by bringing all processing steps in-house - acquiring, authenticating, switching, detecting fraud and authorizing every transaction.
S.O.S. for CIOS
Chief Information Officers for FIs and other businesses know all about points that could break. The term "patch management" describes what many CIOs do all day long - keeping their systems connected with the software equivalent of chewing gum and bailing wire.
In a Salesforce.com Inc. webinar, two speakers highlighted the role of Platform as a Service (PaaS) as a way to alleviate that patch management burden. Peter Coffee, Director of Platform Research at PaaS provider Salesforce.com, said, "We want to come to work in the morning with more to hope for than that no one will be angry at us today. ... And not have a good day be one where nothing crashes.
"You've heard the figure of 63%. Gartner [an information technology (IT) and research advisory firm] says that it is typical for an enterprise to spend maybe 90% of its IT spending merely to maintain existing capability. And, at the risk of sounding incredible, they've found organizations where 98% of the IT spend was merely to keep marching in place."
In the same webinar, Andy Brown, Chief Technology Officer of Infrastructure at global financial services group Credit Suisse, took Coffee's point further.
"If you have an infrastructure per application, the chances are the net utilization of the servers in your data is less than 10%," Brown said. "If you're really good, it's 20%. ... [But] if you're using someone else's servers, it's their problem to run them up to 90%, 80% and still deliver the service level. There's no doubt in the economy of scale in the service oriented economy is totally different from an application oriented infrastructure."
Similarly, XTP platforms are designed and implemented by third party vendors to take away a company's pain points when it comes to transaction processing and mitigate the headaches IT professionals experience when connecting their internal systems to outside processing networks.
The mother of invention
In a SourceMedia webinar, Penny Gillespie of Gillespie International Inc., an electronic financial services advisory, said consumers are adopting technology at a very rapid rate.
According to Gillespie, it took 38 years for television to reach 100 million people. In comparison, it only took five years for the Internet to cross that threshold, and only four years for DVD players to hit that 100 million plateau.
Gillespie pointed out the exponential growth of automated clearing house (ACH) transaction processing since 2002. Citing NACHA - The Electronic Payments Association, Gillespie stated that transactions on the ACH network reached the one billion mark faster than any other electronic payment method in NACHA's 33 year history.
As transaction volume increases, the processing time for each transaction is decreasing, Gillespie said.
Visa research claims credit card transaction times at the POS are 20% to 25% faster than those for cash transactions, and contactless, smart card transactions are faster still - 53% faster than credit cards. MasterCard Worldwide findings show that paying with a contactless card cuts 12 to 18 seconds off the standard credit card transaction time.
The trend for electronic payments, therefore, is toward ever expanding volume and quicker transaction and processing times, married to the corresponding demand by consumers for almost instantaneous transactions. As Gillespie said, payments is moving to "Internet speed."
So one of the main drivers behind the adoption of XTP is the demand consumers are putting on payments networks for quicker and quicker services, and will put on businesses in the near future. Coffee said a fifteen year-old today is used to the speed of the Internet and instantaneous access to services.
"When you look at Generation Z coming out of school in four or five years time, they don't have the tolerance for the kind of environment that we've set up ... in the workplace," Brown said. "And the reality is they do have a choice. There will be new companies that appear that are offering exactly that kind of technology to them as adults that they've been used to as children."
The XTP platforms offered by companies such as Kabira, Oracle and GigaSpaces Technologies Inc. are laying the groundwork for the demands placed on businesses by consumers of the future.
A single unified theory
Massimo Pezzini is Vice President and Distinguished Analyst at Gartner. Although he won't admit it, Pezzini coined the term XTP. But with "millions of service requests every second, this is a problem that is extreme," he said.
Pezzini defines the XTP problem: "How to design, develop, deploy and maintain exceptionally demanding transactional applications - this is not a new problem (think airline reservation systems or ATM networks management)," he said. "Therefore we do have 'XTP' platforms already, but these are proprietary, expensive and based on mainframe hardware."
The challenge facing the payments industry is "how to solve the XTP problem on the basis of modern software and commodity hardware." Grid-based applications, service oriented architecture and event driven processes are all ways of tackling the problem. The various types of software being deployed, such as Oracle's Fusion Middleware, which uses "hot-pluggable" architecture in high-end transaction processing, or Gemstones' grid-based approach, are XTP concepts made into concrete, real-world applications - pieces of the puzzle.
But the puzzle is not complete. The foundation of XTP is currently being laid, but a single XTP platform that can be utilized across many different market sectors has not yet been achieved. "My expectation is that in five years from now these technologies will converge to give birth to a unified XTP platform that will be applicable to a variety of different scenarios," Pezzini said.
For decades, astrophysicists have been searching for the grand unified theory, a theory that explains everything in the universe. Although the search for one comprehensive XTP platform is modest in comparison, it points out a growing trend in the payments industry known as convergence.
Convergence can be seen in mobile devices, where a consumer's mobile phone can be used not just to make calls, but to surf the Web, access their bank accounts and make purchases. Convergence is also seen in e-commerce, where the search engine giant Google now offers a bill pay service. In the prepaid industry, convergence can be seen in self-service kiosks that bring together gift cards offered by dozens of companies.
It is no wonder, then, that a single processing platform capable of handling ATM transactions as well as booking flight reservations is the goal of many in the payments industry. But, the question still remains - will XTP make payments sexy?
More than a catwalk
In a financial forum a few years back, Gillespie said that a speaker kicked off his presentation by announcing to the audience that payments were going to get sexy. "Well, I'm not sure they've reached that status yet, but interest certainly has increased," Gillespie said.
If payments isn't sexy quite yet, XTP may be the catalyst that ignites the industry into that all-important marketing category. But true sexiness is not a superficial quality, such as a super model strutting down the catwalk.
No, in the business world, real sexiness is effective marketing backed up by a product that offers high performance. Without tangible value underpinning a clever advertising campaign, the quality of sexiness is reduced merely to a pretty face or flashy graphics.
As a marketing strategy, the term XTP is a definite winner. But it remains to be seen if the technology can live up to the promise of its catchy name.
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