MasterCard sets plan for IP-based global payment network

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Calling it the most sweeping technology change in its history, MasterCard International Inc. last week unveiled plans to develop a new global payment processing system that will use the credit card company's IP network to link its 20,000 member banks to retailers and other merchants.

Purchase, N.Y.-based MasterCard said its Global Clearing Management System (GCMS) will let financial institutions customize their services and capture more information online. The technology is also supposed to give banks more control over how their data is handled, as well as direct links for processing charge authorizations and clearing messages.

The GCMS is scheduled for deployment in the third quarter, and MasterCard will start converting banks to the new system before the end of the year. But it's expected to take until the first half of 2003 to fully roll out all of the planned applications and to complete the conversion process, said Rob Reeg, senior vice president of systems development at MasterCard. Reeg declined to disclose how much the company is investing in the project.

Analysts said the IT plans are state-of-the-art for a billing system. William Hurley, an analyst at The Yankee Group in Boston, said the new setup should give banks a safe online conduit for processing transactions while also letting MasterCard "mitigate its costs for the technology by creating new services for which [it] can charge."

For example, MasterCard said it plans to go live this fall with a secure direct messaging service for use in exchanging information between retailers and the banks that issue credit cards in its name. That would make MasterCard the "transparent facilitator" of a virtual exchange linking financial institutions and merchants, according to Hurley.

MasterCard isn't the only credit card company that's turning to an IP network. Rival Visa U.S.A. Inc. in Foster City, Calif., last fall launched an expanded payment-processing network called Direct Exchange that serves 14,000 U.S. banks and is built around an IP-based storage networking architecture.

Theodore Iacobuzio, an analyst at TowerGroup, a financial services consultancy in Needham, Mass., said MasterCard's plan goes a step beyond what Visa offers because of its global nature. But both companies "are at a crossroads," he added. "They no longer provide simply the utility function that they were formed to provide: clearing and settlements."

MasterCard's new system, which is being developed in-house, started five years ago with an upgrade of its existing Banknet global network to a virtual private network, a process that was completed in 1998. The GCMS will add new payment clearing system and will be augmented by a series of regional service centers that will be located around the globe to support localized processing of transactions.

The new facilities are expected to provide banks with faster turnaround times and will give them the ability to do things such as process transactions in local currencies and automatically add any local fees to a charge, Reeg said. MasterCard has operated one service center in Australia for the past two years and plans to open another eight to 10 worldwide.

A new data center in New Orleans, that will handle transaction inquiries coming in from around the world is also expected to be completed by fall. As a whole, the project means big changes for MasterCard. "The real underpinnings of what we set out to do here deal with a change in philosophy, a shift in paradigm thinking," Reeg said.

Payment messages will be brought into the IP network regardless of whether transactions originate from a fixed credit-card reader, a wireless device or even a radio terminal, Reeg noted. The new clearing system will work with MasterCard's core IT architecture, which is built around a combination of mainframes and client/server technology from vendors such as Sun Microsystems Inc., Oracle Corp. and Cisco Systems Inc.

Calling it the most sweeping technology change in its history, MasterCard International Inc. last week unveiled plans to develop a new global payment processing system that will use the credit card company's IP network to link its 20,000 member banks to retailers and other merchants.

Purchase, N.Y.-based MasterCard said its Global Clearing Management System (GCMS) will let financial institutions customize their services and capture more information online. The technology is also supposed to give banks more control over how their data is handled, as well as direct links for processing charge authorizations and clearing messages.

The GCMS is scheduled for deployment in the third quarter, and MasterCard will start converting banks to the new system before the end of the year. But it's expected to take until the first half of 2003 to fully roll out all of the planned applications and to complete the conversion process, said Rob Reeg, senior vice president of systems development at MasterCard. Reeg declined to disclose how much the company is investing in the project.

Analysts said the IT plans are state-of-the-art for a billing system. William Hurley, an analyst at The Yankee Group in Boston, said the new setup should give banks a safe online conduit for processing transactions while also letting MasterCard "mitigate its costs for the technology by creating new services for which [it] can charge."

For example, MasterCard said it plans to go live this fall with a secure direct messaging service for use in exchanging information between retailers and the banks that issue credit cards in its name. That would make MasterCard the "transparent facilitator" of a virtual exchange linking financial institutions and merchants, according to Hurley.

MasterCard isn't the only credit card company that's turning to an IP network. Rival Visa U.S.A. Inc. in Foster City, Calif., last fall launched an expanded payment-processing network called Direct Exchange that serves 14,000 U.S. banks and is built around an IP-based storage networking architecture.

Theodore Iacobuzio, an analyst at TowerGroup, a financial services consultancy in Needham, Mass., said MasterCard's plan goes a step beyond what Visa offers because of its global nature. But both companies "are at a crossroads," he added. "They no longer provide simply the utility function that they were formed to provide: clearing and settlements."

MasterCard's new system, which is being developed in-house, started five years ago with an upgrade of its existing Banknet global network to a virtual private network, a process that was completed in 1998. The GCMS will add new payment clearing system and will be augmented by a series of regional service centers that will be located around the globe to support localized processing of transactions.

The new facilities are expected to provide banks with faster turnaround times and will give them the ability to do things such as process transactions in local currencies and automatically add any local fees to a charge, Reeg said. MasterCard has operated one service center in Australia for the past two years and plans to open another eight to 10 worldwide.

A new data center in New Orleans, that will handle transaction inquiries coming in from around the world is also expected to be completed by fall. As a whole, the project means big changes for MasterCard. "The real underpinnings of what we set out to do here deal with a change in philosophy, a shift in paradigm thinking," Reeg said.

Payment messages will be brought into the IP network regardless of whether transactions originate from a fixed credit-card reader, a wireless device or even a radio terminal, Reeg noted. The new clearing system will work with MasterCard's core IT architecture, which is built around a combination of mainframes and client/server technology from vendors such as Sun Microsystems Inc., Oracle Corp. and Cisco Systems Inc.

This story, "MasterCard sets plan for IP-based global payment network" was originally published by Computerworld.

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