An Interview with Pariter Solutions CEO Stephanie Sturgis-Griffin

Rationale for Formation

We talked about the reasons for the formation of Pariter, which Sturgis-Griffin described as being primarily cost-based. Of course, ACH payments are, above all, low-cost to process – at least from a transaction switching point of view. Even with Bank of America and Wells Fargo’s huge volumes of origination and receipt transactions, it didn’t appear to us that there would be much to save on the switching component of processing – even if the focus for each bank changes from “on-us” to “on-we”. Sturgis-Griffin agreed that saves in switching costs were not a measured component in the banks’ business cases. The real value, she said, will be in combining the software platforms that are used for originating and receiving transactions.

ACH Platforms

These platforms at banks were, for many years, fairly simple and inexpensive to operate. After all, the predominant uses of the ACH were for low-risk, recurring transactions (think direct deposit of payroll or insurance premium payments). But the ACH has been growing dramatically, and new payments transaction types are increasing risks (ad hoc consumer payments), dollar amounts (business to business transactions) and complexity (international transactions). All of these new types of transactions call for relatively sophisticated software to identify and control risks, ensure regulatory compliance, and deliver the appropriate data into internal and external systems. Sturgis-Griffin pointed out that these systems do today, and will increasingly in the future, require “massive database structures”. And one of the particular challenges with ACH platforms is that many development expenses will not be offset by direct customer revenue.

Sharing a common platform will permit both banks to spread the cost of this software across larger volumes, and enable them to concentrate proprietary development efforts on customer-facing applications. Sturgis-Griffin spoke about Early Warning Services, a bank-owned shared risk management service that helps banks manage the risks of accepting check deposits, as an example of a successful bank consortium. She pointed out that the EWS collaboration showed banks that there was proven risk management value in the ability to see large volumes of data, from many different customers, across institutions.

Product Innovation

We spoke about the role that Pariter could play in enabling product innovation. Two of the areas that particularly interest us at Glenbrook are bill payment and business to business payments. In both of these areas, there could be opportunities for valuable shared databases given the size of the combined “on we” account base that Pariter (in theory) could access. Sturgis-Griffin acknowledged that product groups within each bank were beginning to think about longer term product development opportunities, but emphasized that the current focus was simply on the combination of platforms – a big enough job in itself. She did comment that P2P payments could be an early area for product innovation leveraging Pariter.

Initial Focus

But Pariter, clearly, will stick to its knitting at the beginning. Then, “ at the request of our owners” it will consider other developments. “We have to make sure we are being prudent”, she commented. This may sound overly cautious, but I imagine that the bank owners have kept in mind other bank consortia which have failed to realize very large visions at start-up (think of Spectrum, or Integrion, or Identrus). Pariter’s “keep your eye on the ball” strategy is probably judicious – we wish them luck!