Mar 29, 2010, 7:00am

PYMNTS.com asked industry expert and author of Paying with Plastic, David S. Evans to profile industry thought leaders and executives to find out what's next in the world of payments.

In this NEXTcast exclusive PYMNTS.com sat down with Kurt Schneiber, CEO of Syncada. After nearly 18 years at CitiGroup in numerous roles, Kurt has settled into his leadership position at Syncada, a global invoice processing, payment, and trade finance network.

Syncada started as a joint venture between Visa and U.S. Bank, Syncada has grown to become a complete Financial Supply Chain Network. With a constant drive to reduce cost and an everlasting journey to become more efficient, Kurt sees the invoice process in a position of major growth. Companies will look to streamline this process and take advantage of a third party system in an effort to improve effectiveness and reduce cost, creating a bright future for Syncada.

Click here to listen to this exclusive NEXTcast interview.

Interview with Kurt Schneiber | CEO | Syncada

Evans: This is David Evans. PYMNTS.com asked me to have a conversation, today, with Kurt Schneiber of Syncada. Welcome, Kurt. It’s really good to have you on board, today.

Schneiber: Thank you very much. I’m glad to be here.

Evans: I understand you’re sitting in scenic Minneapolis, today.

Schneiber: I’m in lovely Minneapolis. Spring is trying, very hard, to come. I hope it does.

Evans: Well, I’m here in Boston, where spring has come, but, based on decades of experience in Boston, it will go away and then come back again in a couple of months. Kurt –

Schneiber: Go ahead.

Evans: Kurt, tell us a little bit about Syncada. What is it? What does it do?

Schneiber: Syncada is newly-formed as a joint venture between Visa and U.S. Bank, and the purpose of Syncada is to establish a global network, a platform, on which banks can invite their end-use customers, both suppliers and buyers, to interact together and do not only payments but, also, invoice-processing and trade-finance activities. So, U.S. Bank formed what was called PowerTrack, some number of years ago, and developed it out quite successfully as a platform for invoice-presentment and payment and trade-finance, but, having done so, they recognized, at a certain point, that there were gaps, and the potential for the platform could be much more fully-blossomed, if it were to connect with other banks.

Simultaneously, Visa was evaluating its strategy for involvement in the business-to-business payments-flow. Being a very consumer-oriented organization, but yet, global and having great relationships with banks, it also wanted to see how they could play effectively in the business-to-business area.

Good relationship between Visa and U.S. Bank prompted a conversation at many levels, and Syncada was formed, in July of last year, as a 50-50 joint-venture between the two organizations, with the express purpose of establishing Syncada, duly-named, as a global, invoice-processing, payment and trade-finance network.

Evans: And you are the CEO of Syncada, is that right?

Schneiber: I’m the newly-hired CEO of Syncada. That’s correct.

Evans: What did you do before heading up this joint venture?

Schneiber: I’ve had many roles inside Citigroup over, approximately, 17, 18 years. Domestic, international, consumer and corporate, front-end, back-end – really, a general business executive for Citi, and, in addition, the last two years, I’ve worked at a software company that was focused, primarily, on regulatory financial software, helping banks to control their money-laundering risk through anti-money-laundering software and fraud-detection systems, KYC, etc. – the company is called Fortent, which recently merged with Actimize. So, I’ve joined here as of the November of last year.

Evans: What do you see as the market opportunity for Syncada?

Schneiber: I think the market opportunity is absolutely fantastic because of several reasons. One, there’s tremendous drive by corporate to reduce cost, where possible, become more efficient, to find ways to streamline and improve the effectiveness, the efficiency, of their processing activity. That’s just there, that corporates are – I saw this when I was working at Citi as well, as well as at Fortent, that if they can find a way to save significant money, they’re working on those angles. That’s just an underlying, ongoing pressure that will continue.

Second, banks want to serve their corporate customers in a way so as to add value, and they invest significant amounts of money in technology so as to do that. In addition, they try to be as close to their customers as possible to find that area where it’s a win-win. The corporate saves money, and the bank can make a reasonable return on its investment in technology. Banks with capital expenses and important – they evaluate their own expenses pretty seriously.

So, by providing a platform which they can use without any significant capex, sort of as a software-as-a-service platform, the banks can deploy an efficient, effective, proven, audited, robust technology tool for their end-use corporate and help them to accomplish their cost-savings and working-capital objectives.

I’d also mention that I think that the upside is significant, because most business-to-business transactions are done between businesses, and banks aren’t involved, but yet, there is an aspiration to drive down costs and to accelerate the capture of funds when I’m the – to improve my working capital when I’m the seller, and if I can do that on the buyer’s side as well – if I can manage that – I would be pleased to do so. So, I think there’s a lot of white space in this arena, and that banks are reticent to build out proprietary platforms with a difficult payback-assessment evaluation.

Evans: It sounds like Syncada is in a position to solve a lot of inefficiencies in the transaction process between business, but a big problem, in my experience, in moving companies to electronic invoicing – which, I gather, is what you’re doing – is simple inertia. Businesses don’t want to change what they’ve been doing and what works, even though, from an outside perspective, it seems pretty inefficient. Did you agree with that? And, how is Syncada overcoming the inertia that leads companies to rely so much, still, on paper checks?

Schneiber: I do agree that inertia is always a problem. People do what people do, and they continue to do that, and, generally, in large corporations, there are groups of people who are dedicated to flesh-out and improve certain processes, but they don’t necessarily think beyond their own realm.

So, I think that’s a challenge. It, absolutely, is a challenge, but what I see as the – I won’t say it’s a game-breaker, but it certainly is distinctive, a couple of things in Syncada’s approach that will be powerful. Number One, the product is offered – the services are offered by a company’s financial institution rather than by some independent software provider, or network player, with whom they don’t have a relationship. Relationships are important, balance-sheet is important, access to capital is important. A bank is, traditionally, involved in the movement of money around the globe. There is a natural connection.

So, for example, we’re talking to several banks in North America, now – mid-sized banks as well as some of our international prospective banks – and their customers are calling and say, XYZ company business-meet, they told me about some EIPP solution. What do you guys do? We prefer to work with you, if we could. Recognizing that access to the banks is valuable and, also, that the banks are proven, they’re efficient, they’re effective, the risks are somewhat minimized by working with an organization under such regulatory scrutiny – that’s a powerful thing.

So, Number One, to make my long answer shorter, I think offering this through banks is critically important. It will help companies get over the inertia.

Second, I just see – and it’s been incremental over many years – a drive to find ways to save money, to become increasingly efficient, year after year. I recall working with – I ran a power, energy and chemicals sector for a while, at Citi, and we had large multi-nationals who were our customers, and the ask always was, I’m paying you reasonable fees for the services you provide. How can you reduce those? How can you find a way to help me save money? A natural request. I believe that that will help drive not only our business but others who are in this space.

Remember, also, too, David, it’s not just about the payment. Sure, checks are there – checks are relatively inefficient, and certain markets are more check-dependent than others, but the P-card and ACH, etc., there are savings to be had there, certainly, as you move from one less efficient mechanism to pay to another, but much more – probably 80% more likelihood to find significant savings – is in the internal processing of invoices. Over-payments, under-payments, disputes, contract-evaluations relative to payment, under-billings – these things take time, energy, people. Paper, from desk to desk to desk, is processing-costs, and that is not always evaluated.

With an increased focus on internal processes and efficiencies in internal processes can’t help but expose the whole procurement story as one where efficiencies can be developed, particularly when you’re buying services. Services are very difficult to evaluate. They don’t always fit in the ERP systems, but in my mind, yes, there will be inertia. People don’t change real easily, but there are some powerful forces – those two, which I’ve mentioned – will help our business approach.

Evans: I’m curious whether you guys have a chicken-and-egg issue. So, if I’m a mid-sized company, and I adopt Syncada for my invoicing, do the companies that I’m seeking money from – let’s call them the payers – do they have to be part of Syncada as well, or do I have a solution regardless of whether the payer is, in effect, also on board?

Schneiber: That’s a very good question, because – in fact, that’s one of the first questions I asked, when I was assessing the job, is, does everyone have to be in the network or not, in order to do business? And, if we bring on a buyer – if one of our banks brings on a buyer, because we’re not going to be out there competing with our banks – we are behind the scenes providing the platform on which they can operate and market the service to their customers – a buyer comes on board, the buyer, in order for him – or her – to capture all of the benefits of this, it’s better if more of the suppliers come on network. So, clearly, there is a drive by the buyer, and, depending on his leverage, he, or she, could push hard to bring suppliers on board.

However, there’s an easy payment mechanism in our system for any supplier out of network. In fact, I’d say, probably, right now, we have – maybe over two-thirds of the suppliers, or the dollars through the system, are going in network, and a little less than one-third is going outside of network. It works for us. So, we can make those make those payments in any fashion that’s appropriate for the payer.

The challenge, then, is for the bank’s business development sales executives to go out and hustle and work with their buyers to make sure they understand who our network suppliers are, work through the analytics that could demonstrate to a supplier the value of coming on board.

That value is many fold but, primarily, in two areas – or a couple of areas. One is off the money. If you can accelerate the receipt of funds, that’s very powerful. Two is under-billings. We have contract evaluators and assessors in our system who help suppliers and buyers to make sure they do things smartly. And a lot of people who are providing services under-bill, relative to the contract that they have. So, we can get that, as well as the cost of money in, using a little bit of their own back-office processing as well, that equation works pretty smartly. So – but that takes an effort by the salespeople.

Evans: As you mentioned, Visa is a 50-50 partner in Syncada. That might lead some to think that Syncada is going to try to steer business towards paying with credit or debit cards. So, I want to toss that out as whether that’s one of the motivations behind this, or whether, alternatively, this is a move, on Visa’s part, to really diversify into other forms of electronic payments? Or, is it a bit of both of those?

Schneiber: I think the strategy is driven by the latter. The strategy is important to Visa – we can have them speak for themselves, but they sit on my board, obviously. They are driven to deploy a strategy, or strategies, which help them capture more revenue opportunities, in the business-to-business flows, than in earlier periods.

They, historically, have been a card-oriented company, and their first moves into corporate have been travel entertainment, P-Cards, etc., but this is far beyond that. In fact, they – early on – said, what should be our strategy? And they knew – and understood – that, somehow, they had to get into this invoice-presentment and payment-processing activity. That’s really where they wanted to be.

The question was, build or buy or partner? And they ended up together with us, and we formed Syncada.

So, their first driving strategy is to capture, be in the middle, or be somewhere closer to the flows of, corporate money moving back and forth among corporates around the globe, and second, if the system – if the platform – can help them capture on existing infrastructure, P-Cards, etc., then that’s great too.

So, we have an integration capability with the P-Cards that’s fairly robust and will continue, but if a payor decides, OK, I’d like you to handle this payment file in this fashion, and these suppliers get paid on P-Card, we can do that and move the information, as well, back and forth to help them evaluate their payments outside and assess them to see where they are in their contracts, are we going to be more efficient, gather negotiation strength by way of the information.

So, it really is – the strategy is more of the latter, as you described, but, tactically, there are benefits for Visa there as well, but we can handle payments outside the Visa network as well, of course, so if a company is more of a MasterCard or an AmEx player or other proprietary system arrangement, we can do that, too.

Evans: But you see most of the transactions actually being over the ACH network?

Schneiber: ACH, wire, check, yes. It depends on the company, but yeah, more electronic payments than not.

Evans: Looking forward into 2010, you’ve been at Syncada since – I think you said since last November, is that correct?

Schneiber: That’s correct.

Evans: So, looking forward, in 2010, what do you think your biggest challenge is going to be?

Schneiber: Well, the first challenge – it’s interesting – is managing through the tremendous in-flow of interest from banks, globally.

Evans: That’s a great challenge to have.

Schneiber: It is a good (laughter) challenge to have. It’s interesting, because – so, for example, we have several discussions underway in Asia, large multinational, or regional banks who aspire to be in this space. The question is, how do they do it? Do they want to build something? Do they want to buy something? Do they want to partner with others? Some of it is very furtive, early stages – they’re just figuring it out – and other conversations are much more advanced, because some of our so-called competitors – although no one’s doing exactly what we’re doing, but there are competitors in this space who are focused on different aspects of payments, on the processing side, the trade-finance area – are knocking on the doors of the banks, and they’re saying, well, this could be helpful for me, but that’s not – maybe, those solutions aren’t complete enough.

So, the first challenge, for us, is to decide where to spend our time. Our company is not so large nor so mature, yet, and we want to make our first decisions with our bank partners to be good ones. That’s the first challenge I see.

The second, I would suggest, is that – it’s a pretty obvious one, if one were to understand where Syncada has come from. We’ve been – PowerTrack, historically, has been more transportation-oriented. It has a certain niche, and although, within PowerTrack, we’ve expanded the company – U.S. Bank has expanded beyond that niche into utilities and general payables and other spend categories our large-bank customers, depending upon their customer debt, would likely want us to move beyond what’s been our traditional thing. So, we’re anxiously engaged in that effort to provide features, functionality, capability beyond that earlier area of expertise.

Third would be that, hey, we’re building out a global network. We have technology work to do, and that’s not insignificant, but we certainly have our eyes on the plan and our structural maps designed, and the work is underway.

Evans: Let’s take a look forward five years. Where do you see electronic, B2B-invoicing generally, five years hence, and where do you see Syncada fitting into that landscape?

Schneiber: Well, I don’t know if I’m Nostradamus, but I do have a view. I believe there will be a significant and consistent increase in the percentage of the total business-to-business flows that move on to systems that drive down costs. I believe that invoice-processing is not a core business requisite for most large corporates, or middle-sized corporates, for that matter. It’s not something that necessarily has to be core to their long-term success. It is ripe to be moved outside of their own shops, for multiple reasons. So, I think there will be a consistent drive to move certain functions that have consistently and historically been inside someone’s comptroller’s or accountant’s or account-payable’s clerk shop. Move it out, save money, improve working capital, be more efficient, be more competitive. That’s going to happen. So, I think that that’s – we’re in the middle of that – we’re early on in that wave. I think we’re positioned well.

If you were to say, where will Syncada be in the mix? There certainly will be multiple suppliers. I’m not at all here to say that we’re the only ones who know how to slice the bread. No question. There are other smart people who are already doing very well in their areas of expertise and moving from their own histories, but I do believe that Syncada will have established an innovative, distinctively different approach by allowing banks a network, among each other, to capture what I would call network benefit, not only for the customers – for the end-use customers, buyers and suppliers – but also for the banks.

So, for example, you have a large, U.S.-focused, Middle-America kind of bank who’s doing business with companies here who are sourcing significantly-increased amounts of their either partially-finished or finished goods or even raw materials from outside the U.S. This bank does not have a relationship with those buyers at all and probably will not have. Most domestic U.S. banks don’t. They make an effort, but it usually ends up being in the local bank’s purview to do business with those.

But what if we get that local bank signed up on the network? Could we find opportunities for trade finance that wouldn’t have been there otherwise? Could we increase the transparency among all the parties, allowing a higher competence level that transactions will be executed smartly? Can we drive down, or squeeze out, the more traditional mechanisms and multi-steps processes that trade finance is normally being done. Confirming banks, affirming banks, all the nec – in the middle of the LC network. Can we get that out of there? Can we enhance open account transaction and make them – and increase the transparency, the safety, the timeliness, the efficiency of those transactions. We’d like to do that, and I think that, because we’re working through banks, we’ll be a big and important player in that space. How many is that –

Evans: It sounds like a great opportunity, Kurt –

Schneiber: We’re working on it.

Evans: – we really appreciate it. It sounds like you have a lot to be excited about, and it sounds like there’s a lot of interesting work for you guys to be doing over the next few years. Kurt, thanks a lot for your time, today. We really appreciate it as, I’m sure, our listeners do as well. So, thanks a lot, and best of luck to you at Syncada.

Schneiber: Thank you, and I look forward to talking to you again in the future.

Evans: Thanks a lot, Kurt.

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