Tuesday, July 26, 2016

Securing data provides Canadian online bank rapid path to new credit card business

The next BriefingsDirect data and security transformation use-case scenario describes how Tangerine Bank in Toronto has improved its speed to new business initiatives by gaining data-security agility.

We'll now learn how improving end-user experiences for online banking and making data more secure across its lifecycle has helped speed the delivery of a new credit card offering.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or  download a copy.

Here to explore how compliance, data security technology, and banking innovation come together to support a digital business success story is  Billy Lo, Head of Enterprise Architecture at Tangerine Bank in Toronto. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: First, tell us a little bit about digital disruption in the banking industry. Obviously, there are lots of changes in many industries these days, but it seems that banking is particularly within the cross-hairs of disruption.
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Lo: No doubt about that. Our bank used to be known as ING Direct. It started in Canada about 20 years ago. Our founders initially recognized this need and started a journey. Since then, we've been full-speed ahead. We're seeing the savings that we get out of being branchless and passing that back to the clients. That message resonates very well with our client base, and so far, so good.

Gardner: When you say online banking, there are no branches or no brick-and-mortar buildings with the word "bank" on the front. It's all done by mobile, via online. Am I missing anything?

Lo: On top of the fully digital experience, we also actually dive into a little bit of the physical as well, but not in a traditional way.

At Tangerine, we have a couple of other in-person kinds of channels. One is what we call a café. In an informal setting, you can get a coffee or orange juice at the café and get some advice. But most of the functionality is available through the digital channel, through a tablet onsite with someone guiding you along the way.

We've recently been exploring a concept called Mobile Pop-Ups, but not at malls. We refurbished containers and put them into different location to introduce the concept within your bank to different geographies. We also found that very rewarding, because you can reach many people online, but there are still some who need a little extra nudge to get comfortable with starting a banking relationship online.

User expectations

Gardner: That brings up an interesting topic. User expectations are also rapidly evolving in our world. Is there something about somebody who is attracted to online banking that you need to be aware of? Is there something about speed or agility? What is it about the banking customer who prefers online that you need to cater to?

Lo
Lo: Dana, you're right on the point. In this case, both speed and agility are expected from a bank that highlights their services in terms of user experience online. They're now used to the Gmail inbox, Facebook, instant messaging. The good old days of submitting a form and waiting for someone to come back to you is gone, really gone.

From an expectation point of view, we're heavily impacted by the consumerization of technology. All those things that you see on a smartphone, taking pictures and depositing a check, are almost, as we call it, table stakes. We have to work harder at inventing things that surprise and delight our clients.

Gardner: Of course a big part of being able to delight your customers is to know them and have data about them that you can use to allow services to be customized and personalized. So data is essential, but at the same time, you're in a highly regulated business where privacy issues and security are big concerns. How are you achieving the balance between data availability and data protection?

Lo: We in the banking business are in the business of trust. In everything that we do, trust has to be number one. We have to be ready for any kind of questions from our client base on how we handle the information. There's no doubt that transparency will help, and over time, with transparency, our clients learn that we're up-front in how we're using information. And it's not just transparency, but also putting the information in a way that's easily understandable up-front.

If you look at our registration process, one of the first thing that we tell people is "Here is our not-so-fine print." It's in big, bold fonts and that’s very important, because especially in a digital bank, a lion's share of the interactions are through non-face-to-face kind of interactions. If you invest the time in being transparent, invest the time in building up your security infrastructure to protect your information, and be vigilant about all of the current things that are happening. It can be done.
We in the banking business are in the business of trust. In everything that we do, trust has to be number one.

Gardner: Tell us a little bit about your journey toward this new credit-card offering and why putting the blocks of infrastructure investment in place in advance is so important for agility and for quality of service in a new offering.

Lo: Let's take this journey back a little bit as far as our credit-card offering is concerned. We started out as a savings bank and highlighted our high-interest offering at the beginning. That resonated well, and we quickly recognized the fact that we're going to need to expand our product offering. People actually wanted to use us as an everyday bank.

Unfortunately, at the time, we didn’t have the complete suite of products that our clients would need. So, over time, we built up with mutual funds, investments, and mortgages, and the last piece of the puzzle is credit cards. Once we have that, we can officially say to everybody that we're not just a peripheral bank, but have real full-service functions that you can have to support your everyday life.

In our case, efficiency and the speed of adoption is key. Every month that we wait for this offering to come out of the door, we're losing opportunities to turn a regular client into a full-service client. So, we were starting from scratch. We had zero infrastructure. We hired. We built up the technology behind it, partnered with a few of our trusted partners to build up the infrastructure, but the foundation does take time to do it right.

Foundational effort

One thing that not a whole lot of people understand is the foundational effort. If you spend a month or two on building up the right foundation, the saving going forward is actually exponential. With HPE, we adopted the tokenization solution to help protect [credit] card number information. We were able to complete the whole journey in a very quick fashion. That saves us a lot of time, because everything revolves around the card number. If we don’t get the foundation done right at the beginning, quickly, the cost and schedule impact is exponential.

Gardner: So quality is important because you want to get it right the first time. It's not just doing it quickly; it’s also doing it correctly. If you have to go back and redo infrastructure, that can be a huge tax on your innovation and really put a cultural drag on how things proceed.

Lo: Right on, and I don’t even want to think about it. Seriously, on the adoption of these foundational components, speed is key and that saves us a lot of hassle going forward in conversion as well as data cleansing. Once the cat is out of the bag, if you will, it’s so much harder.

Gardner: Billy, I've heard from other organizations that recognize that moving data around in the old-fashioned way doesn't work. Being PCI compliant, having privacy issues met, in fact, having less data and detailed information about a customer is much more desirable. Is that the case with you and the tokenization process and encryption use? How would you describe about what data to keep, what data to transact, and what's the right balance?
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Lo: Just as any other security person would tell you, you have to know where the walls and the doors are with security information. We made a conscientious effort in identifying where we would need the actual card number available, such as for collections or for some operational process, and identify who needs them, where the door needs to be, and then lock them up. Tokenization allows us to do that without too much overhead, and overall, our experience has been definitely well worth investing the time.

Now, I have one place to monitor, and one door to monitor. As soon as I allow access to that information, I'll have an audit trail of who accessed what, when, and how. That gives me the comfort level that I have. Our clients specifically demand it, both on the business side and the front-end client point of view. They appreciate that.

Gardner: For some of our audience, who are not security folks per se, describe what secured data and stateless tokenization means. How does that work -- just an idea architecturally of how this actually works?

Lo: Imagine your card number or any kind of personally identifiable information (PII) that is important to you. Think of it as a piece of fruit, an apple, and you pass it around identifying yourself. Tokenization, and the Stateless Tokenization technology that HPE offers in particular, is that you have an exchange process. The middleman takes your apple, turn it into a pear through a specific algorithm. The reverse process can be applied when someone gives me a pear and ask for an actual apple; the visual is coming back to you.

So, every time, every piece of information that is passed along in the message exchange, they go through this process. The key term here is stateless, of course, so that we don’t have a rack of this mapping information stored somewhere, which becomes yet another vulnerability. That makes our operations a lot easier, especially in a multi data-center environment.

Gardner: So, you get the use of that tokenized data, but you don’t have to store it. It’s not in the state in different places that then have to be protected. There are fewer spots where somebody could be liable to expose it or get access to it.

Difficult to guarantee

Lo: No doubt. In fact, if you think about a larger-scale environment where pieces of information are stored in the cloud, in multiple data centers, in some cases, you may not even know physically where they are. It's very difficult to make that guarantee and say that we know where our information is, and that’s just online. There are the backups that are necessary to run a successful operation.

Gardner: We've heard now that you started from scratch with your credit-card activities. You put in the necessary infrastructure, recognizing that doing it right and fast is a great saver over time. Tell us a little bit about the actual credit card project. How has it come about, and where are you in its delivery to the market?

Lo: It’s been very exciting for us. Our clients have been looking forward to this. We started a public launch in March this year, after about six month’s trial within the bank and with some selected clients. We're now full force and we’ve been running campaigns.

How do we do this? How do we attract our clients? First of all, being transparent. Our product features are very specific, and we don’t hide the interest rate. We're very upfront about fair fees. We're offering promotions right now in three categories. We have four percent cash back for our product, which is a very attractive offering that the market is looking forward to. It’s been working really well.
Well over 80 percent of the merchants in the Canadian marketplace are already Tap and Go and chip ready.

Gardner: And what’s the name of the card? Is it just Tangerine Bank card or is there a branded name to it?

Lo: There is nothing fancy about it right now. This is our only card; so, it can’t go wrong.

Gardner: And is it both debit and credit?

Lo: We've had a debit card for a while now. In this case with the credit card, we have the technology behind it that uses the typical chip-card infrastructure as well as the MasterCard PayPass Tap and Go. And we're also venturing into a mobile payment in the very near future.

Gardner: That was my very next question. Now that you’re a full service bank online, more and more people are wondering how to automate this payment process, particularly with a mobile device. We’ve seen other organizations attempt this, but it doesn’t seem to have gone mainstream yet. Tell us about what you foresee for mobile payments and how you think you might be a leader in that market?
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Lo: In the Canadian marketplace, the merchant landscape is very different from most other geographies. Well over 80 percent of the merchants in the Canadian marketplace are already Tap and Go and chip ready.

With the adoption of mobile payments in big-vendor environments such as Apple Pay as well as Android Pay, we're very, very optimistic. Tap and Go is already a significant component of the payment process, especially for small amounts. Naturally, this is just an extension, whether it’s through the mobile phone or your watch. The impediments that other geographies have around merchants’ reluctance or infrastructure constraints doesn’t really exist in the Canadian market place. So, we're ready.

Extra distance

Gardner: It seems to me that, given the emphasis on user experience and convenience, those organizations like yours that go the extra distance and make that user experience simple, transparent and worthwhile in terms of convenience and productivity, that customers will just put more and more and more of their transactions into that card. It could become so central to their lives. Is that part of your strategy?

Lo: Yes, in many ways. The Tap and Go payment process, once the merchant environment supports it, is very, very efficient. The more information we have around where our client is spending their time, the more we can customize our offering to cater for their specific needs and personalize insights that support their everyday life. No doubt about that. In fact, speaking of the credit card offering and differentiation factor, one of the things that we made very clear is that convenience comes with a cost in terms of people’s comfort level in using that product.
The more information we have around where our client is spending their time, the more we can customize our offering.

Now, if you lose your phone, what’s going to happen? We made it a very high priority to enable our client to freeze the card very easily. Let’s say, if I leave my card in a restaurant, I just pick up my phone or go to an Internet-connected device, freeze my card -- don’t cancel it, freeze it -- until I find it. So, we take quite a bit of time in exploring and making sure that people will feel comfortable using this new channels.

Gardner: It sounds like we're only just scratching the surface on these ancillary services that could be brought to bear when you have the underlying infrastructure in place, the security and data availability in place. It’s going to be interesting in the next several years how convenience can be even completely redefined.

Lo: Yes. We can't wait to continue to innovate for our clients, and in many ways, our clients are looking forward to all of these things as we progress. Banking is our everyday life.

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Monday, July 25, 2016

CPO expert Joanna Martinez extols the virtues of redesigning procurement for strategic business agility

The next BriefingsDirect business innovation thought leadership discussion focuses on how companies are exploiting technology advances in procurement and finance services to produce new types of productivity benefits.

We'll now hear from a procurement expert on how companies can better manage their finances and have tighter control over procurement processes and their supply chain networks. This business process innovation exchange comes to you in conjunction with the Tradeshift Innovation Day held in New York on June 22, 2016.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or  download a copy.

To learn more about how technology trends are driving innovation into invoicing and spend management, please welcome Joanna Martinez, Founder at Supply Chain Advisors and former Chief Procurement Officer at both Cushman and Wakefield and AllianceBernstein. She's based in New York. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: What's behind the need to redesign business procurement for agility?

Martinez: I speak to a lot of chief procurement officers and procurement execs, and people are caught up in this idea of, we’ve got to save money, we’ve got to save money. We have to deliver five times the cost of our group, 10 times, whatever their metric is. They've been focused on this, and their businesses have been focused on this, for a long time.

The reality is that the world really is changing. It's been a 25-year run of professional procurement and strategic sourcing focused on cost out, and even the most brilliant of sourcing executives, at some point, is going to encounter a well that's run dry.

Sometimes you work in a manufacturing company, where there is a constant influx of new products. You can move from one to another, but those of us who have worked in the services industries -- in real estate, in other kinds of businesses where a tangible good isn't made and where it's really a service -- don't always have that influx. It's a real conundrum, a real problem out there.

I believe, though, that events and these changes are forcing the good, the smart procurement people to think about ways they can be more agile, accept the disruption, and figure out a way to continue to add value despite of it.

Gardner: So perhaps cost-out is still important, but innovation-in is even more important?

Changing metrics

Martinez: That's it, exactly. In fact, I have seen some things written lately. Accenture did a piece on procurement, "The Future Procurement Organization of One," I think it was called. They talked about the metrics changing, and that procurement is evolving into an organization that's measured on the value it adds to the company's strategy.

Martinez
People talk a lot about changing the conversation. I don't think it's necessarily changing the conversation; it's adjusting the conversation. After you've been reviewing your cost savings for the last five years for your CFO, you don't walk in one day and say, "Now we're going to talk about something else." No, you get smart about it, you start to think about the other ways you're adding value, and you enhance the conversation with those.

So, you don't go from a hundred to zero on the cost savings part of it. There's always going to be some expectation, a value added in that piece, but you can show relatively quickly that there are a whole lot of other places. [See related post, How new modes of buying and evaluating goods and services disrupts business procurement — for the better.]

Gardner: While it might be intimidating to some, it seems to me that there are many more tools and technologies that have come to bear that the procurement professional can use. They have many more arrows in their quiver, if they're interested in shooting them. What do you think are some of the more important technological changes that benefit procurement?

Martinez: Well, there are all these services in the cloud. It's become a lot cheaper and a lot faster to move to something new. For years, you’ve had a large IT community managing the disruption of trying to put in a product that's integrated with every piece of data and servers.

It's not over, because lot of those legacy systems are there and have to be dealt with as they age. But as new services are developed, people can learn about them and will figure out ways to bring it to the company. They require a different kind of agility: It’s OPEX, not capital expense. There is more transparency when service is being provided in the cloud. So some new procurement skill sets are required.
People talk a lot about changing the conversation. I don't think it's necessarily changing the conversation; it's adjusting the conversation.

I'm going to speak later tonight, and I have a picture of an automobile assembly line. It says, "This is yesterday's robot." When you talk about robotics, people think of Ford Motor Company. The reality is that robotics are being used in the insurance industry and in other industries that are processing a lot of repetitive information. It is the robotics of technology. The procurement organization knows these suppliers and sees what the rest of the world is doing. It's incumbent upon procurement to start to bring that new knowledge to companies.

Gardner: Joanna, we also hear a lot of these days about business networks whereby moving services and data to a cloud model, you can assimilate data that perhaps couldn't have been brought to bear before. You can create partner relationships that are automated and then create wholes greater than the sum of the parts. How do you come down on business networks as a powerful tool for procurement? [See related post, ChainLink analyst on how cloud-enabled supply chain networks drive companies to better manage finances, procurement.]

Martinez: Procurement has to get over the “not invented here” syndrome. By the way, over the years I have been as guilty of this is anyone else. You want to be in the center of things. You want to be the one at the meeting with the suppliers coming in and the new product development people at your company.

The procurement organization has to understand and make friends with the product development and the revenue-generating side of the business. Then They have to turn 180 degrees and look to the outside world, and understand how the supplier community can help to create those networks, then move onto the next one, and then, be smart enough in the contracting, and in things like the termination clauses to make sure that those networks can be decoupled when they need to be.

Redesigning procurement

Gardner: Do you have any examples of organizations that have really jumped on the bandwagon around redesigning procurement for agility? What was it like for them, and what did they get out of it? It's always important to be able to go and show some metrics of success when you're trying to reinvent something.

Martinez: If you're looking for an example, you’ve got Zara, the global retailing chain. Zara changes their product constantly. They're known for their efficient supply chains. They have some in-house manufacturing, and that in-house manufacturing gets done by them, but it's for the basic product, the high volume, where lean manufacturing is important, because the variability is low and the volume is high.

When you get to things like the trend of the minute, be it gold buttons, asymmetrical hemlines, or something like that, they're using a network of third parties to do that. In those cases, the volume is low, the variability is high, and so they create and disassemble these networks.

Whether financial services companies realize it or not, there's a lot of agility built into that. There are some firms, some third parties, that a financial services firm will use to get those shareholder reports out. They send them the monthly reports, and the companies have very high volume, very excellent quality controls. Post offices are on-site. They don't even truck it to the post office; the post office is sitting right there, and the mailings go out.
HCM is an important organization for procurement to bond with. Often, in a company, there's a lot of technology and human resources (HR) spend, and not a lot of professional third parties on the use of that spend.

When you need to do something, for example a special mailing on a particular fund or shareholder meetings that might only be held once every couple of years, you find yourself in a situation where those kinds of networks don't serve you very well, and you have to kind of assemble and disassemble temporary networks.

Gardner: We hear a lot these days, with services organizations in particular, that finding labor and skills is a big issue for them. It seems to me that when we look at some of the tools that procurement is using, and the role that procurement is playing, that perhaps there is some more synergy between procurement and human resources management than we have seen in the past.

Do you see that as a potential benefit when you're looking for agility and procurement, that they should be working hand-in-hand, perhaps using some of the same platforms and methods of procurement and human capital management (HCM)?

Martinez: HCM is an important organization for procurement to bond with. Often, in a company, there's a lot of technology and human resources (HR) spend, and not a lot of professional third parties on the use of that spend.

There consultants who can advise you on insurance policies, but they're not always using the best tools to go out and find those providers. Sometimes, there are relationships, payments, rebates, and that sort of thing that are in play that the HR community might not be aware of or asking about.

In HR, legal, and some of the other parts of a company that often use services, there are technology solutions that are coming in place. So, if you’ve got a procurement specialist working with HR who knows a lot about recruiters and doing deals with recruiters, they had better be learning how to do a deal with LinkedIn. They had better be able to understand that those traditional service providers are not going to be needed any longer.

Procurement advice

Gardner: What advice would you give procurement professionals who are interested in redesigning their procurement for agility? Maybe they haven’t begun that journey fully. What would you advise them as important opening position steps or thinking?

Martinez: Two things. Number one, there's no reason for your organization to call you up one day and say, "You can do this differently." You have to be self-motivated and you have to recognize that the change has to occur, do-it-yourself. I was going to say to ask forgiveness not permission, but you're not going to have to ask forgiveness, because you're going to find lots of good things.
There are supply chains embedded all through organizations, even when no one in the organization has heard the term “supply chain”.

The other thing is that there are supply chains embedded all through organizations, even when no one in the organization has heard the term “supply chain.”

Procurement organizations have to think about making sure that someone in their group understands supply chain or understands that mentality of owning something from start to finish, because as long as you're looking at discrete little pieces, you're not going to extract the maximum value.

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Thursday, July 14, 2016

How new modes of buying and evaluating goods and services disrupts business procurement — for the better

The next BriefingsDirect business innovation thought leadership discussion focuses on how new modes of buying and evaluating goods and services are disrupting business procurement.

We'll hear now from a leading industry analyst on how machine learning, cloud services, and artificial intelligence-enabled human agents are all combining to change the way that companies can order services, buy goods, and even hire employees and contractors. This business process innovation exchange comes to you in conjunction with the Tradeshift Innovation Day held in New York on June 22, 2016.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy

To learn more about how new trends are driving innovation into invoicing and spend management, please join me in welcoming Pierre Mitchell, Chief Research Officer and Managing Director at Azul Partners, where he leads the Spend Matters Procurement research activities. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: We're seeing an awful lot of disruption in how companies can buy and sell goods and how suppliers can reach new markets. What is causing this disruption?

Mitchell: The technology is disruptive. In the old days, a lot of procurement executives would just say, "The technology is really just enabling our existing process, it’s really just a tool to automate the processes that we're looking to do."

That’s starting to change. Technology is fundamentally disrupting value chains. You see what’s happening in the business-to-consumer (B2C) world and the disintermediation that’s happening. Amazon, Uber, and Airbnb are having big impacts and that’s not limited to a B2C world. Look at the impact of Amazon, Uber, Airbnb, and now someone like Tradeshift? What’s going to be the impact on the business-to-business (B2B) travel process on the supply-chain process, on freight forwarding, on the logistics? It’s going to be a major impact.

So, you can say that technology is just automating, but it’s not. It’s enabling new, much more innovative value chains, and it's truly disruptive. I know it’s a buzzword out there, but it really is.

Go and Skills

Gardner: From what you’ve heard at Tradeshift’s recent announcements around Go and Skills, what are the factors that combine in a way that you think are quite new or something that we haven’t seen before? [See related post, ChainLink analyst on how cloud-enabled supply chain networks drive companies to better manage finances, procurement.]

Mitchell: The Skills terminology is interesting. When you look at Skills, they're really talking about a fairly atomic or higher-level kind of business process as a service. And if you're going to do business process as service, it’s not just having a bunch of cloud apps, because cloud apps are basically a more efficient machine tool, if you will.

Mitchell
Just taking an on-premises app and deploying it in the cloud is great in terms of making it more efficient for the deployment, but an empty app in an empty app. What really brings the app to deliver a business outcome, to deliver that business process, is intelligence. That intelligence is going to either come from the bottom up, based on analytics that turn information as insight, but also it’s going to come from how we take information and knowledge out of our minds and put it into that software.

That’s truly disruptive and probably the topic of our conversation of what we do with 30 percent unemployment, as the robots come to take all our jobs. But certainly, in this kind of knowledge-based area, where there is some level of repetitive tasks, the game is starting to change from on-premise apps to software-as-a-service (SaaS) apps, to moving toward the cognitive and using those apps to really deliver business outcomes.

Gardner: I agree that this has wide implications across many industries and across many facets of any particular business. Just to focus on what Tradeshift is doing with Go, what’s interesting to me is that they’re combining accessible, but pertinent, real-time streamed travel data, analyzing that in the context of a data environment. But they’re also adding human travel agents, empowering humans who are very skilled in order to present very rapid returns for fairly complex business problems.

What is it about this combination of machine and human that is pushing boundaries today?

Mitchell: I like how they went about this solution. First of all, they started with the business problem and the outcome, especially in mid-market organizations, but also for large enterprises. We want to focus on making the process of buying and traveling much easier and much more intuitive, but still obviously with some of the controls that you need to have in place.

The problem is that a lot of these processes have been very siloed across multiple places. So you have your travel and expense reports, we have our purchasing cards (P-Cards), maybe an e-procurement system here and there, or maybe an e-invoicing. So you have all these different little channels that are dealing with bits and parts of the problem, but it hasn’t really come together as one kind of seamless experience.

Seamless experience

The only way that you can make that experience seamless is to have this combination of domain expertise around the process, the software to kind of support it, and then more and more this area around cognitive and the skills and being able to empower humans to do this process better.

Probably more of the repetitive tasks that those humans were previously doing will be more bot-enabled rather than human-enabled. That’s going to happen over time, but ultimately, that frees up the humans to do higher value-added activity, rather than just these rote tasks.

Gardner: My sense is that it will start with rote, but it could very easily move up a value chain of intelligence. The other interesting thing to me is that they're using a messaging application, which people are very familiar with, and brings it to a democratization level, where almost anyone in the organization can take part.

Furthermore, what’s interesting is the ability to act on it very rapidly. So, when you create a virtual credit card, you're able to pay for something as rapidly as you're able to find it. It really brings decision-making and execution down to a fundamental level of whoever in the business needs to act can act, and it removes all those middle layers. To me, that’s a fairly impressive productivity benefit.
Millennials are entering the workforce. They're highly messaging based.

Mitchell: What’s nice about it is that if you look at the changing workforce now, Millennials are entering the workforce. They're highly messaging-based. So, it’s really accommodating a multichannel world. The new UI with the changing workforce is going to be messaging-based, but just because it’s quick, easy, and real-time, and it’s in a metaphor that they’re familiar with, doesn’t mean that your need for controls goes away.

The platform capabilities that Tradeshift is increasingly bringing to bear have the ability to take these little atomic levels of services around whether I do a budget check in real time, how do I take what you’re asking for and turn that information into a commodity code, a merchant code, or into being able to translate all this complexity on the back end.

That doesn’t go away. You're just shielding the end-users from it and allowing them to work in a style that’s familiar to them. Too often, it’s been a trade-off between ease of use and high controls. If you can bring those two together, especially for this changing workforce, that’s a huge win-win.

Gardner: We hear a lot these days about the need for more productivity in our economy in general in order to create a better standard of living and increased wages and so forth. It seems to me that for many years, maybe generations, big businesses had an advantage over smaller business. They've been able to integrate processes, have efficiencies of scale, and buy and sell at scale.

But now, when you look at some of these technologies like Tradeshift has brought to bear, maybe mid-market and small companies will get an advantage. They can be fleet, agile, and use these services and cut their costs, while being innovative all along.

Do you share my sense that maybe this is a day and age where the smaller companies have an advantage?

Level of orchestration

Mitchell: Yes, and no. I would probably vote for the school of piranhas over the shark any day, but for those piranhas to win they have to be able to assemble with each other at will. That requires a new level of orchestration and standing up business processes to get those going, rather than what’s been available in the past.

So, taking a traditional enterprise architecture and trying to stand up these cloud-enabled, API-driven services in the cloud that are getting increasingly intelligent isn't possible with the older technology.

I'm with you, and it does require a new class of technology to stand-up these new value chains and these business networks.

Gardner: I suppose there's nothing really stopping even the largest companies from bringing some of these atomic services to bear inside their organizations. Yes, you have to change some processes, but it seems to me that they might not have a choice when their competition gets there first.
Look at what’s happening to the supply markets. They're getting digitized, and the supply chains are getting digitized.

Mitchell: Absolutely. There is so much activity going on right now around digital supply chain and digital disruption. Look at what’s happening to the supply markets. They're getting digitized, and the supply chains are getting digitized.

So, who were the folks who are really responsible for helping the organization tap innovation from those supply markets? Hopefully, procurement is taking a leadership role in doing that. There's a real fork in the road here for procurement to say "Look, it’s time to help us educate our stakeholders about how these value chains are going digital. How can we tap that?"

By the way, procurement is a service provider, too, and you are only going to get so much budget. So, if you can figure out some disruptive ways to carve off stuff that makes absolutely no sense for you to be doing on an ongoing basis, you can really help automate that away, so that you can focus your time on really going deep in certain categories, in innovation projects, and really doing things are really going to make a difference.

The biggest cost in procurement is the opportunity cost of wasting your time on low-value activities, such as cost-center stuff, and not really doing the true profit-center innovative kinds of things. Ultimately, you have to evolve or you're going to die. "Stay above the API," some people say.

Gardner: It sure seems like we’re now in a period where procurement can rise and become an evangelist within organizations for innovation across many different dimensions of the business that could have vast savings, but also put them in a highly competitive position when they could otherwise be disrupted.

So, to the procurement people, "Go get them," right? [See related post, ChainLink analyst on how cloud-enabled supply chain networks drive companies to better manage finances, procurement.]

Can't do it alone

Mitchell: Absolutely. And you have to work with IT and everybody else and work with your suppliers, too. You can’t do it alone, but what’s nice is that you’re finally starting to see some better options out there -- a much bigger utility belt of tools that you can use to kind of make it happen, because otherwise, it’s just not possible.

Gardner: Last point, Pierre. It seems like it’s incumbent upon organizations to get a bit more experimental. There's such a wide variety of new services coming on board. They might not want to take a bite the whole enchilada, but do you share my opinion that being experimental, doing pilot projects, trying new things is extremely important these days?

Mitchell: Absolutely. This whole notion of self funding is that it’s just become part of the new normal. The idea is what can you actually do in the short term that can add some new incremental value, demonstrate credibility, engage your stakeholders, and in doing so, unlock getting to the next level, where now you can build upon that, or if it didn’t work, you redirect, but you need to work towards a long-term vision.
You have to work with IT and everybody else and work with your suppliers too. You can’t do it alone.

This is the part where platforms, architecture, and thinking some of the stuff through is important, so that you can do stuff in the short term and get some business results, but you want to work towards a more flexible and open architecture so that you have options. Because in procurement, and for the stakeholders, it’s all about having options and flexibility. That’s what enables agility, being able to have those options.

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Monday, July 11, 2016

How Allegiant Air solved its PCI problem and got a whole lot better security culture, too

The next BriefingsDirect security market transformation discussion explores how airline Allegiant Air solved its payment card industry (PCI) problem -- and got a whole lot better security culture to boot.

When Allegiant needed to quickly manage its compliance around the Payment Card Industry Data Security Standard, it embraced many technologies, including tokenization, but the company also adopted an improved position toward privacy methods in general.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy.

Here to share how security technology can lead to posture maturity -- and then ultimately to cultural transformation with many business benefits -- we're joined by Chris Gullett, Director of Information Assurance at Allegiant Air in Las Vegas. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: Let's begin at a high level. What are the major trends that are driving a need for better privacy and security, particularly when it comes to customer information, and not just for your airline, but for the airline industry in general?

Gullett
Gullett: The airline industry in general has quite a bit of personally identifiable information (PII). When you think about what you have to go through to get on the plane these days, everything from your whole name, your date of birth, your address, your phone number, your flight itinerary, is all going in the record.

There is lot of information that you would rather not have in the public domain, and the airline has to protect that. In fact, there have been a couple of data breaches involving major airlines with things like frequent-flyer programs. So, we have to look carefully at how we interact with our customers and make sure that data is incredibly safe. We just don't want to take the brand hit that would occur if data leaked out.

Gardner: At the same time, we’re enjoying much better benefits by attaching more data to transactions, to process; we're able to cross organizational boundaries. And so, the user-experience benefits of having more data are huge. We don't want to back off from that, but we do want to be able to make sure that that data is protected.

What are some of the major ways we can recognize the need for better data uses, but keep it protected? Can they be balanced?

Technology fronts

Gullett: The airline industry is moving forward on a lot of technology fronts. Some airlines, for example, are using mobile devices to welcome specific customers on board with a complete history of how good a customer they are to that particular airline, so they can provide additional services in the air.

Other airlines are using beaconing [location] technologies, which I think is kind of cool. If you have a mobile app on your phone for the airline and you're transiting through the airport, how cool is it to know where you are and how long it's taking you to get through security. So, the airline might adapt at the gate as to whether there are going to be problems or not in boarding that particular plane.
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There are a lot of different data points that are being collected and used now with different airlines handling them in different ways. In any event, the need for privacy is important, especially in the European Union (EU), which has incredibly tight data-privacy protection laws.

Gardner: We've talked about that on this podcast series. Now, the answer isn’t just the old thinking around security, where we'll just wall it off, or we'll use as little data as possible. Instead, we need to have more data in more places -- even down at that mobile edge.
We need data out to the edge where it's actually being consumed; that’s what has to happen these days.

So, as we think about ways to accommodate our need for more data in more places, even everywhere, is there top-level thinking that goes along with being able to make the data private, but also usable?

Gullett: That's the balancing point. Everybody wants their data everywhere. Before, a data center protected data inside the tight little confined, hardened shell you used to have, a perimeter with a firewall, and things like that. But we need data out to the edge where it's actually being consumed; that’s what has to happen these days.

Some airlines are putting consumer PII right in hands of the flight attendant on the plane. At Allegiant, for example, we're using mobile devices to accept credit cards on the plane. We're experimenting with a number of different technologies that fall into a category of Internet of Things (IoT), when you think about them. What they all have in common is that they're outside any possible perimeter.

So, you have to find a way to make every device have its own individual perimeter, and harden the data, harden the device, or some combination of the two.

Gardner: Let's hear more about your particular airline. Tell us about Allegiant Air and what makes it unique in the airline industry.

Regular profitability

Gullett: At Allegiant, we're up to 54 consecutive quarters of profit, which is unheard of in the airline industry. The famous phrase about the airline industry is, “How do you become a millionaire? You start with a billion dollars and you buy an airline.”

The profitability of airlines has been much in the news over the last couple of decades, because it's cyclical. Airlines fail, go into bankruptcy, or consolidate. There's been a lot of consolidation in the United States, with United taking on Continental, and Delta taking on Northwest as examples. Southwest taking on AirTran is another. Everybody has been in the game.

Allegiant is kind of off on its own. We've found an interesting niche that has very little direct competition on the routes that we serve, and that is taking vacationers to their favorite vacation destinations.

We connect small- and medium-sized markets -- markets like Kalispell, Montana or Indianapolis, Indiana, a medium-sized city. We'll take them to Florida, Las Vegas, or Los Angeles. We have about 19 vacation destinations now. We have about 115 cities overall. In fact, we serve more cities than Southwest, if you want to get a comparison on the size of the route map. And we're also taking the charter operators to three different countries in the Caribbean.
We've found an interesting niche that has very little direct competition on the routes that we serve, and that is taking vacationers to their favorite vacation destinations.

We have quite a different footprint. That adds up to about $1.3 billion in revenue a year, and from a profitability standpoint, Allegiant is regularly recognized as one of the most profitable airlines in the world.

Gardner: It sounds like most of your passengers, perhaps even all of them, are vacationers, not business travelers. Does that change anything when it comes to user experience, privacy, and data security?

Gullett: It doesn't change anything as far as the need to protect the data, but it puts a greater risk of brand problems concerning data breaches.

Consider the fact that our average customer flies with us once or twice a year. They are, in many cases, flying Allegiant, rather than driving to their vacation destination. Or maybe they're taking a vacation they wouldn't have otherwise because of Allegiant's low prices.

So what you have is “not-frequent travelers.” In fact, that would be kind of a name. If we were going to have a frequent-flyer program it would be the “not-frequent-flyer program,” because vacationing people just don't fly as frequently.

If I'm a business traveler, I am on so-and-so [airline], and they had a breach, I'm going to continue to fly them because I have marvelous status with their frequent-flyer program. Allegiant customers say, “Gee, I'm a little concerned about that and if they have a data breach, I think I'll drive instead.”

So the brand damage from a breach, I believe, is higher for our airline than some of the other airlines out there.

Everyone's responsibility

Gardner: Given how important it is to your business, to your brand, how do you rationalize these approaches to security to the larger organization? I know that's probably not as prominent a problem as it used to be, because we can see directly the business implications of security issues. But how do you make security everybody's responsibility? Is that something that you have been trying to do?

Gullett: First, we're very lucky at Allegiant to have incredibly broad support from the C-suite level and the board of directors for our security program. That's not a benefit that every company has, but we do, and it certainly makes life easier in developing the procedures and processes, and the technologies, necessary to protect our customer data.

We came into the business at Allegiant with the idea that we have the typical triad of people, process, and technology to deal with in the information security program -- the three legs on a stool. If you miss one of those, you are going to be on your butt on the ground because the stool isn't going to work very well.
We've really moved into more of a stage of being people-focused now. In fact, much of our budgetary spend is on security awareness for our people.

We focused on technology and process early on, because those were the easy things. Those were the low-hanging fruit. We've really moved into more of a stage of being people-focused now. In fact, much of our budgetary spend is on security awareness for our people.

We really had to look at how we best introduce security awareness to the entire company, and to make the company more culturally sensitive to information security. That extends from the customer service agent who's checking you in at the ticket counter all the way up to the board of directors.

The [security leadership] has certainly chimed in and made our board more aware of problems concerning information security. Recently U.S. Senator Edward Markey (D-Massachusetts) has also introduced legislation that specifically targets cyber security in the United States domestic airline industry.

That need to protect the data has to be recognized, and the most important part of protecting the data is the people that are handling the data. Awareness is really a big part of our program now.

Gardner: How did PCI-compliance form a trigger for your organization? What did that change mean for you, and maybe you could explain how you have gone about it at the process, people, and technology levels?

Compliance requirements

Gullett: Well, god bless compliance, because I think I got my first information-security job thanks to an auditor telling someone that they needed an information security guy because of Sarbanes-Oxley. And I joined Allegiant because of PCI. These various compliance regulations have certainly done wonders for the job market in information security. I can only imagine what it’s like with the data security and the EU General Data Protection Regulation (GDPR).

But, in regards to our travel into the world of PCI, Allegiant is also a unique airline in that the software that runs through the airline, the applications that run the airline, are proprietary. We actually write that ourselves. We have a large development staff and every aspect of the operation of the airline is run by custom software that we control and we write.

There are a lot of benefits to that because it allows us to be very agile and flexible if we want to make changes, but there is a downside. Some of the code dates back to the green screen days of the 1990s, and that code was going to be very difficult to bring into compliance from a PCI standpoint. It was just not written with security in mind, and while it wasn’t directly handling credit-card data, it was in the process scope.
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A big concern was how we were going to ever bring a significantly non-compliant custom app that would take a great number of application-developer hours to bring it up to snuff and still meet a relatively tight schedule for becoming PCI-compliant. And so, at the time we looked at a number of different products out there and we thought, well, we can't solve every problem right now. So let’s bite off small chunks and we'll take care of that.

The first thing that looked like it would be fairly easy to do, or at least straightforward from a technology standpoint, was tokenization. And so, our search was, how can we tokenize the cards that we are storing. And that led us to stateless tokenization. We compared a number of different products, but we looked at HPE [Secure] Stateless Tokenization, and that was ultimately our choice for tokenization.

Interestingly enough, while we were on our search for what the best tokenization product was, I happened to read a press release on a website that talked about format-preserving encryption as a new technology that was going to become available -- and that actually became HPE SecureData Web. We found that by accident; it wasn’t even a product that was available at the time. It was going to be targeted at card acquirers, and we actually had a hard time convincing the sales folks to sell it to us as a different type of end-user.

That solved our application problem because it allowed us to encrypt the data that was passing through those legacy apps. Between the tokenization and the format-preserving encryption (FPE) SecureData Web product, we were able to dramatically reduce the overall scope of PCI data, and that finally led us to become compliant.

Gardner: Now, this sounds like, with custom apps, it could take months, even quarters. How much time did it take you, and how important was that to you?

Gullett: The time to implement any application that is outside of what we develop ourselves is always a concern, because that takes our developers, who now have to serve as integrators, off of projects that might lead to higher revenues for the airline or to solve a problem or offer a feature that the airline would like to do. And we're very focused on improving the overall business.

We found that the overall implementation of the HPE products was very efficient. In fact, I think we had one-and-a-half full-time equivalent (FTE) application developers on the project. It took them about three months, and that was integrating with multiple payment-card interfaces. I think we started at the end of October and we went live at the end January. So it was pretty lightweight from the standpoint of integrating significant products into our ecosystem.

Stateless tokenization

Gardner: Secure stateless tokenization can often take organizations like yours out of the business of storing credit card information at all. You're basically passing it through and using various technologies to avoid being in a position where you could have a privacy problem. Was that the case with you, and did you extend that to other types of data?

Gullett: That was one of the marvelous parts of bringing the system online as it did take us from storing many, many millions of credit card numbers down to absolutely zero. We store no payment card numbers at this time. Everything is tokenized. The card data comes into our internal payment process and the system can send it off to the card acquirer to determine whether it should be approved or denied, and it’s immediately tokenized. So that has been a real win for the company -- just much less to worry about from the card standpoint.

Now from the standpoint of how we can encrypt or protect other data, we're looking at a number of possible scenarios now that we have gotten past the PCI hurdle. For example, while we don’t fly internationally with scheduled service, we do handle the charters for other companies. At some point, the company may well fly to international locations, and we will be collecting passport numbers. That would be the kind of thing we would also look at, in effect using some type of format preserving encryption, so that we're not storing the actual data.
We store no payment card numbers at this time. Everything is tokenized.

We've gained a lot of experience with the product over the last three years and that’s going to be a fairly easy implementation that will offer a great deal of protection. But we can also extend that out to customer names, birth dates, and all kinds of different things and we are looking at that now.

Gardner: The HPE SecureData Web and the Page-Integrated Encryption are being used by a lot of folks for the webpage, of course, the browser-based apps, but that also can provide a secure way to go to mobile. Many people are interested in the mobile web, not necessarily just native apps. Is that something you have been able to use as well? The SecureData Web as a way to get to the mobile edge securely?

Gullett: We do use SecureData Web in our mobile applications. We've been using it since we initially integrated the product several years ago. In fact, that was one of the data points that we had to protect from Day One. So we have the app going out to the Internet, grabbing the one-time encryption key and encrypting that data in the application itself on the mobile device, on the Android device, the Apple device, and then sending that encrypted data back to our payment-processing system, passing through any systems in the middle as an encrypted form.

We also have a subsidiary that it is not directly airline-related that is also developing a payment-processing app for the business space it works within. Because they're developing a true native application for iOS, they're going to be developing with the SecureData Web SDK that’s been released for mobile devices, which will certainly be much easier.

Gardner: Chris, we hear a lot of times that security is a cost center, that people don’t necessarily see it as a way of bolstering business value or growing revenue streams. It sounds like when you can employ some of these technologies, create a better posture, it frees you up, it makes you able to innovate and transform. Has that been the case with you? Can you point to any ways in which you've actually been able to increase revenue? I know that for airlines it’s a fairly tight margin on the travel, but some of those ancillary services can be a make or break; is that the case here?

Unbundled travel

Gullett: Allegiant is a leader in what we call unbundled travel; we would rather sell you exactly what you want. When an airline says that they offer free bags, for example, they're not offering you free bags. It does cost to put those bags in the hold, to put those bags in the overhead and carry those bags on the plane with you. There is weight, and then that costs fuel. So, there is an expense associated with every aspect of your travel on an airline today; that’s just the way it is.

Allegiant’s unbundled services allow us to say to a traveler, “Well, sure, if you want to get on the plane and you want to bring something and put it under the seat, we'll sell you a seat on the plane. If you want to bring 40 pounds of baggage to put in the hold, we'll charge for that,” because not everybody wants to bring a 40-pound bag to put in the hold.

The thing about Allegiant with its proprietary application that runs the airline is that if we see an opportunity to offer a new service to the customer or a new ancillary service to the customer, we don't have to go to a third-party and say, would you please add this so we can offer this feature to the customer; we can just do it.
We were able to implement the necessary controls with the HPE products in about three months, with about one-and-a-half FTEs.

At the time, we were worrying about PCI compliance and how we were going to accomplish PCI compliance, we also had a project to begin charging for carry-on bags, the bags that go up in the overhead. We could either spend a lot of time retrofitting the legacy app for PCI or we could spend time generating revenue by offering this new feature to the customer that they would be charged for carry-on bags up in the overhead.

The seats on the plane, everything associated with the airline, have a very quick expiration date. When the plane takes off, an empty seat has no value and it will have no value ever again. When a seat takes off empty, we can’t sell that person a Coke, we can’t sell them a bag, we can’t sell them a [rental] car, we can’t sell them a hotel room; that's gone forever. So, speed to market is incredibly important for the airline industry and it may be more important for Allegiant.

In the case of our travails on PCI and how we were going to solve our PCI-compliance issue, we wanted to be able to add this feature to charge for carry-on bags. So now you have a choice. Do you spend a lot of time integrating and cleaning up legacy apps for PCI? Do you move ahead with something that could bring in millions of dollars in revenue? The answer, of course is that you have to be compliant with PCI. So, we have to do that first.
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The fact that we were able to implement the necessary controls with the HPE products in about three months, with about one-and-a-half FTEs, meant that other application developers could spend time on that carry-on bag feature in our software, allowing us to go to market with that sooner than we would have otherwise.

Now, if you look at the fact that we went to market three months earlier than we would have normally, if we had spent three months of stopping everything to do nothing but PCI compliance. Instead, we were able to use that time to develop carry-on bag charging services, that is millions of dollars that would never have been captured in any other way, because it expires, it’s gone. Once the plane leaves the ground, you can’t charge anymore.

So there was a real delivery to the bottom line as far as a profitable feature was concerned by being able to roll out that carry-on bags feature sooner. We had a much easier, quicker, and lower resource-intensity standpoint ability to integrate, using the HPE Security products.

Where next?

Gardner: So going back to our opening sentiment around the fact that you can’t just wall off data, meaning the more data, the better for your business and the more places that data can get to, the better. You've demonstrated that that’s also core to business innovation, such as growing revenue in new ways, and being agile and adaptive to very competitive markets. That’s a very interesting example.

Before we sign off, Chris, where do you go next? How do you think your security steps so far have enabled you to be more fleet, more agile, and perhaps find other business benefits?

Gullett: There is no substitute for delivering innovative solutions to problems that are well-known throughout the business, and helping that to build your credibility with the executives and the board of directors. Certainly, the solution to our PCI-compliance issues, which did get a lot of exposure to the company’s executives and the board, by being able to solve that quickly and without an impact to the operations of the airline, that brought information security awareness to a level that we had not previously enjoyed at the airline.

Although, if you talk to our executives and our board, they're going to tell you information security is very important, and I believe they believe that. The fact that you can demonstrate that you can deliver solutions that don't break the bank and do what they say they do, means a lot.

Going back to that three-legged stool, technology and the HPE Security products that we implemented for PCI are just one part. For example, if the folks aren't handling the credit cards properly or if they're not adequately protecting the data that they have on their mobile devices out in the field, our risk is just as great as a credit-card data breach would have been before we had implemented the tokenization. These are all things we kind of worry about.

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