Big Wall Street banks, after spending massive amounts of money and time to get their old, creaking systems in better shape, are now trying to sell technology they've developed in-house to other companies.
US banks including Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co are spinning out or selling a range of tools that pertain to data security, mobile applications and "systems integration," the process of flattening layers of aging technology.
So far, the banks are not making much money from these efforts, especially compared to what they have had to spend on technology in recent years. Between upgrades of hardware and software, creating new apps and bolstering cybersecurity defences, tech is fast becoming one of the industry's largest expenses.
US banks collectively spent US$62.2bil (RM257.47bil) on technology last year, according to research firm Celent. Selling technology externally recoups only a tiny fraction of that amount.
But moving tech from the expense line to the revenue line is an important shift for big banks, which are desperately hunting for new areas of growth as regulations have hemmed in traditional profit engines like trading.
"Banks are looking for other ways to squeeze out profit," said Jonathan Lehr, a managing director at venture capital firm Work-Bench which invests in business technology startups. "They get more eyes on their homegrown technology and it's a good opportunity to build their brand with potential recruits."
Goldman has arguably been the most aggressive developer and seller of its own technology to outside companies, something it has been doing on and off since the dotcom boom of the 1990s. Its chief executive, Lloyd Blankfein, is fond of saying Goldman is more like a technology company than a bank.
Goldman is now hoping to capitalize on the popularity of "bring your own device" policies, wherein employees conduct business on their own mobile phones and tablets, rather than on company-issued devices.
The bank is working with software company Synchronoss Technologies Inc to spin out a business that secures data on mobile phones, partly through software called Lagoon that allows employees to access work apps on their own mobile phones, and partly through an e-mail service called Orbit.
In their joint venture, which was announced in October, Synchronoss will market and sell Goldman's products, and the bank will receive a portion of earnings. The Synchronoss deal follows Goldman’s spinoff of Symphony, a messaging and information system it developed internally that now boasts 75,000 users on and off Wall Street.
Tom Jessop, a managing director in Goldman's technology business development group who is in charge of the external sales effort, said the bank isn't building technology for the sole purpose of selling it. But, "in certain instances where we've built something we think is best-in-class, we may look to commercialise it."
Being opportunistic
Morgan Stanley has started to take a similar tack under chief operating officer James Rosenthal who decided that selling its own technology was a high priority.
Morgan Stanley is looking to commercialise a technology it created called Treadmill, a so-called container management platform, according to people familiar with the bank's plans.
Containers allow developers to build, test and run their software applications easily. In turn, businesses that use a container management platform are able to operate their software at scale across their systems.
The bank is weighing whether to partner with an outside technology firm to sell Treadmill or whether to spin it off as a standalone company, the people said.
Morgan Stanley has experimented with this idea on a small scale in the past. For instance, it sold a company called Author, which makes presentation templates, to Thomson Reuters Corp, the parent company of Reuters, several years ago. But Treadmill represents Morgan Stanley's biggest attempt to export its technology so far.
Shawn Melamed, who is spearheading Morgan Stanley's effort as head of technology business development, said that while commercialization was something the firm had approached "opportunistically in the past," it now has a more focused initiative in place to identify internally developed technologies that may have widespread use.
JPMorgan is also examining the sales potential of some of its software, according to a person familiar with the bank’s plans. In February, the bank sold software it developed internally that smooths out the process of settling syndicated loan trades, to Markit Ltd.
In a statement, Scott Kostyra, head of loan settlement in Markit’s processing division, said it would make transactions easier while also reducing costs and risks.
Industry sceptics
While some banks are optimistic about their potential to earn money selling technology, others are sceptical it will work.
Sources at some other banks said they don't see much financial upside to the idea, and that it's complicated to market the products to other companies, even with a partner who specialises in technology sales.
There's also a wariness among banks about using a tool that a competitor created, said Bob Gach, a managing director at Accenture who works with banks and financial technology companies.
"Banks are often very reluctant to take other banks' technology," he said. "It's a combination of pride and concern about being dependent on a rival."
Other US banks including Bank of America Corp and Citigroup said they don't have a strong focus on selling internal technology.
To address this concern, big banks have formed consortiums to combat industry-wide problems that require cooperation, like cybersecurity.
For instance, fraud management technology platform Early Warning, which is owned by Bank of America, BB&T, Capital One Financial Corp JPMorgan, PNC Financial Services Group Inc, US Bank, and Wells Fargo & Co, has more than 2,300 clients.
Clarient, a platform that stores client information and documents, was established by Barclays PLC, Bank of New York Mellon Corp, Goldman, JPMorgan and State Street Corp in early 2015 and now has over 90 financial services clients.
Bank executives involved with these ventures say they are not yet generating profits because they are still at an early stage. While selling internal technology may one day be lucrative, banks just aren't there yet.
Tim Gokey, chief operating officer at Broadridge Financial Solutions Inc, which sells technology services to financial firms, said that while banks would like to create independent value through their technology, many for now are content with more cost-related benefits.
Banks are saying, "'My cost is currently X and if I can get some significant savings on it by working with a vendor or sharing it with other institutions, then I’m happy with that,'" he said. — Reuters
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