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By Olivia Oran
March 15 (Reuters) - 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.
U.S. banks including Goldman Sachs Group Inc (NYSE:GS) GS.N , Morgan
Stanley MS.N and JPMorgan Chase & Co (NYSE:JPM) JPM.N 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
defenses, tech is fast becoming one of the industry's largest
expenses.
U.S. banks collectively spent $62.2 billion 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 SNCR.O 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 email 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
commercialize it."
BEING OPPORTUNISTIC
Morgan Stanley (NYSE:MS) 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 commercialize 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 TRI.TO , 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 MRKT.O .
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 SKEPTICS
While some banks are optimistic about their potential to
earn money selling technology, others are skeptical 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
specializes 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 U.S. banks including Bank of America Corp (NYSE:BAC) BAC.N and
Citigroup (NYSE:C) C.N 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 (NYSE:BBT), Capital One
Financial Corp COF.N JPMorgan, PNC Financial Services Group (NYSE:PNC)
Inc PNC.N , U.S. Bank, and Wells Fargo (NYSE:WFC) & Co WFC.N , has more
than 2,300 clients.
Clarient, a platform that stores client information and
documents, was established by Barclays PLC BARC.L , Bank of New
York Mellon Corp BK.N , Goldman, JPMorgan and State Street Corp (NYSE:STT)
STT.N 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 BR.N , 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.