By Olivia Oran
March 15 (Reuters) - Big Wall Street banks, after spendingmassive amounts of money and time to get their old, creakingsystems in better shape, are now trying to sell technologythey've developed in-house to other companies.
U.S. banks including Goldman Sachs Group Inc, MorganStanley and JPMorgan Chase & Co are spinning outor selling a range of tools that pertain to data security,mobile applications and "systems integration," the process offlattening layers of aging technology.
So far, the banks are not making much money from theseefforts, especially compared to what they have had to spend ontechnology in recent years. Between upgrades of hardware andsoftware, creating new apps and bolstering cybersecuritydefenses, tech is fast becoming one of the industry's largestexpenses.
U.S. banks collectively spent $62.2 billion on technologylast year, according to research firm Celent. Selling technologyexternally recoups only a tiny fraction of that amount. Butmoving tech from the expense line to the revenue line is animportant shift for big banks, which are desperately hunting fornew areas of growth as regulations have hemmed in traditionalprofit engines like trading.
"Banks are looking for other ways to squeeze out profit,"said Jonathan Lehr, a managing director at venture capital firmWork-Bench which invests in business technology startups. "Theyget more eyes on their homegrown technology and it's a goodopportunity to build their brand with potential recruits."
Goldman has arguably been the most aggressive developer andseller of its own technology to outside companies, something ithas been doing on and off since the dotcom boom of the 1990s.Its chief executive, Lloyd Blankfein, is fond of saying Goldmanis 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 conductbusiness on their own mobile phones and tablets, rather than oncompany-issued devices.
The bank is working with software company SynchronossTechnologies Inc to spin out a business that securesdata on mobile phones, partly through software called Lagoonthat allows employees to access work apps on their own mobilephones, 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 thebank will receive a portion of earnings. The Synchronoss dealfollows Goldman's spinoff of Symphony, a messaging andinformation system it developed internally that now boasts75,000 users on and off Wall Street.
Tom Jessop, a managing director in Goldman's technologybusiness development group who is in charge of the externalsales effort, said the bank isn't building technology for thesole purpose of selling it. But, "in certain instances wherewe've built something we think is best-in-class, we may look tocommercialize it."
BEING OPPORTUNISTIC
Morgan Stanley has started to take a similar tack underChief Operating Officer James Rosenthal who decided that sellingits own technology was a high priority.
Morgan Stanley is looking to commercialize a technology itcreated called Treadmill, a so-called container managementplatform, according to people familiar with the bank's plans. Containers allow developers to build, test and run theirsoftware applications easily. In turn, businesses that use acontainer management platform are able to operate their softwareat scale across their systems.
The bank is weighing whether to partner with an outsidetechnology firm to sell Treadmill or whether to spin it off as astandalone company, the people said.
Morgan Stanley has experimented with this idea on a smallscale in the past. For instance, it sold a company calledAuthor, which makes presentation templates, to Thomson ReutersCorp several years ago. But Treadmill represents MorganStanley's biggest attempt to export its technology so far.
Shawn Melamed, who is spearheading Morgan Stanley's effortas head of technology business development, said that whilecommercialization was something the firm had approached"opportunistically in the past," it now has a more focusedinitiative in place to identify internally developedtechnologies that may have widespread use.
JPMorgan is also examining the sales potential of some ofits software, according to a person familiar with the bank'splans. In February, the bank sold software it developedinternally that smooths out the process of settling syndicatedloan trades, to Markit Ltd.
In a statement, Scott Kostyra, head of loan settlement inMarkit's processing division, said it would make transactionseasier while also reducing costs and risks.
INDUSTRY SKEPTICS
While some banks are optimistic about their potential toearn money selling technology, others are skeptical it willwork.
Sources at some other banks said they don't see muchfinancial upside to the idea, and that it's complicated tomarket the products to other companies, even with a partner whospecializes in technology sales. There's also a wariness amongbanks about using a tool that a competitor created, said BobGach, a managing director at Accenture who works with banks andfinancial technology companies.
"Banks are often very reluctant to take other banks'technology," he said. "It's a combination of pride and concernabout being dependent on a rival."
Other U.S. banks including Bank of America Corp andCitigroup said they don't have a strong focus on sellinginternal technology.
To address this concern, big banks have formed consortiumsto combat industry-wide problems that require cooperation, likecybersecurity.
For instance, fraud management technology platform EarlyWarning, which is owned by Bank of America, BB&T, Capital OneFinancial Corp JPMorgan, PNC Financial Services GroupInc, U.S. Bank, and Wells Fargo & Co, has morethan 2,300 clients.
Clarient, a platform that stores client information anddocuments, was established by Barclays PLC, Bank of NewYork Mellon Corp, Goldman, JPMorgan and State Street Corp in early 2015 and now has over 90 financial servicesclients.
Bank executives involved with these ventures say they arenot yet generating profits because they are still at an earlystage. While selling internal technology may one day belucrative, banks just aren't there yet.
Tim Gokey, chief operating officer at Broadridge FinancialSolutions Inc, which sells technology services tofinancial firms, said that while banks would like to createindependent value through their technology, many for now arecontent with more cost-related benefits.
Banks are saying, "'My cost is currently X and if I can getsome significant savings on it by working with a vendor orsharing it with other institutions, then I'm happy with that,'"he said. (Reporting by Olivia Oran in New York; Editing by Lauren TaraLaCapra and James Dalgleish)
Barclays (BARC)
