The Bank of New York has acquired a 51 percent stake in Netik, providing the data warehouse provider with financial stability and the bank with vital software for its outsourcing business systems for financial services.
Fred J. Ricciardi, executive vice president of The Bank of New York, said the bank found Netik when it was looking for technology to fill out its business process outsourcing (BPO) offering.
“Our principal line of business is servicing the securities market, where we go well beyond being a custodian,” Ricciardi explained. “We offer comprehensive information to our clients around areas such as accounting, risk management and compliance.” The bank uses the Netik InterView Investment Hub as part of its BNY SmartSource outsourcing program. The bank's clients, including investment managers, hedge funds, banks, broker/dealers, insurance companies and plan sponsors, can subscribe to the Netik platform on a stand-alone basis or bundled with other services such as fund accounting, custody or BNY SmartSource. Netik will continue to operate as an independent software company offering its technology to BNY and its competitors.
In taking over the functions of an investment manager’s back office, the bank found its biggest challenge wasn’t moving the investment activities over to the bank’s platform – it was integrating the information back to the client.
“We realized we are integrating back to dozens of different systems,” said Ricciardi. “In order for invest management outsourcing to work well, we need to limit the time and risks around execution. Using a data warehouse on the client side to link back to us seemed the magic sauce.”
An asset manager might operate four or more trading applications. Instead of interfacing each of those to The Bank of New York, the asset manager can use Netik to create a data hub warehouse that contains all his trading and portfolio information.
“Then we can set up a single data communication with the data hub, and that would in turn feed our multi-currency accounting and client reporting. As they feed us information, that will update our system and send back updates and reconciliation live, so they will have current positions and settlement updates for all their positions.”
Data mapping can be the most difficult part of business process outsourcing, and it can take 12 months or longer to set up, said Ricciardi. By using Netik’s data hub, the bank has its side completed before an outsourcing contract is signed. Netik, which runs entirely on Microsoft technology and SQL Server, has some excellent tools to map the asset manager’s data to the hub, so the process can be completed in as little as three months.
Reducing time, valuable in itself, also builds client confidence and makes the outsourcing decision easier for the asset manager, added Ricciardi. “Shortening the timeline minimizes the risk, and it will also minimize cost.”
He expects Netik to also appeal to BNY clients who are not outsourcing.
“We can distribute this to our non-outsourcing clients who have the same data integration problems to solve. We think we can make Netik more profitable through our global business relationships with the largest fund managers,” Ricciardi added. “Our starting point with Netik was filling out our outsourcing strategy, but now we believe we have a company which has capabilities that are much in demand in the marketplace.”
Placing Netik’s InterView at the asset manager’s site also makes the outsourcing decision easier because the manager retains his ownership of the data and outsources the accounting and other services, said Colin Close, Netik’s CIO. “The asset manager can keep the data warehouse on SQL Server inside his firewall, still have control of his data, and maintain one connection to the outsourcing provider.”
For Netik, the investment by The Bank of New York provides the financial credibility that clients want.
“The number one challenge you struggle with as a software company that is supplying one end of a mission-critical operation is that customers want a financially strong company,” explained John Wise, CEO of Netik. “Having a AA-rated bank makes us financially strong.”
Both the bank and Netik were aware that other banks might be wary of using technology from a company owned by BNY. Citibank, for example, is a major user of Netik’s systems (WFS Winter 2001).
“We have many clients in our business who are also competitors,” said Ricciardi. “We are a Citi client, and Citi is our client. The fact that we own a majority interest in Netik should not affect their competitive edge in the marketplace. One reason we structured the transaction the way we did is to maintain their independence. The Netik management team stays in place; they are not being merged into our technology organization.”
The industry is growing accustomed to financial firms getting into the software business, added Wise. The Bank of New York bought Sonic Financial Technologies in March, and Citicorp purchased Lava Trading over the summer.
“The banks are becoming more and more like software houses and want to provide these services to each other,” he said. Where large asset managers once built much of their own technology, now they are buying it from software companies or are paying for it on an application service provider (ASP) basis. That model is growing, said Wise, and to succeed it requires that the technology providers be strong financially.
www.netik.com
www.bankofny.com