Dedicated to the investment needs of small and midsize financial institutions, FinancialOxygen, a Walnut Creek, Calif., provider of capital marketssoftware, has launched BankOxygen, an online trading hub that links midtier, community banks, thrifts and credit unions to wholesale capital markets products.
Built on a Java-based architecture that works with various legacy systems across multiple protocols, BankOxygen aims to improve the way that federal funds, repurchase agreements, fixed-income securities, mutual funds, derivatives and other capital products are marketed and sold to the country's 21,000 independent financial institutions, with less than $10 billion in assets. "It was a sufficiently large market that we felt we could develop a true marketplace to serve the independent banks," said Robert Oxenburgh, chief executive officer and cofounder. "Right now, they're seen largely as an irritant, possibly not profitable, and therefore, they don't get very good service."
By offering middle-market clients ready access to a variety of investment products and the large-banks providers a direct sales channel, Oxenburgh-who founded the company in November 1999 with four other former Bank of America capital markets executives-hopes to bring order, expediency and improved profit margins to a huge, fragmented market.
"Independent bank executives can see prices from multiple providers of capital markets products and cash investment products in one place for the management of their own business," he said. Usually, a small bank's corporate treasurer has to call around and compare prices. "It's going to be a product suite that has been sorted by BankOxygen to present itself in a way that the client understands and wants it to appear."
BankOxygen, in turn, reduces the cost to providers of acquiring and servicing clients from $18,000 a year to $6,000, said Oxenburgh, because 80% of the trades will go through without any physical intervention. "The Internet was a gift to improve the distribution of this type of product," said Oxenburgh.
Through its analytical software, BankOxygen can also provide customer profitability information by presenting a complete picture of a client's transaction history across all product groups. The site also provides targeted news and market commentary.
So far, 160 independent banks have registered with BankOxygen, although only a fraction are actively using it, trading about $1 billion a day in federal funds and repurchase agreements. "It's still early for a lot of large providers to understand how they want to approve institutions to trade online," said Oxenburgh. J.P. Morgan Chase and Bank of America are the only banks offering wholesale products so far, but BankOxygen has agreements with seven more, according to Oxenburgh.
"We don't need more than 10 or so providers, because once you've got 10 of the largest institutions giving access to their fed fund and repo rates, their inventory of commercial paper and government securities and mortgage bank securities, you've got 75% of the market. The challenge then is to bring the independent banks to the site."
J.P. Morgan Chase, through its e-finance engine LabMorgan, and Bank of America recently invested $5 million each in FinancialOxygen's second round of financing.
"The Financial Oxygen platform will help Bank of America provide independent financial institutions a broad spectrum of aggregated market information in a customized, easy-to-use package," said Christiane Mandell, head of e-commerce at BofA's global corporate and investment bank division.
Independent banks use the site for free, while the large banks selling products pay small transaction fees, as well as "rent" on the site.
Under its PrivateOxygen label, FinancialOxygen will license BankOxygen to large banks that have built their own private portals. Wells Fargo, the first bank to buy in, will use the software to reach its own middle-market corporate customers.
BankOxygen is not the only platform through which FinancialOxygen will offer capital markets products. By the third quarter of this year, it will furnish products to municipalities with populations of less than 1 million and to government agencies with major money management needs through MuniOxygen. By the fourth quarter, InsuranceOxygen will offer products and services to middle-tier insurance companies.
Offers BankOxygen, a Java-based trading hub that gives smaller financial institutions access to capital markets products from larger banks.
HQ: Walnut Creek, Calif.
Robert Oxenburgh, CEO & cofounder