Bank-Led Venture Is Ready for Debut

Banks worried about the spiraling costs of supporting their trade finance products have a new outsourcing option, one with experience working with financial institutions.

Proponix, a joint venture involving Bank of Montreal, Barclays Bank, Australian and New Zealand (ANZ) Banking Group and American Management Systems, is in the final stages of ramping up its service. Proponix will go live soon with ANZ, and the other banks will come online by mid-2002.

The venture is "building a whole new platform" that banks providing trade services will be able to leverage through the Internet, said Bill Graham, president and CEO of Toronto-based Proponix, adding that it would reduce banking costs, improve processing speed and turnarounds and improve client service.

The centerpiece of the operation, Object TradeLine, is a global trading engine that Proponix will offer to banks through an application service provider arrangement. It will provide 7x24 real-time processing services for products such as documentary letters of credit (internal and external), standby letters of credit, guarantees, documentary collections, direct send collections, export negotiation and renegotiations, cargo releases, banker's acceptances and trade acceptances.

The $3 trillion global trade finance market is so paper intensive that only a handful of the largest banks can afford to build proprietary technology. "Banks are looking for a solution," said Graham, who takes the rein of Proponix after spending 16 years with Citibank, most recently in its Singapore office.

By outsourcing such global transactions, banks can reduce their costs per transaction, and replace fixed with variable costs that are tied to processing volumes. Proponix will also speed up the process and improve information and service to clients.

In a recent Proponix survey of 28 major banks in North America, Europe, Asia and Australia, 34% of respondents said technology is their biggest challenge, followed by growing revenue and improving profitability.

More than half the banks surveyed spend more than $10 million annually processing global transactions. The respondents say they believe outsourcing that function could save them between 20%-30% and reduce the exposure in investing in wrong technology, noted Graham.

In fact, it was the concern over customer needs and the rising costs of technology that brought the Proponix partners together. "Like a lot of banks, we were grappling with how to deal with this business," said Peter Wren, director of trade finance at Nesbitt Burns, a subsidiary of Bank of Montreal. "Customers are demanding easier access and more information as it applies to trade financing." One alternative "was to build it ourselves, but that would have required a lot of outlay and wouldn't have made a compelling business case," said Wren.

Bank of Montreal officials thought there were probably other banks in the same situation and "wanted to look at the possibility for not just creating something for ourselves but also something that could be built and be of interest to other banks," he said.

That led to the geographically diverse partnership, Wren said, noting that the partner banks aren't direct competitors in the trade finance space. "Technologically, it's going to be a very, very strong company."