As we all know the financial markets are undergoing unprecedented changes caused by an explosive cocktail of political,
regulatory, technology and plain simple old fashioned business opportunity, which is pressurising financial services firms
to invest heavily in new systems. Taking a long term strategic development holds large risks for financial firms as the markets
are exposed to increased volatility, due to unforeseen circumstances, that are beyond the single firm to manage or even measure.
The recent problems of the credit crunch starting in the USA and then quickly following in the European markets (Who knows Asia next!) demonstrates how susceptible financial firm’s balance
sheets are.
With an increasing emphasis on ROI and competing demands on wholesale financial
institutions’, corporate treasurers’ and investment managers’ IT budgets, companies are seeking business
solutions that are cost effective, help solve common business problems (STP, integration across departmental silos, regulatory
compliance, speedier transaction processing), are less time consuming and costly to implement, enhance overall efficiency
and facilitate bank-to-bank and bank-to-customer communications.
Market risks have increased hugely because of the mismanagement of financial derivative products and systemic market
problems, inbuilt over many years through banks over selling debt to clients that cannot pay. One can clearly argue that banks
have created a rod for their own backs but equally any criticism must be tempered by the normal market supply and demand reaction.
What would have happened to the world’s economy if the banks had put more restriction on lending or with higher interest
rates?
The current market situation makes the long-term strategic planning of IT development a pretty hazardous pastime. The
banks are all predicting massive losses this year and that may roll onto to next year and further, if the depth of the loss
is not yet realised or the global market problem has yet to be finalised. It is highly likely that bank spending is going
to be hit hard and there will very likely be, mass, cost cutting across the board, with redundancies inevitable. In such market
conditions financial services firms normally merge rather than go out of business. The ongoing negative impact is also going
to affect the IT supply chain, as IT budgets are slashed or at best put on hold. This will ring the death bell for many IT
firms without depth of customers or protected licence revenue. IT firms that rely on new developments to create sales will
be at most risk. In this impending reducing market it is very interesting to view the CheckFree position.
CheckFree is a top notch IT vendor with a public listing, an impressive customer base and a spread of systems covering
different market verticals. It can therefore be considered in the highest category of technology firms.
At SIBOS, CheckFree made the announcement that Loomis, Sayles & Company L.P, an investment management firm based in Boston with approximately $105 billion in assets under
management, had contracted to licence CheckFree eVent™, one of the leading
Corporate Actions Solutions available in the securities market today. What was the decision making process by Loomis Sayles
to invest in CheckFree eVent?
Heather Folino, Senior Manager from Loomis Sayles was able to highlight the main reasons for selecting CheckFree eVent™
and they are very enlightening. She made the obvious conclusion that the technology came top during their selection process,
but it was what she said next that was most interesting.
The intellectual capital at CheckFree was just as important as the technology. Loomis Sayles has enjoyed a number of
years of outstanding service from CheckFree as an existing customer through the adoption of CheckFree TradeFlow for securities
settlement. So a very strong long-term relationship had already been created. As a result a high degree of confidence was
created in CheckFree that it had established a track record of understanding Loomis Sayles’ business and had the same
technical architectural spine to expand into a solution for Corporate Actions. The attraction of CheckFree eVent™ was
further enhanced as Loomis Sayles saw it as an imbedded solution rather than a bolt on. This of course reflects well on CheckFree
in building modular solutions with many commonalties in technology and corporate culture, where solutions are identified to
the benefit of their customer.
By automating this area of operations via CheckFree eVent, the firm intends to minimise
the risk in processing events related to its portfolios, mainly located in North America
and replaces a largely manual process at Loomis Sayles.
Clearly the focus in automating corporate actions at Loomis Sayles is to achieve increasing levels of scale and flexibility
through improved STP, reduce risk and increase transparency, but at the same time capitalise on the standards based messaging
and automation. A key driver has been the US
market moving to ISO 15022. The commitment that Loomis has shown is further demonstrated by the fact that it is an active
participant on the Asset Managers Forum on standards and market practices; the firm has really bought into the whole idea
of standardisation.
Loomis Sayles is planning further developments with CheckFree to integrate more of its future data requirements including
SWIFT inbound and outbound messages, as well as a very interesting move towards XML. It has also noted the importance of enabling
its client’s access to its services through a web portal. It sees its business
in global terms and puts highly the relevance of an integrated technology support with a web front end. This is almost a blueprint
for the market to follow.
In the current market climate this future investment by Loomis Sayles may buck the present market trend but will surely
hold a valuable payback, as the situation subsides. The importance of the relationship with CheckFree cannot be underestimated
in achieving its objectives. With a close relationship already in play the two firms can plan with mutual understanding and
with a clear end game where achieving a competitive advantage is essential for both. This is the perfect harmonious scenario
that buyers and partner vendors should be aiming for and in times of market difficulty will benefit both in the long term.
Naren Patel, director, securities business development at CheckFree, makes a key statement that: “Vendor risk
management is just as important as selecting a solution. At the highest level, unlike other software vendors, CheckFree does
not behave as just another vendor; it comes under the same regulatory and compliance requirements as other financial institutions.
One reason for this is that in the domestic US
market CheckFree facilitates the clearing of cheques and cash payments.” This has probably brought about an advantageous
position, as with both buyer and seller being regulated they will have a culture of a common approach to market issues, trends
and their clients. It begs the question, should all software firms be regulated to attain the same understanding enjoyed at
CheckFree?
Times look like they are going to get much harder for everybody in the market over the next few years. The technology
supply chain is going to suffer more than most as budgets of the buyers are slashed but with the Loomis Sayles and CheckFree
relationship they should be able to ride out the storm. This can be taken as a direct consequence of the CheckFree culture
where it is acting beyond what is normally expected of vendor. This is an approach that sets a standard that other software
firms should examine.
The pending Fiserv acquisition of CheckFree will give additional scale and reach in terms of software supply to existing
and future clients. From a market point of view this will place CheckFree in the very top tier which is good for the market
overall. Clearly CheckFree is more than just a vendor.
By Gary Wright, MSI
