Outsourcer takes on global trade processing

The Bank of Montreal is one of three major financial institutions to take an equal stake in a venture to independently automate trade processing.

Proponix Tuesday said the Bank of Montreal (BMO), Barclays Bank PLC of Australia and New Zealand Banking Group would also be its first customers. The company will be based in Toronto and will create data centres in Toronto and Melbourne, Australia.

Proponix will provide software and Web portals to automate trade services like letters of credit, guarantees, direct send collections, cargo releases and bankers’ acceptances. The idea is to provide a third-party alternative to the traditional means by which global trade banking services are outsourced.

“No one offers service on an independent basis. Usually it’s from one bank to another and there are a lot of client confidentiality issues that come with that,” said Bill Graham, a former executive with Citibank Canada and now Proponix CEO. “The existing models don’t work. It is not a very pleasant environment.”

On the front end, the company will offer white-labeled portals which will allow customers to initiate and track their trade transactions online. The more complex work, however, takes place on the back end, where the company has partnered with American Management Systems to develop a proprietary application called Object TradeLine, which scans documents into images to reduce paper costs. “This area is hugely paper-based,” Graham said.

While not entirely new — OMR Systems has offered similar tools for funds processing outsourcing for many years — the participation of BMO and the other partners will raise Proponix’s profile considerably.

Peter Wren, BMO’s managing director of trade finance, said the implementation of the Proponix software will save the bank 30 per cent of its operating and support costs. “The expensive piece is the processing piece,” he said. “And it’s not the profitable piece. It’s the other areas, the risk management, where we want to concentrate our efforts.”

The Bank of Montreal employs around 120 people who handle trade processing and support, Wren said, adding that he wasn’t yet sure how many of them would be left once Proponix takes over. While a few employees have been hired for Proponix’s facility in Melbourne, the Toronto team will be recruited this fall. Graham estimated the company would employ around 200 people by the end of the year, the majority of whom will be dedicated to processing.

Prior to the launch, the banks and Proponix conducted a survey of 28 banks in North America, Europe, Asia and Australia to gauge their interest in outsourced trade processing services. About half the banks said they spend more than US$10 million per year, while 34 per cent said it represented one of their biggest challenges. The survey also noted that 62 per cent of global banks are worried about the customer sensitivity issues around outsourcing, or potential problems that come from their legacy systems.

Graham said Proponix’s specifically-built trade processing tools would alleviate the legacy concerns. The portal will be branded with whichever bank is using it, for example. Its independence from other banks, meanwhile, will give it greater focus than what banks could offer each other. “Usually it’s an adjunct to their own trade processing business,” he said.

Wren said he expected all his existing commercial clients to take advantage of the Proponix portal and estimated a 10 per cent increase in new customers as a result of it. “With the existing Windows technology, everything has to be installed on site,” he explained. “Whereas with the Internet-based product we can go much more down-market.”

While there are a number of European and U.S. banks who offer outsourced trade processing (including New York Bank), Graham said he did not know of any Canadian banks in the market. He said there were at least 100 global banks thinking about the issue, and that several had already contacted Proponix to discuss the opportunity.

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