In banking today–as it is increasingly with corporate treasuries–the motto is, "Buy it. Don't build it." Although traditionally banks have taken a somewhat proprietary view of their technology, today plugging bought components into core infrastructure plays to the banks' strategy of trying to add value and offer more services to increase revenue from current clients while keeping their own costs down. "More and more, the innovation is coming from technology firms, and banks are buying that technology and commercializing it for their customers," notes Dave Robertson, a Chicago-based partner of consulting firm Treasury Strategies Inc.

The current banking climate–with revenues from cash management sales now flat after two decades of double-digit growth–necessitates it, asserts Maggie Scarborough, research manager for corporate banking at Financial Insights, based in Framingham, Mass. She notes that banks have been budgeting just 7% to 8% of that revenue for building new products and services over the past two years, down from 10% to 14% before 2004. "[Tech] spending [by the banks] is now quite strategic, so in some cases the quality is going up," she notes.

Of course, this trend toward repackaging means that treasurers need to start asking questions about what goes into bank solutions to make sure that they don't overpay. "The names and the prices may be different, but two banks could be reselling essentially the same product," says Treasury Strategies' Robertson.

So, which technologies are banks most interested in? Remote deposit under Check 21 has been something of a trendsetter when it comes to off-the-shelf solutions. "Banks are buying the technology for remote deposit from software companies at least 95% of the time instead of building their own," notes John Leekley, partner of Blue Mountain Enterprises LLC and editor of RemoteDepositCapture.com. In remote deposit, vendors with traction include NetDeposit, Alogent, Advanced Financial Solutions (AFS) and Carreker, he reports. AFS and Carreker provide bank back-office systems, so their strong selling point is seamless integration for banks. NetDeposit and Alogent are stand-alone solutions with powerful front ends. The early market leader appears to be NetDeposit, which has signed up several large banks including Citi, Bank of America, ABN Amro and LaSalle Bank.

CHERRY-PICKING HOT TECHNOLGIES

Payment factories are another technology being sought out by the banks. These tools help create comprehensive payables solutions that address inefficiencies in supply chain management. Bottomline Technologies Inc. and Fundtech Corp. are leaders in this area, selling payment gateways to both large banks and corporations. Among the banks that have bought the technology are Citi and HSBC, which are gearing up to offer lower cost delivery of comprehensive payables services to corporate treasuries.

The biggest technological innovation in cash management is banks bringing together all their corporate services in a portal, Scarborough reports. The portal itself is the bank's communications infrastructure, and that is home built. But within the portal one will find an array of purchased components, she explains. LaSalle Bank, for example, uses components from Politzer & Haney and Digital Insight. "They tend to stock the portal with best-of-breed applications, including some that may be the bank's own," she reports. They can plug in a front-end application like S1 Trade Finance for trade services or link to an FX trading portal, she explains. The smaller the bank, the less it can afford to build itself and the more it will rely on purchased components, she adds.

Another hot tech innovator whose products are attracting a bank following is Open Scan Technologies Inc., a Denver-based software developer run by founder and CEO Nadine Lange. While forms processing technology is generic, it has obvious value in wholesale lockbox operations, where most of the labor goes into manually capturing data from remittance documents and where most errors occur during manual keying. Today, some banks are plugging Open Scan applications into their core lockbox processing systems for data capture. "We excel at automating data capture and then applying high-speed data correction that produces 99% accuracy," claims Michael Starble, Open Scan's vice president of sales and marketing. "We capture, correct and validate."

The technology doesn't stop there, either. It can also match payments against the collecting company's original billing file, making sophisticated allowances for variances. "We don't require a perfect match of dollar amounts to apply a payment. We accommodate complex situations that sometimes occur in wholesale lockbox," Starble says.

The technology could cut costs and error rates for data capture done at lockbox banks, and it could lead some banks to expand their data capture to forms that have been deemed too complex to handle in the past, Starble says. It could also make data capture cost-effective for companies that couldn't afford it in the past.

LaSalle Bank is in the process of implementing Open Scan in its lockbox operation, explains Matt Boatman, senior vice president of receivables management. The bank gets a lot of nonstandard remittance documents, and 60% of its customers want the bank to do data capture. So far, that has meant working with paper documents or digital images of documents and keying in manually the desired information. Open Scan could change that, Boatman says. "We're hoping it will eliminate 25% to 30% of our manual keying," he says.

Houston-based Paymetric Inc. is also on the entrepreneurs-to-watch list. The company was started in 1998 by two engineers who left SAP to continue their work of integrating credit card transactions into a merchant's SAP ERP system. That product, XiPay, brought Paymetric 1,700% growth over the past five years and is now agnostic enough to be used with rival ERP systems like Oracle and J.D. Edwards, reports product manager Blair Jeffery.

The merger of BankOne and JPMorgan Chase in 2004 indirectly opened the door to a transformation of Paymetric. The company's current top three officers,including CEO Steve Putney, came out of the former BankOne. The founders, Bret Walker and Ariel Mendiola, are still with the company–Walker as chief technology officer and Mendiola as vice president of operations.

Besides executive talent, Paymetric also acquired buyside card technology with its purchase of South African Riverside Software from BankOne. The product worked only with MasterCards, but the card technology is now being rebuilt into XiBuy, a purchasing application that will handle Visa and American Express cards as well, but will integrate only into SAP systems at first. "We're making the transition from a seller solution to a buyer solution," Jeffery says. XiBuy 1.0 was released last October, but is being rebuilt for relaunch as XiBuy 2.0 this quarter. Both are sold directly to corporate treasury, purchasing, A/P, A/R, credit or risk management pros.

XiBuy comes onto the market just as companies with established p-card programs are looking for ways to push card purchases and their economies into areas that have been a challenge for card transactions, Jeffery notes. "To grow their programs, companies want ways to manage the data back to their core accounting systems so they can use cards for non-traditional purchases linked to purchase orders and other spend categories. P-cards have come with their own special tools, but now companies want to integrate p-cards into their business processes, and we offer a way to do that for SAP users. It gives companies the best of two worlds–the cost-savings of p-cards with the discipline and accounting details of traditional procurement," he insists.

Paymetric has addressed the weak spots in EIPP with a solution that increases A/P and A/R efficiency, helps companies maximize revenue by managing discounts and accelerates cash availability, Robertson notes. "They are part of a growing trend for nonbank providers to come up with payment solutions that are independent of any settlement network. They are capitalizing on the card network, but [they are] also introducing ACH options when they can reduce cost and risk. And they've achieved a true level of integration with SAP that has eluded many solution providers in the past."

A lot of innovation is also coming from niche players. For instance, Clearwater Analytics has impressed Robertson. "They grew out of a hedge fund, which used the compliance software for its own portfolio," he reports. "It checks transactions, deal by deal, against investment policy, which offers a continuous approach to compliance." With older products, a portfolio could swing out of compliance during a month and only be brought back in compliance at the end of the month, he explains. The Bank of New York is reselling the Clearwater product.

VERY NICHE ANSWERS

Atlanta-based Online Banking Solutions is also filling a small but potentially costly gap. OBS helps solve the high cost of TTY communication by handling it for the banks as an outsourcer. It also provides cutting-edge desktop file transfer products. "It's almost like VPN (a virtual private network) in a box," says Financial Insights' Scarborough. "Files are transferred between banks and treasuries over the Internet in an independent, lights-off manner." Other niche entrepreneurs with bank ties include companies like BancBridge Software Systems Inc., which offers HTTP scripting for bank-treasury communications, and AP Technology, which offers positive pay enrollment technology.

But the shift to buying technology from building it represents a sea change in the relationship between banks and treasurers. Where banks often started relationships on the basis of proprietary technology, they are much more likely to engage companies today on the strength of their services, their expertise and even the personalities of their bankers. As the consultants point out, it is more of a sales job, which also is going to mean a lot more marketing.