For Mellon Bank Corp., outsourcing is back in.
Mellon, which in 1993 sold several units that provided third-party technical services, last week announced plans to form a venture with MCI Systemhouse that would handle accounts payable and receivable functions for nonbank companies.
The venture, which awaits regulatory and shareholder approval, would be equally owned by Mellon and the unit of MCI Communications Corp.
"Theoretically, we will be the accounts payable and accounts receivable for a company-lock, stock, and barrel," said Edward Valenzuela, the first vice president at Mellon who will head-up the venture after its official formation.
The new company would target a different client base than Mellon's old outsourcing units, which primarily served banks.
In addition, the new niche-focused venture would place Mellon in the midst of a trend. With only a handful of outsourcing companies capable of generating the scale needed to offer core processing services, many providers are offering more targeted services, such as those to be provided by the Mellon/MCI company.
Mr. Valenzuela said the venture will be a "technology solution to an age-old requirement of every company."
Mellon's decision to participate in the venture is the result of a yearlong business study that sought ways to improve the bank's cash management revenue growth.
The study's results found demand for payables and receivables outsourcing services, particularly from large and middle-market customers.
"Corporations want to outsource their back-office functions to reduce costs, improve productivity, and focus on core competencies," said Jamie B. Stewart, vice chairman and head of wholesale banking at Mellon.
Mellon's partner in the venture is a systems integration and technology firm that employs 7,000 people in 120 countries. It was acquired by MCI Communications in November 1995.
Mellon officials expect to sign about 125 customers over the next 10 years. "This is not going to be a mass consumption product," Mr. Valenzuela said.
The venture, scheduled to be up and running early next year, is in the process of choosing its first customer.
Lawrence Forman, cash management consultant at Ernst & Young LLP in New York, said there are a "handful" of banks and vendors that offer similar services, and that the market is increasingly interested.
"A lot of corporations are talking about it and looking into it," he said.
