A technology nurtured for two years in a Bank of New York incubator has produced an online letter of credit system the bank can now use behind the scenes — outsourcing the service to banking companies under their own names.

Canadian Imperial Bank of Commerce unveiled an agreement last week to use Bank of New York’s technology for letter of credit origination, processing, and online tracking under the CIBC brand.

The agreement announced Jan. 30 follows a pattern similar to the external promotion of Bank of New York’s online foreign exchange platform, IFX Manager. Bank of New York began developing an online foreign exchange platform with AVT Technologies in 1997 for its own corporate customers, and it later rolled out IFX Manager to competing banks. Ultimately, Bank of New York offered it as part of the technology supporting the multibank foreign exchange consortium FXAll.

“Our goal is to be the premier provider of processing services that are mainly driven off of cutting-edge technology, to gain efficiency and outsource these capabilities to others,” said Morgan Brassler, executive vice president of Bank of New York.

The $77 billion-asset bank has incubated the technology for two years since moving its processing center from New York City to Utica, N.Y., Mr. Brassler said.

In addition to streamlining the process, which normally takes two to three weeks offline, Bank of New York’s system lets its bank clients open letters of credit over the Internet, initiate collections, and make online inquiries on transactions’ status. The bank has a global trade data warehouse in New York City, where it stores all letter of credit transactions.

Bank of New York can do the whole job for a client bank or just handle parts of it, Mr. Brassler said.

“Our main interest is the large market of U.S. regional banks that have to make a decision whether they want to buy a new trade system or they want to outsource to someone like us,” he said.

Banking companies are also trying to outsource online letter of credit systems. State Street Corp. announced in September that it was planning to develop its own proprietary system to offer to large businesses and companies doing business overseas.

Bank of Montreal, Barclays Bank, and Australia and New Zealand Banking Group Ltd. also announced in September that they had teamed up with American Management Systems in a venture to offer trade service transaction processing over the Internet. The venture is intended to help banks cut costs and resources devoted to trade transaction processing, including letters of credit.

Nonbanks are also trying to automate the complicated letter of credit system in Internet commerce. New York-based Ec-Finance, Bolero International Ltd., and TradeCard Inc. are offering ways to move the two- to three-week process to the Internet.

“A lot of banks with smaller volumes are finding the profits being squeezed out of the letter of credit business,” said Regan Wong, a senior analyst at TowerGroup, “and many of them have tried to get out of the processing business and go through other banks or outsourcers.”

“It is not unusual that a bank the size of CIBC would be looking to outsource their back-office and front-office information technology functions for letters of credit,” Mr. Wong said, “but it is less common that they are outsourcing it to a bank.”

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