In conjunction with Northern Trust's treasury management group, svp and CTO timothy theriault is developing a virtual village that will net the bank a Web-based managed receivables business.
FutureBanker: You spearheaded what some call a "revolutionary" strategic technology initiative. How have you approached IT spending at Northern Trust (NT)?
Theriault: We're basically focused on two lines of business, private banking for individuals and, for institutions, corporate master trust. On the master trust side, we have custody of about a trillion dollars in assets that we administer, and these are for assets around the world, for pension funds, central banks and so forth. From that we offer a technology desktop platform that goes into client offices so we can deliver accounting reports as well as investment performance reports, investment policy monitoring, on-line pension information-just a whole slew of applications. And then on the personal side we have 65 offices throughout the U.S., and we're using that same technology to roll out to individuals. The platform on the institutional side is called Passport, and, for individuals, we call it Private Passport.
FB: How has IT investment affected NT's overall business strategy?
Theriault: In the last few years, we've spent over $500 million redeveloping our core processing systems and delivery systems. We built Passport, which is a plug-and-play architecture that allows you to build new applications, plug them in and make them available to clients as well as our own employees. We have over 6,000 people using Passport today around the world.
A couple years ago, we were-from a competitive standpoint-not as competitive as clearly we are today. Our win rate on new business is very high. And technology plays a major role in people's decision making process.
Not only do we have advanced tools on the desktop for people to use, but also we do a very nice job of automated linkages from sources of information and also download directly to general ledger systems in a client's office.
FB: Where is your greatest emphasis in technology spending?
Theriault: The one thing that we have just delivered in the last year that we're pioneering in the industry is investment policy monitoring. On Passport what we do is allow clients to set up alerts. They put in their investment policies that they don't want to be exposed in a country more than 10 percent; they don't want to be exposed to a certain economic sector of equities more than 20 percent; they don't want to be exposed in IBM by more than five percent. What we can do is run those alerts against a number of portfolios that they have with various investment managers, and we can trigger that exception or alert to the client. And we're six months ahead of the competition in delivering this. A lot of that is because of the plug-and-play architecture that we have.
That allowed us to win a lot of new business in the last year.
We've done data warehousing. Now we're doing more Internet enhanced delivery; we're doing some Java 1.1 development, where individual participants can do their own investment elections on 401(k).
Many banks are just offering account balance information; (Northern Trust) is actually developing transaction initiation.
FB: Is NT working on any corporate intranet or extranet applications?
Theriault: We have an intranet as well as a public home page, but one of the (key) applications we're doing now is called PayMaster. We're going to introduce that in mid-November in California with Sun Microsystems at the Treasury Management conference in San Francisco. There's going to be an alliance of marketing agreements. And there is going to be an on-line village of suppliers and customers coming together to pay bills, where we do managed receivables for the suppliers.
FB: Did Northern Trust approach Sun about PayMaster?
Theriault: They're a customer of ours; we're a customer of theirs. And the idea came up when we were talking to them about (a specific) banking relationship, and they got interested, and then they wanted to invest in it with us because it's based on Java. So when I'm out there, we're going to have a joint meeting.
FB: Do you think anybody else is doing anything like this?
Theriault: No. What we want to do is create a village of various suppliers from major industries, like pharmacy, drugs, manufacturing technology, and we have some big names who we're talking to about potentially joining the village. Because if you have ten major companies who participate, that could be five million plus people who participate, and we do the managed receivables for them.
FB: Where will the village be?
Theriault: It would be on Northern Trust's Web site. But it would be known as a public entity, and, eventually, other banks would join the village. So we're trying to create a standard here and be first to market.
FB: When other banks participate, how will NT profit from this?
Theriault: We don't have an interest in other banks being involved for a while. So what we would like to do is engage the large companies (for a fee) and then eventually let the other banks in it because we won't be everything to everybody. But at the start, these big companies will give us their accounts receivables, and we'll present them out to these smaller entities, collect the money and process the cash for these companies into their accounts and then take it from there.
FB: Who came up with the idea for this venture?
Theriault: The treasury management product group.
FB: How did you get involved?
Theriault: I became involved because of our relationship with Sun and because it's an advanced technology application. It's really to help the business people think through what the gotchas are. They were working with a different provider to create a prototype and involving Sun was going to be moving away from that original provider.
FB: The original provider could not bring the necessary technology components to the table?
Theriault: There wasn't a comfort that we were going to get to where we wanted to as fast as we wanted.
FB: As you seem to have a significant relationship with Sun, do you also do business with Microsoft?
Theriault: We do business with Microsoft. This concept was discussed with Microsoft as well, with EDS, and I can't remember who else. But those are the three big ones.
FB: Has NT worked through how they're going to make money with Paymaster?
Theriault: Our whole treasury management goal is to take costs out of the treasury management functions of large corporations and automate it and deliver value added services that way. This is just continuing down that path. This is clearly an area where for all their automation, there's still an awful lot of small bills that are being paid by large corporations. And this is a way to take the small number and create a critical mass type automation solution that benefits both sides.
FB: Was it difficult to get senior management to buy off on something like this?
Theriault: No. Our motivation behind technology is very high, and this was basically a discussion with myself and the head of treasury management on the product side, Steve Potter. Our chairman has been vocal to say this is an important area of our strategic business; we need to make sure we invest and maintain profitability in this important business segment. So there has been no resistance to this.
FB: And Sun you said may be an investor as well?
Theriault: There was talk about it but I think we're choosing to keep the investment to ourself because how you split the money and the profits on that would be difficult. So if it gets to a point where the investment is greater than our benefit, then maybe we would look for another partner. But we don't see the need at this point.
FB: On the private banking side, what has Northern Trust been able to achieve with the Internet?
Theriault: I don't think we've fully realized all of it yet. We're a very, very high-touch provider. We have the most intimate relationship with clients, where we have literary clubs where authors come and talk. So we become an intimate part of the community and that's been a very, very successful business strategy for us because a lot of the people are retired and wealthy and they have time and they like the idea of a trusted source offering opportunities for social type interaction.
Now on the technology side to support that, we do still want to offer (Internet service). Because retired people have money and time, there's a lot of them that want to surf the Internet and do things like that. So right now, the first foray into Private Passport is going to be banking. We're pursuing brokerage, investments, and then we'll also get on to the trust-the whole, how you go about a will and a trust and educate people that way.
And (on) the corporate side of the business, we're putting the retirement services aspect on the Internet. That's where you can do your 401k.
We're not going to ignore the Internet; we are going to support it as a means of distribution. The client will choose how they want to be serviced. We believe (Internet adoption at the private banking level) is going to be more gradual. We'll be there with our tools, but we're not going to abandon our high-touch approach to the business.