Bankserv, a San Francisco provider of wholesale banking technology, has launched a service that would let banks outsource wire transfer operations.
The move is in keeping with a trend toward increasing specialization among service companies that offer to take over pieces of a bank's operations.
"We think it is a little niche that we can serve and do well in," said David Kvederis, president of Bankserv.
His service, GFX, is targeted at financial institutions below the top 100. Initially it would be aimed at banks making 500 or more wire transfers a day.
If successful, the program could eat into revenues that correspondent banks collect for routing wire transfer transactions on behalf of smaller institutions.
"Community banks are having a hard time attracting talent" for wire transfer operations, Mr. Kvederis said, and are thus "hamstrung in their ability to manage and operate these systems."
Mr. Kvederis retired from Wells Fargo & Co. to launch Bankserv last year. Backed by venture capital, he invested in data processing sites in Las Vegas and San Francisco, and he offers a check truncation service to supermarket points of sale.
Bankserv acquired the Windows-based software that lies at the heart of GFX from Ictus Inc. this year.
The software, which took three years to develop, was designed to run the operations of a sizable bank that Bankserv executives declined to name. The plan fell through when the bank merged with another institution that already had installed a system.
Since acquiring GFX, Bankserv has licensed it to an undisclosed California bank. But outsourcing, not software sales for in-house use, is where the real opportunity lies, Mr. Kvederis said.
Bankserv's first outsourcing customer will be Commercial Federal Bank in San Francisco. Pending regulatory approval, the bank will hand over its operations in the first quarter.
The Federal Reserve is looking at Bankserv's outsourcing operation to ensure that it will not increase payment-system risk.
M. Arthur Gillis, an independent consultant who tracks the bank outsourcing industry, said he has not heard much clamor from banks for wire transfer outsourcing.
But in a nod to the increasing success that third-party processors are having with niche services, he said, "maybe there was never a guy ready to solve" the problems facing smaller banks on wire transfers.
Mr. Kvederis said he expects significant demand for his service because it can cost a community institution "a fortune" to funnel wire transfers through correspondent banks.
Most smaller banks that handle their own wholesale funds transfers use Fedline workstations, which are tied to the Federal Reserve's wire network.
Fedline is a communications link that can be slow and impractical for banks that want to originate hundreds of payments a day, Mr. Kvederis said.
In a typical Fedline transaction, a customer asks its bank to initiate a transfer, and the bank enters the data into the workstation. Before the transfer can take place, the designated recipient of the funds must be checked against a list of "outlaws" published by the Office of Foreign Asset Control, a unit of the U.S. Treasury.
Once the transfer is approved, the bank creates a general ledger ticket item and enters it into the demand deposit accounting system. The bank also checks the account for sufficient funds and overdraft limits.
"What we have done is develop a system that does those things automatically," Mr. Kvederis said. "The Fed is not going to start customizing the Fedline terminal to interface with the bank's general ledger, demand deposit accounting, and OFAC compliance systems."
Bankserv's fees for the new service include an up-front systems implementation charge and $2.55 per transaction. The latter is more costly than the Federal Reserve's 40 cents, but Mr. Kvederis contends it is a bargain when compared against personnel costs borne by in-house operations.