New Patterns In Data Processing

There's a new pattern afoot in data processing deals. Perot Systems Corp. got the trend rolling in September when it struck a deal allowing Swiss Bank Corp. to purchase a 24.9 percent stake in its outsourcing business. Together, bank and outsourcer will form the new Global Financial Services division within Perot and will pursue other contracts in the financial services industry. The extremely tight alliance appears to be the blueprint for other outsourcing contracts that have since been announced.

Witness Alltel Information Services (formerly Systematics) and its recent contract with Metropolitan Bank and Trust Co. of the Philippines. Like the Swiss Bank Perot deal, the contract is more than a data processing agreement; it is a promise to create a new bank outsourcer entity, which in turn will sell data processing services to other financial institutions. In this case, the new company, Systematics Technology, Inc., will be composed initially of Metropolitan Bank's existing information services department and managed by a team from Alltel. Metropolitan Bank will be the joint venture's first customer.

The common thread in both of these outsourcing arrangements is the intent by the outsourcer to expand operations globally. Swiss Bank, for example, brings to Perot operations in Singapore, Hong Kong, Zurich, London, Tokyo, Frankfurt, Paris, Chicago and New York. "Before, we had a presence in Europe, but we didn't have a global stretch," notes DeSoto Jordan, vice president at Perot.

Infusion of expertise

About 700 Swiss Bank professionals, including contractors and consultants, will become Perot employees. That infusion should significantly upgrade Perot's expertise in financial services technology. "We had identified financial services as an area within Perot to develop," says Jordan.

Currently, about 20 percent of Perot's revenue stream comes from financial services, according to Jordan. With the Swiss Bank deal, in which the bank will pay Perot $250 million a year, financial services revenue should come close to comprising 40 percent of Perot's revenue.

That boost is important, since Perot has not made a big impression so far on the bank marketplace. Since bursting onto the scene in 1988, Perot has struck only two deals with U.S. banks. One, with Nations Bank, was recently scaled back; the other, with First American Bank, was canceled when First Union acquired First American.

From Swiss Bank's perspective, its 24.9 percent stake in Perot will give it more control over its data processing destiny. Contracts signed through the new Global Financial Services division will represent booty for Perot Systems and will not be applied to Swiss Bank's books.

The conditions driving the Metropolitan Bank Alltel deal are similar to the Swiss BankPerot arrangement. Alltel's contract with the Manila based Metropolitan Bank (equivalent U.S. $5 billion in assets) is the company's first with a bank outside the U.S. "Alltel is creating an outpost in Asia Pacific," says Bill Bradway, technology analyst at Wellesley, MA based The Tower Group. "Its long term strategy is to acquire more business relationships using Metrobank as its base operating platform."

Getting cozy

Although not an outsourcing contract per se, another example of banks and technology companies getting cozier is a recent agreement struck between EDS Corp. and Nations Bank. Together, the two will pursue federal and state contracts for delivering government benefits electronically. EDS will perform transaction processing and customer service; Nations Bank will provide banking and settlement expertise.

This particular arrangement harks back to an agreement struck between Fiserv Inc. and Chase Manhattan Bank in February. Structured more like an outsourcing agreement, that deal has Chase forking over $480 million to Fiserv. But the two entities are working together to get up to speed in imaged item processing and subsequently will sell Chase's data center services to others and share in the resulting revenues.

It seems to be all about conquering new territory. Perot and Alltel are laying claim in foreign lands and relying heavily on the help of institutions that already know the lay of those lands. Meanwhile, EDS and Fiserv are enlisting the help of solid, technology oriented institutions to explore new technology frontiers.

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