Banking on software

Sat, January 20, 2007

Pacific and Western is looking to sell its financial services to banks around the world.

By NORMAN DE BONO, FREE PRESS BUSINESS REPORTER


London's bank is getting into the software development business.

Pacific and Western Credit Corp. has created a new subsidiary, VersaBanq Innovations Inc., that will sell financial services software to banks around the world, said Avery Pennarun, the bank's director of software development.

"We're very excited about this. It's very rare a bank will do this kind of work," he said.

Pacific and Western has developed its own software to comply with Basel II, an international standard determining how banks calculate deposits -- critical in determining how much money a bank is allowed to lend.

While few banks in Canada will have trouble complying with Basel II, which comes into force this year, there are thousands of small, community banks in the U.S. that could use this software, said Pennarun.

"It's a very complex formula -- hundreds of pages long and some small banks may not have the resources to figure that out," Pennarun said. "They have to calculate all the rules for Basel."

However, the U.S. standards for Basel is different than Canada's and many banks in the U.S. have consultants advising them on how to comply, meaning the market for VersaBanq may be limited, said Robert Long, an analyst with the Dominion Bond Rating Service in Toronto.

"There's already an entire industry out there of consultants. The number of people working on Basel worldwide is massive," he said.

But there's also the chance Pacific and Western could serve a growing niche market -- financial services offered by non-banks, such as Loblaws offering President's Choice banks in Canada, said Ian Skaith, a professor of economics and finance at Fanshawe College.

"If there's a chance it can offer more efficient services, why not? This should be very attractive for their customers," Skaith said.

He also praised the bank and its president David Taylor for innovation and thinking outside the box -- not common at Canadian banks, he said.

"It's a terrific operation and it's right here in London."

Basel II is the second version of banking standards, named after the town in Switzerland where agreement on the standards was reached.

Although Pennarun declined to reveal financial details, selling the software package could total thousands of dollars for every user -- with several users at each bank. That may mean potential total revenue in the millions of dollars for the bank.

"I think this could be a multi-million dollar venture, but it's still very early to say for sure," he said.