Changing rules; Aggregation grows up

A decade ago, few business people knew what the Internet was, let alone what it was capable of becoming.

A decade ago, few business people knew what the Internet was, let alone what it was capable of becoming.

By Jeffrey Kutler
December 2002
Institutional Investor Magazine

Mathematician Duncan Johnston-Watt had an inkling, but he had taken leave from Oxford University’s Programming Research Group to live his dream of running an independent theater company. His high point: starring as the pioneering British computer scientist and World War II codebreaker Alan Turing in a production of Hugh Whitemore’s 1986 play Breaking the Code.

Today, as founder and chief technology officer of London-based Enigmatec Corp. -- a year-old company named after the German Enigma machines that Turing brilliantly reverse-engineered -- Johnston-Watt is pouring his creative passion into capitalizing on an emerging set of programming breakthroughs variously dubbed X-Internet, next-generation Internet or Semantic Web. The financial industry stands to benefit because of the Enigmatec principals’ backgrounds: Johnston-Watt worked on fixed-income trading platforms at UBS Warburg and Reuters Group in the 1990s; chief scientist Steve Ross-Talbot and research head Gary Brown founded Reuters-backed messaging systems developer SpiritSoft; and board chairman Richard Kilsby launched the Virt-x electronic exchange.

It takes a bit of decoding to understand what they’re selling, but it mainly comes down to programming rules. Today’s Internet remains difficult to harness for anything other than routine business purposes. The Semantic Web will make possible what Enigmatec calls “reactive intelligence” -- the ability to design or modify networks and processes on the fly.

“Think how complicated it is to set a policy and then implement it throughout a large investment bank, or in any regulatory organization,” says Johnston-Watt. “We enable change management -- do it and get it right the first time.”

One practical result of reactive intelligence could be straight-through processing of securities trades. “Lots of people are nibbling away at aspects of STP,” notes Johnston-Watt. “This is the endgame.”

--------------------------------------------------------------------------------
Aggregation grows up
The formation in 1999 of Silicon Valley software house Yodlee might have been one of the dot-com era’s last gasps. Although dozens of financial institutions licensed Yodlee’s account aggregation technology, allowing them to combine a client’s records from all service providers in a single online report, the demand and excitement soon fizzled with the tech crash. But Yodlee survives: Today it boasts 150 corporate customers -- including a who’s who of financial companies led by Citigroup, Fidelity Investments and Merrill Lynch & Co. -- serving 3.2 million individuals. “We have 95 percent of the market,” crows Yodlee CEO Anil Arora.

Yet privately held Yodlee is still struggling to translate its strong numbers into profits. Arora says that a September capital infusion -- $20 million from first-time investor Warburg Pincus and an additional $4 million from early-stage Yodlee backer Accel Partners -- will get the business over the hump, in part by financing international expansion. “We hope to have double-digit millions [of end-clients] by next year,” says Arora.

Explains Stewart Gross, head of New Yorkbased Warburg Pincus’s financial technology group, “The idea [of aggregation] has been around for a while but has crystallized, and banks now understand how to use it, integrate it into their businesses and get bottom-line benefit from it.”

Even a Yodlee competitor takes heart. Says L. Patrick Gardner, CEO of Boston-based ByAllAccounts, which focuses on the high-net-worth niche, “It’s validation for our industry.” But Thomas Madison, head of the financial services practice at Chicago-based consulting firm Inforte Corp., says that many institutions are more focused on another need: customer relationship management systems. They will emphasize aggregation later, he predicts, “when companies are convinced that the technology works well.” -- J.K.

Related