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Electronic communication is nothing new for custodians. They have had online links with their customers for years, delivering data and services. Nevertheless, the internet is already having a profound affect on the custody business, both in terms of how customers access their data and how custodians market and deliver their services.
Like many other custodians, Northern Trust has operated an online data delivery system for many years where customers have the application software installed on their computers.
This allows them to analyse and report on the data, which Northern Trust delivers to them down the wires.
The revolution of the internet is that it enables the custodian to turn this relationship on its head. By making the data accessible to a browser, Northern Trust no longer has to install any software at the customer site. Instead, the customer logs on with their standard desktop browser, such as Netscape or Microsoft’s Internet Explorer, and has a window into the custodian to examine its data and access other services.
Northern Trust is phasing in its new service but is not making it compulsory. “Clients who don’t have the internet won’t be forgotten - there will be other routes,” says Lucille Knapp, European business development manager for the company.
State Street Global Custody is also moving its customers to the internet. Last year, it set up a Web-based service called In~Sight. As with Northern Trust's service, In~Sight also replaces the software that State Street once installed at the customer site. Again, customers use a standard browser to log into the custodian and examine their data.
“We see In-Sight as a decision support application - it’s more than just a means of delivery data,” says Simon Pilkington, vice president of client information services at State Street. “We’ve designed it as easy to use and flexible.” State Street identifies three kinds of user for the service: executive users who want high level summary information cutting across all their portfolios; analytical users who, say, provide information for fund managers and who need ad-hoc query tools; and operational users, such as administrators of pension funds, who are looking to automate the way they retrieve data.
One of the advantages of using the internet is that enables custodians to move their services from batch-oriented processes, where data is delivered in batches at fixed intervals, to a more open, real time service. Data is not automatically accessible because someone points a browser at the custodian. It must move still data from its transaction processors, calculators or other systems to a Web server that is connected to the internet. In doing so, it must also transform the data into the standard web data format to make it accessible to a browser.
But what about security and reliability - the two issues inevitably come up in any discussion of serious business use of the internet.
“One way to deal with security is to encrypt the data, which we do if requested,” says Knapp. Northern Trust also works closely with organisations that are particularly sensitive on security issues. State Street is starting to make use of “digital signatures” - mechanisms to check the identity of users.
As for reliability, both custodians make their systems accessible via leased or ISDN lines as well as the public internet. Pilkington says that although a number of the larger players use these dedicated communications channels, State Street has not experienced any reliability problems with its service over the public internet.
State Street now has 200 firms using In-Sight in North America, mostly pension and public funds. It has started to roll out the service in its other markets and now has 25 of the 200 or so customers of its London office converted to the new service.
The internet is now also a marketing channel for custodians. Most have had web sites for some time. Potential customers are using these to find service providers. “A prospective client, a large European corporate, found us recently by using an internet search engine, rather than going to their local business library as they may have done in the past," says Knapp.

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