European bank outsources e-banking to save money

Computerworld - Amsterdam-based ABN Amro Bank NV, the world's 16th-largest bank, announced today that its experiment with outsourcing Web hosting has paid off with a 25% savings.

The outsourcing company, San Francisco-based Digital Island Inc., is hosting eight Compaq 5500R data servers in a London data center and providing networking and security for the bank's global financial markets e-commerce site.

The decision to outsource Web hosting is unusual for a large bank, said Octavio Marenzi, an analyst at Celent Communications LLC in Cambridge, Mass. "Typically, the smaller banks do this," he said.

Security is a major concern, according to Debra Rossi, executive vice president of business internet services at San Francisco-based Wells Fargo & Co., which hosts its Web sites in-house. "You want to have proper controls in place to manage customer information," she said.

ABN Amro's outsourcing decision is unusual not only because of the bank's size, but also because the agreement deals with a corporate banking service. Such outsourcing moves are "more frequent on the retail side," Marenzi said.

Because vendors are able to spread hosting costs over a large number of users, a 25% savings figure is reasonable, perhaps even conservative, according to Marenzi. But there are downsides, too.

"There's one more vendor relationship to manage," he said. "And if something goes wrong, it may be harder to track down where."

According to Digital Island spokesman Paul Abbott, the ABN Amro site currently handles $100 million in transactions a day and focuses primarily on offering bonds and foreign exchange transactions to the top 250 global institutional fund managers.

The bank expects the site to be handling $1 billion in transactions a day within a year.

"ABN Amro expects its wholesale client business to increase exponentially in the coming years," David Woods, the firm's managing director for e-commerce, treasury and fixed income, said in a statement.

Outsourcing the hosting, he added, offered an environment for the site that was both scalable and secure.

By going with Digital Island rather than hosting its site in-house, the bank was able to provide e-commerce services to customers faster and save money that would have been spent on hosting, networking and operations support, Abbott said.

Digital Island takes care of the physical equipment and the operating system, Abbott said. "We control the physical security and the logical security in and around the box," he said. "The bank manages and owns the applications."

Other Digital Island bank customers include JP Morgan Chase & Co. and UBS Warburg.

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