Xchanging’s ‘phenomenal’ deal with Deutsche Bank
The British outsourcing company Xchanging is on the way to becoming a “global phenomenon” following its €40mn deal with Deutsche Bank, claims company founder David Andrews.
Best known in the insurance industry for its joint venture with the London market to process claims and premiums, Xchanging will now see its employee base grow by almost 50 percent with the addition of 900 new staff, most of whom will be based in Frankfurt.
Last week, Xchanging confirmed that it had acquired a 51 percent stake in Deutsche Bank’s settlements arm, the european transaction bank (etb), in exchange for a commitment of €40mn for services and technology.
It is the third large-scale joint venture Xchanging has agreed following its initiatives with the London market and BAE Systems, which are collectively worth £1.45bn over ten years.
“We are creating a global phenomenon,” explained Andrews, who formed the company in 1998 with venture capital from General Atlantic Partners. He continued: “Xchanging already partnered with the London insurance market, now we partner Deutsche Bank, probably the largest and most successful European bank.”
The etb currently processes up to 2.1mn transactions a day at peak time and has a market share of around 12 percent of German securities settled at the German stock exchange. Although etb currently settles transactions for the German private bank Sal. Oppenheim and the landesbank Sparda-Banken-Gruppe, Xchanging believes that its independence will help win new contracts from other German financial institutions.
“Businesses are now asking themselves where they should compete. Banks, like London market insurers, are choosing not to compete on the back office processing. Instead they are pooling their resources. This is where we can help allowing them to concentrate on their products,” explained Andrews.
In a statement, Hermann-Josef Lamberti, a member of the board of Deutsche Bank’s managing directors, echoed that view: "This transaction allows Deutsche Bank to continue in its strategic objective of focusing on core businesses while also benefiting from the resulting increases in operational efficiency,” he explained.
“We are an attractive proposition to financial services companies because we understand complexity,” Andrews continued. “Although a lot of processing is automated, you need highly skilled staff to deal with the exceptions. In the London insurance market, for instance, it is 30 percent and for German securities it is 5 percent. It is our ability to process the exceptions which attracts companies to our partnering model.”
Andrews also acknowledged that in time the business processing firm would look for an exit route for its backers: “At some stage we would like to be a large, publicly quoted company but there is no pressure on us to do anything. Our investors take a very long term view.”
On 19 April, Insider Week revealed that Xchanging was close to signing an agreement on the Deutsche Bank once a review by the European Commission for regulatory purposes was completed.