Invisible assets, tangible rewards: The financial software sector has enjoyed the sharpest growth in the UK industry. Lynne Curry looks at three companies whose success is based on brainpower

Asked to invest in a dynamic young computer company, a City financier perfectly captured the intangibility of the software business, remarking: 'I don't invest in companies whose assets are in a lift.' Last year, the company the financier spurned, BIS Banking Systems (whose assets, the intellects of its staff, still travel between floors in a lift), changed hands for pounds 93.5m.

The magnitude of the figures involved in financial software is difficult to grasp: by 1996 the industry in the UK is expected to be worth pounds 3bn. It is the strongest sector in British software and the one predicted to show the steepest growth.

Its working partners are dealing rooms, banks, insurance conglomerates and capital markets, whose intricacies are shrouded in mystique. The software is equally esoteric but, for those who can mount it and master it, it opens doors to success on a very grand scale.

American-owned companies have the lion's share of the market, but British innovation is all over the world. The balance shifted slightly last year when BIS Banking Systems was bought back from Nynex, the New York telecoms company, by ACT, restoring to British ownership the company that evolved Midas, the banking system used in more than 700 sites.

ACT is a darling of British financial software. It used to be the name behind the rather better known Apricot computers, but three years ago it decided to sell Apricot to Mitsubishi and reshape its aims and intentions. It is now parent to ACT Financial Systems, the third-largest software house in Europe. ACT Financial Systems employs just under 800 people, who earned pounds 76m for the company in 1993, of which more than pounds 15m was profit. This would not be an exceptional turnover for a manufacturing company - but no nuts and bolts emerge from ACT. Most of its assets are intellectual. In 1993 the ACT group increased its profits by 150 per cent, to more than pounds 20 million, and financial sector software now contributes more than 75 per cent of ACT's profits.

Prominent British names sharing ACT's podium include CMG Computer Management Group ( pounds 116.1m turnover in 1992), Cray Electronic Holdings ( pounds 84.8m), Misys ( pounds 68m), British Telecom Customer Systems ( pounds 172m) and Logica ( pounds 200m). Sema is also conspicuous on the UK scene, although 90 per cent of the shares are now French-owned.

An esoteric milieu, the banking and finance sector may remain beyond the comprehension of those outside it, but its influence is far- reaching. ACT, for example, has taken over the booking systems of Cosmos, the tour operator, to treble its processing power. The consumer encounters financial software every time he or she takes cash from a bank's hole-in-the-wall.

Despite the aura and reputation of the dominant companies, however, the sector reflects the diversity of the whole software industry. Small companies are confident of their abilities to come up with original solutions to specific problems. Not all negotiation is carried out in London clubs; one deal was struck almost under the auspices of a West Country church.

Kaliba Systems, a nine-strong company based in Bristol, developed a specialised software package for the tax affairs of an Australian syndicate with Lloyd's of London. The pounds 10,000 development had its roots in the congregation of a church near Bristol, attended by Martin Knight, Kaliba's co- founder, and a former Lloyd's accountant, John Linn, who left the City for a view of the Bristol Channel. At his office, Mr Linn handles the tax affairs of some 200 Australian underwriters.

'After they became members of Lloyd's their income became subject to Australian tax. They had never heard of Lloyd's in Australia so I got involved with the tax office about the information they required and in what form. Because we looked after a large number of Australian clients we tried to evolve an overall package,' says Mr Linn.

The solution, which was well received by the antipodean tax office and continues in use, led to another pounds 5,000 worth of business in London for Kaliba, but did not prove a springboard to the big time. According to Mr Knight, the generalist nature of small companies is both their strength and their handicap. 'Ideally, one should have two parts to the company, specialist and generalist, but it's difficult to set yourself up as a specialist,' he says.

'When we (he and his partner, Helen McGregor, both formerly of Fraser Williams) set the business up five years ago we wanted to create a medium-sized company with 30 to 40 people but we have failed in that expectation and, in part, that's because we haven't made enough impact nationally, although we are effective locally.'

Kaliba has a turnover of pounds 350,000 and sees its future as solid because of its versatility, but the Australian tax system has limited scope. Marketing weakness is a criticism frequently levelled at British companies, and Mr Knight admits that the company failed to promote itself when it was in a position to gain good publicity.

Movers, shakers and incomers to the financial sector are observed with keenness by a generation of people who now find themselves as the father-figures of the industry, although many of them are barely 60. Ronnie Yearsley, former deputy chairman of BIS, says the respect now accorded to innovators is in contrast to the reception they were accustomed to receive from financial institutions in their early years.

BIS was formed in 1964, out of a recognition that customers wanting computer systems did not always want partisan advice from the powerful hardware houses of the day.

Its first contractual milestone was an pounds 18,000 deal from Barclays Bank, with which BIS still deals, and was celebrated with cider in a rough pub near Blackfriars Bridge. Early networking consisted of luncheons with guest speakers; BIS's directors continued to be shown the tradesman's entrance, says Mr Yearsley, until the development of Midas, the Modular Interactional Dealing And Accounting System that was to make BIS's name. To raise the capital for Midas, it was decided to sell the whole company instead of going public.

'After that the number of lunches we had with various 'Sir Johns' was legion,' Mr Yearsley says. 'In the early days of the City we were treated like grubby technicians; it was almost 'how did you get into the office?' Fifteen years later it was 'come and meet Sir John and park the Daimler round there'. They could see half a million pounds in fees walking through the door.'

Intellect in lifts has proved to be the power behind this lucrative business of invisible assets, to which so many tangible assets owe their existence.

(Photograph omitted)