REDMOND, Wash., Nov. 6, 2002 — Though U.S. investment banks have been heavily hit by the stock-market downturn, a prolonged period of low interest rates has helped commercial banks more than offset credit losses and post record earnings. According to the latest FDIC (Federal Deposit Insurance Corporation) report on bank earnings, the commercial banking industry remains one of the bright spots in the U.S. economic outlook. Banks are positioned to support any economic recovery, with plenty of money to lend and invest.
That money will also fund the industry’s technological future. With bankers gathered this week in Atlanta for the Bank Administration Institute’s Retail Delivery Conference and Expo 2002 (Nov. 5-7) — the industry’s largest conference devoted to the provision of financial services to smaller companies and individuals — software companies are competing intensely for their business.
To find out about technology opportunities in the commercial banking sector, PressPass talked to Wim Geurden , Microsoft’s senior technology strategist for the banking industry.
Before joining Microsoft in September of this year, Geurden was a partner with Accenture, where he defined, designed and implemented complex IT infrastructure for U.S. banking institutions. He worked on integrating new and legacy systems to provide a customer-centric, multi-channel delivery capability. Prior to that, Geurden worked at JPMorgan as a technology lead on standardization and migration projects for the Brussels Global Markets division.
PressPass: What information technology shifts are happening today in the banking industry?
Geurden: I’d identify three relevant trends.
Some banks have decided that they are good at certain things — customer management or creating customer access points, for example — and that they will focus on that, and outsource most of the non-related technology. Many start by outsourcing the datacenter. Some want to outsource the creation, running and operating of technologies that implement new financial products. Bank of America is experimenting with outsourcing various pieces of its banking infrastructure, including its ATM networks.
On the other hand, certain large banks, Citibank for example, are trying to implement a full range of financial services products in-house. These banks need a very flexible internal IT infrastructure to integrate complex financial services applications with core back-end systems.
A third trend takes outsourcing in the opposite direction — banks are convincing enterprises to outsource some financial services functions to them. Nordea, the largest bank in Scandinavia, with 1 million corporate customers, will give corporations access to automated payment processing using Microsoft’s new BizTalk Accelerator for Financial Services.
PressPass: What’s the most pressing technology need in the banking sector?
Geurden: One core area of investment is enterprise application integration, or EAI. Every bank wants to build a customer-centric, multi-channel middleware infrastructure that gives customers a consistent experience independent of the channel used to reach the bank. That’s a big integration problem as many of the larger banks are consolidations of multiple smaller banks with disparate legacy systems. It requires bringing together multiple product silos and previously acquired businesses into a coherent infrastructure. The introduction of non-traditional offerings — such as insurance and brokerage –into the core banking relationship only accelerates this trend. Several banks are also using EAI tools to automate current processes, such as least-cost routing of payments or integration of cash management solutions into their clients’ ERP systems.
Microsoft’s EAI offering is centered on Microsoft BizTalk Server. Customers are using it to build wrappers around legacy systems and then implementing new business logic on the BizTalk Server. EAI tools are historically expensive. BizTalk Server brings down the cost dramatically while retaining the required robustness, scalability and failover that we typically find in more expensive offerings.
The ultimate goal of EAI is Straight Through Processing (STP) — complete transaction automation. STP is important to banks from a service perspective. There’s still an enormous amount of paper generated in consumer banks and too much basic service and customer maintenance happens manually with multiple hand-offs. The only way to avoid that is by standardizing and automating chunks of the business processes: one human enters the information; after that, it should all be automated, except for exception handling.
Presspass: Are there other factors determining where technology investment goes?
Geurden: Bankers want to see a rapid return on investment, and Microsoft is positioned very well in an ROI debate. Our platform is typically considered cheaper to operate and develop in. From a time-to-market perspective, it’s also easier to integrate with other platforms because .NET early on embraced open standards such as XML. Our Microsoft Visual Studio.NET development system makes it easy to build rich client applications. And finally, through the network of tens of thousands of Windows-focused ISVs and around 6 million Windows developers, we are able to implement end-to-end solutions with leading-edge capabilities developed by our partners.
Presspass: What about scalability and reliability?
Geurden: By now, Microsoft has enough proof points within the financial sector that it can handle the scale and security requirements.
S2 has tested their ATM authorization product on DataCenter and topped out at 7,000 payment authorizations per second. Aspect Communications is used by Washington Mutual and Deutsche Bank to implement CTI (Computer Telephony Integration) for their call centers. JPMorgan Chase has taken its Corillian e-banking solution and expanded it to drive more functionality through it. Onyx has tens of thousands of concurrent users in its CRM functionality, used by mid-tier to larger banks. All of these are built on Windows.
Looking to the technology future, where the capital markets institutions go, the commercial banks will follow. And there are clear examples of Microsoft successes with capital markets companies. Reuters, which provides real-time market information, chose Microsoft’s Instant Messenger software running on Windows as a reliable, secure and auditable enterprise messaging system. And the BizTalk Financial Services Accelerator is being introduced by major financial institutions to integrate their securities trading messages with their internal apps.
Presspass: How do you see Web services developing in the banking sector?
Geurden: Web services could be of use to the companies that want to outsource core pieces of their business. But Web services for such external integration must lag somewhat until the financial services-specific standards are in place.
For internal integration, there’s more pickup. For example, customer information files are being opened up by some banks into a set of Web services. If you want a certain set of information — mailing addresses or credit scores — you can go to internal Web services to get the data.
The big business benefit of Web services will be agility. Suppose a corporate customer wants to change the way its accounts receivable department interacts with a bank’s treasury management product. What happens now is that larger bank clients have proprietary ways of integrating the two functions. If they want to change something they are dependent on the bank implementing their new format; but making the change is a specialist process. Web services would be a more flexible solution. The standard communication protocols used will make it easier to reconfigure business processes.
Presspass: Is there still a technology-driven trend away from human interaction in banking?
Geurden: For basic bank transactions, yes, there’s still a push away from human interaction toward self-service call centers, ATMs, and the Web. But there’s also a renewed industry focus on the bank branch channel. Banks have realized that certain functions, such as opening an account and dispensing financial advice, are done better in person. From the technology perspective, that means branch investment will increase over the next couple of years and that investment will have to be fully technologically integrated with other channels.
In general, commercial banks can be expected to invest heavily in the near-term in customer facing and integration capabilities. Microsoft is well positioned to provide the core infrastructure upon which these capabilities can be built.