This article summarises the technology dilemma that all Banks face.  I look at ING, and I recall them buying Sanchez back in the 90’s, and how that courageous decisions has simply paid off in spades.  Here is another example.

By adding the Profile core banking platform from Fidelity National Information Services, ING is able to leverage “a lot of built-in functionality, including replication, journaling and security,” Wolfs relates. “It also delivers amazing speed to deliver a fast customer experience in real time.” Profile also integrates ING’s Web and call center, ensuring that all transactions are updated in real time regardless of the method with which a customer conducts business with ING. “Channel loggings record transactions and update results of transactions within seconds,” Wolfs adds. “Customers can see results of their transactions instantly.

Source: Bank Systems & Technology : The New Integration

The reason ING are successful relatively, is because they haven’t fallen into the trap of incremental change.  They have made wholesale change, which is easier to do as a startup as they were, in Canada for example. 

But when you have Banks spending billions on technology upgrades, the question has to be asked whether a wholesale change is not better despite the short term cost, and freeze on other product system changes.

… many banks historically have chosen to bolt point solutions onto existing legacy systems rather than rip out and replace aging platforms. But now, they’re finding themselves tangled in a new dilemma. These nested solutions are creating information silos, making it difficult to comply with reporting rules, for example. As a result, banks are seeking tighter integration with new open architectures, enabling them to extend the life of existing core systems while keeping operating costs low, upholding customer service and complying with regulations.

The demands on core systems are exacerbated by the prevalence of channels and the enormous volume of transactions generated by customers as they continue to eat up the new access available through self service.

This expanded functionality is the result of decades of technology enhancements. The banking industry has made significant investments over the past 25 years in new delivery channels, such as ATM’s, call centers and the Internet, and banks have had to create new functionality around existing systems. Some banks even created separate platforms to support the information delivery of these channels. “The fact is that consumers want to be able to bank anytime of the day, and systems need to be available to accommodate that,” says Mark Forbis, VP and CIO for Monett, Mo.-based Jack Henry & Associates. “For banks to ensure services like this, multichannel integration and integration of related processing systems is critical.”

The volume demands on Bank systems grow exponentially, driven by customer use, and regulatory demands.

And as consumers rely on these new delivery channels more and more, the levels of data moving through the pipeline also are increasing. “Data volumes in the financial sector continue to grow by more than 50 percent every 18 to 24 months,” says Michael Mullaley, director of enterprise networks for networking solutions provider Ciena (Linthicum, Md.).

Charlotte, N.C.-based Wachovia ($23.69 billion in assets), for example, currently handles 350,000 external and 850,000 internal data transmissions each month. And these levels are boosted further by federal regulations. As new compliance regulations come down the pike, banks are forced to integrate point solutions that can replicate operations and produce reporting across different operating systems.

The problem is further exacerbated for many Banks as they pursue acquisitions.

Of course, acquisitions further exacerbate integration challenges. Besides dealing with their own aging systems, banks often take on new legacy platforms that do not communicate well with existing systems and channel applications.

And at this point we can circle back to ING who I would contend are exemplars at implementation of flexible solutions that align with their business model.  They have clearly defined principles which not co-incidentally align nicely with web 2.0 and open source.

The ideal solutions will help companies break down silos, reuse data and business logic, and, often, deliver one view of the customer. “As a result, banks are opting for more-open, scalable architecture that allows them to evolve wherever their business leads them,” says Rudy Wolfs, CIO, ING Direct (Bloomington, Md.), a division of ING Group N.V. (Amsterdam; US$91.14 billion in assets). One of the secrets of ING’s success, according to Wolfs, is to avoid silos by tightly integrating core processes in an open, component-based architecture. “We don’t have the ability to physically touch the customer’s hand, so based on our business model, we need to have a unique approach when delivering our telephone and Web experiences,” Wolfs says.

The discussion goes on to component based architecture, and SOA. 

To achieve tighter integration, many banks are implementing component-based architecture. While component-based architecture leverages a bank’s core system, integrated components are wrapped around the core. “The architecture allows for more shared resources,” says ING’s Wolfs. “Simultaneously, the core still runs independently so there is limited impact on the back end.”

ING’s component-based shop comes in handy during the bank’s regression and maintenance testing. “Given that all the pieces are centralized, we need to make sure our test results do not impact other systems. That is the No. 1 issue we run into today,” Wolfs says. “But using component-based architecture allows for more-isolated, discrete sets of functionality that can be updated with no impact on other areas.”

The most popular component-based architecture, and the hottest buzzword in the industry, is SOA, or service-oriented architecture. The strategy is a services layer, or interface, that enables companies to leverage data and transaction capabilities of existing systems across an enterprise through reusable services. As companies wrap SOA interfaces around legacy systems, they often use Web-based front ends to access data on existing back ends, helping to modernize legacy systems and automate manual processes.

Relevance to Bankwatch:

These are not academic discussions.  Its also not acceptable to devolve these discussions to technology alone.  There needs to be clear confluence of business strategy and technology principles.  But within that confluence, there are core technology principles that must be followed, notwithstanding the business strategy.  These include open source, open standards, and open architecture.  At a minimum this should be supported by a clearly defined technology architecture plan with milestones and targets to monitor progress.

technorati tags: bank+technology, web+2.0, open+standards, open+source