July 20, 2012
Banking Technology by Tom Groenfeldt
Frameworks are a hot topic in banking, both among banks and major vendors, and for similar reasons – complexity, integration, cost and the challenge of updating legacy systems.
Several major banks, including ING, ABN AMRO and UBS, and technology providers including IBM, Microsoft, SAP and Temenos, have joined the Banking Industry Architecture Network to develop a framework banking technology.
Even the underlying causes at big vendors and big banks look similar – often both have grown through acquisitions. Both think a framework will help.
BIAN research showed that 47% of software vendors and consultants expect SOA standards to reduce banks’ IT costs by 10-25%, while 78% of banks thought the reduction in IT costs would be at least 25%.
SunGard began developing a common platform years ago, looking for a way to make its acquisitions work together without writing custom interfaces for each new project. It is made up of a set of services and frameworks that developers work with. “The idea of both BIAN and SunGard is to define standard frameworks or open architecture frameworks and build solutions on top of them,” said Don Tyson, chief technology officer at SunGard.
“Our core competence,” added Tyson, “is building real-time systems around trading, reconciliation and core banking. We don’t want to spend time building frameworks to move data from A to B.”
Developers love the structure of frameworks, he added. “We see a thin line between innovativeness and leveraging frameworks that exist. Our aim is to identify frameworks that will reduce our time to market so we can innovate in the solution space, not in the framework space.”
The SunGard frameworks have also significantly reduced costs, he added. “Without our micro-architectural paradigm, a lot of good software that came out in last two or three years would have cost us 50% more.”
It’s about time for banks to bring their IT costs under control, says Don Trotta, global head of business development for SAP and a vice chairman of BIAN’s board of directors.
BIAN, which was started by ING and SAP, offers value for vendors and banks, he explained. “If you look at the chart of IT spend by industry, banks and financial services are way up on top of the chart.”
Banks spend 10% of revenues on IT, says Trotta, and that is driven largely by the complexity of the legacy environment. Fixing this will be a 10-year journey, he added. Part of the problem is that the large banks have built their own systems or modified packages to the point where they are no longer standard.
“They did it because there was nothing out there for the Tier 1 banks.” SAP is targeting just those banks, the top 400 globally, he said.
Trotta said that as major players like ABN AMRO and UBS join BIAN, its framework will acquire a critical mass and banks will move to standardised packages as they realise they can create internal standards that work across their own systems and with systems developed outside the bank.
“You can create an internal standard, and banks do it all the time,” said Trotta, “but it doesn’t help with something you buy.”
IBM thinks the largest banks will use the framework to mix their own development with packages that provide only some of the functionality they want.
John Schlesinger, chief architect at Temenos, said that 30 years ago when banks started building systems it was the box that mattered, not the connections.
“Now if you look at banking architecture, the cost of connections swamps the cost of the box. But it was like a frog in boiling water. It has happened gradually over time. People still think of the boxes while they should be thinking in terms of integration.”
Temenos finds value in BIAN because a typical T24 installation has 50 or more interfaces – to ATMs, card outsourcers, payment gateways, general ledgers, risk management systems and data warehouses, he added.
Schlesinger reckons “40% of the time and cost in installing is making those interfaces work”.
The interfaces are far more complicated than they look at first. Linking Temenos to an ATM network probably means interfacing with Base 24 from ACI. That requires knowing what all the data elements in T24 and Base 24 mean and mapping them correctly, something that requires deep domain knowledge which is rare and expensive.
BIAN is meant to simplify the process.
“BIAN is trying to describe the things that pertain to banking at the semantic level, so if T24 has all its files with BIAN-based data and Base 24 did the same, the skill level needed to interface them would drop,” said Schlesinger.
“The reason we are keen on BIAN is to try to lower the cost and skill level of installing and maintaining the T24 system at a bank.” The next version of our product will bundle an integration product to make it easier.”
Silos and integration are perennial topics in bank technology discussions. Schlesinger said the problem goes back to the original systems developed 30 years ago to automate branch banking. The branch accounting systems have two components – online transaction capture and overnight batch processing that does all the payments and calculates fees, interest and starting balances.
“Banks realised 20 years ago when ATMs started that their architecture was no longer appropriate. They have tried to migrate, but they have failed and the reason is that they have constituted it as a six-year project,” he said citing Nationwide’s move to SAP as an example.
Nationwide did a year and a half of preparation up to 2007 and has been working on the system ever since, but it still hasn’t gone live. Only a mutual bank could do that – a listed bank would have cancelled the project long ago.
Schlesinger said that IBM isn’t holding its breath for banks to move off accounting systems when they can cost $1 billion and take six years, so they are pushing progressive modernisation. That can mean putting a Temenos T24 system in front and using the branch accounting system as the general ledger.
Or it can mean plugging IBM applications into the process. In June, IBM announced two solutions to help private and investment banks improve their order processing, trading and portfolio management systems.
Rather than having to make costly investments to fully replace their aged banking systems, the IBM solutions enable banks to rapidly transform and enhance the functionality of their front-office applications with a single, integrated investment management system, the company said in its product announcement.
“What we are not doing is getting into the application business for banking or financial services clients in the sense that you might have Temenos packages,” explained Likhit Wagle, global banking and financial markets leader for IBM Global Business Services. “We are creating a bunch of assets that sit within GBS and act as accelerators for the work that we are doing for our particular clients.”
The IT giant’s Order and Portfolio Management application and Portfolio Performance Monitoring grew out of work for private banks in Switzerland. IBM now offers them as products, a shift for the company.
“If you looked a typical GBS engagement in the past it was almost all labour-based. Now we will see a large portion being assets as well as labour,” said Wagle.
Although BIAN started in 2008, IBM joined it only this year.
“We have spoken to several of our bank clients and have realised that there is growing support for this particular standards initiative, and hence joined to help accelerate the development and promotion of the interoperability standards for the banking IT landscape,” IBM said in response to a written query.
The portfolio applications show how the framework is a good fit. Wagle said they have an integration layer so they integrate (seamlessly of course) with existing core banking systems “so you don’t need to rip and replace a large chunk of your core banking landscape. Implementation is extremely fast and cheaper than if you were trying to customise an existing package.”