by Hans Tesselaar, Executive Director at BIAN
The need for collaboration between standards bodies — SWIFT, BIAN, OMG, IFX etc — is clear for both banks and software vendors
Prior to 2009, there was seemingly little need for standards within financial services. Continued high turnovers ensured there was little, or no, talk of efficiency, transparency, or passing savings on to customers, and reducing the vast investment on IT integration was a non-issue. This was the case up until the banking crisis, which resulted in $1.5 trillion in bank writedowns being realised from 2007 to end 2009 (IMG Global Financial Stability Report, April 2010)
The financial crisis of 2008 is a term now used to discuss a wide range of ills. Yet there is little doubt of the impact it has had on financial services. Not only are banks now scrutinising expenditure a lot more closely, but they must also provide evidence of efficiency and cost-cutting if they are to regain public trust. This increased focus on expenditure naturally brought about a period of change within the industry.
In parallel to the scrutiny of balance sheets, banks made the stark realisation that they cannot compete on back-office systems — the battleground for innovation and customer acquisition and retention lies in front-office customisation. This discovery opened the door to financial services standards and collaboration.
Financial services: the next frontier in standards
Standards bodies have long played a part in other industries; the International Organisation for Standardisation, ISO, has been publishing standards since 1947, across industries ranging from agriculture and construction, through mechanical engineering to information technology. Yet the financial services industry has lagged behind. However, in light of the ongoing economic stagnation being experienced across Europe, the financial services industry continues to look to improve efficiency and the employment of standards has been recognised as essential to achieving this.
The importance of standards is clear when we consider the significance of interoperability. Interoperability is the key to ensuring that different systems can communicate effectively. In the context of software implementation, the integration costs — both in terms of time and finance — are prohibitive. Integration costs are often as much as triple the purchase cost of the original software and as a result, many banks are opting to replace specific parts of their existing IT, which have either become obsolete or are difficult to maintain, with off-the-shelf software.
The common use of standards could ensure that a bank’s systems, semantics and expectations are in-line, reducing the cost, time and risk associated with the communication process between different IT systems. Undertaking a core banking system renewal, for example, if both bank and vendor are fully interoperable and working from the same set of standards, not only would this reduce the cost of integration (which can cost tens of millions of pounds), but the business case would be improved, allowing banks to bring new and improved functionality to market at a greater speed. This is good news for banks, for which innovation is the key to staying ahead of competitors, but it is also good news for software vendors, as banks are then increasingly willing to invest in IT.
Standards bodies — truly practicing what they preach — are increasingly looking to collaborate with each other. Integrating individual industry frameworks allows all parties to leverage their standards, for greater reach to banks and software vendors. BIAN, for example, works with SWIFT, the Object Management Group, the International Financial eXchange Forum and The Open Group. The Object Management Group (OMG) works with a number of other standards bodies, across different industries, such as the Healthcare Information and Management Systems Society, with whom they collaborate on the creation of healthcare standards.
Inter-organisational collaboration occurs for a number of reasons and has great potential for verticals such as financial services. The Open Group and BIAN partnership came about after The Open Group identified a need within their member base for more thorough standards, specifically around banking. When applying The Open Group Architecture Framework (TOGAF) in a banking environment, the BIAN content speeds up the work by providing banking-specific architecture content. BIAN benefits from such a partnership as TOGAF provides a structured approach and adds value to the BIAN deliverables for the project approach and capability to perform.
The point is that standards bodies focus on different ‘standardisation layers’, and working together allows bodies to offer broader and further reaching sets of standards. Furthermore, in an age of overlapping industries and spaces, offering a collaborative approach to standards, in which already defined standards are reused, allows organisations already invested in an existing standard to safeguard this investment whilst adopting alternative frameworks on a different level. Naturally each body has its own roadmap and timelines set by their members; it is the alignment of these roadmaps which presents the greatest challenge.
Why are standards bodies aligning now?
The issue of collaboration among standards bodies has really only come onto the agenda in recent years. This may be for a number of reasons. Firstly, technological advances have resulted in ever-more generic underlying technology across industries. The price of hardware has dropped considerably and data and memory capacities have improved, resulting in a more level playing field between the industries. This has, in turn, allowed these industries to adopt common best practices in non-value add, non-differentiating, back-office systems and processes. Secondly, and this is certainly true for the financial services sector in recent years, regulatory pressure is on the increase. The heavy hand of the regulators can be felt across all industries, especially where data is involved, and this has further increased awareness of the possibilities of cross-industry standards collaboration.
The need for collaboration between standards bodies — SWIFT, BIAN, OMG, IFX etc — is clear for both banks and software vendors. Rather than aligning with just one standard in the hope that it will become the defacto, they can be sure that there will be no competition between bodies, and therefore can avoid the potential risks this would involve. Banks need to retain the flexibility to design their own roadmap, knowing there is no risk from aligning the technology with a certain standard.
The future of standards — where next for the financial services industry?
The increasing complexity associated with IT architecture means standards have never been more important. Furthermore, as more organisations seek to collaborate in order to increase capability in terms of efficiency, cost-saving and flexibility, increased emphasis is placed on the importance of communication. As a result, organisations and systems that can converse with one another will increasingly lead the pack. It is no surprise, therefore, that a number of standards bodies have emerged, seeking to encourage further inter-organisational collaboration.
The standards landscape is an evolving one and although the existing bodies will likely stay separate for at least another couple of years, it is probable that we will see ever more alignment and collaboration as the standards mature and technologies enable a more seamless integration of the different layers of standardisation. Within the next five years, there is the possibility that we will see one generic financial services industry standard emerge. Likewise, it is not difficult to imagine standards crafted for the retail banking space crossing into other spaces, for example insurance. Despite the accelerated uptake of standards within financial services, it is unlikely that we will see any new players entering the market — for one thing, existing bodies cover the whole landscape, from application-application, business-business, messaging and semantics, all standardisation levels are represented.
Nevertheless, it would be premature to declare the death of internal standards, such as IBM’s Information FrameWork (IFW). Proprietary standards hold vast amounts of value in terms of financial property, and as such their importance is unlikely to be diminished; although they will face increasing pressure to become more aligned with open standards. This is demonstrated by IBM recently joining BIAN as a member, and taking a seat on the Board of Directors.
A fundamental principle of open standards is to not reinvent the wheel, so it is encouraging to see standards bodies taking their own advice, and collaborating to repurpose existing frameworks. There exists a demand from the industry for further cooperation; it is no longer enough in this ever-integrated market, for a standards body to cover just one area.
Follow Hans on hanstesselaar.ulitzer.com