23 February 2007

As the way banks do business continues to evolve, customer needs and expectations continue to be driven by technological advancements. Innovation and adaptation are essential drivers for industry leadership. Retail banks are reinventing themselves as flexible, dynamic sales establishments at the front end and efficient, low-cost processors at the back end. Regulations such as Sarbanes-Oxley are getting tighter, insisting that banks have visibility and control of key functions.

The key to staying ahead lies in the banks' IT systems, ensuring that retail banking customers can get what they need when they need it, while also making sure that banking operations have real-time, relevant access to information about customers and critical operations across the enterprise. The move towards a multi-channel environment has meant that customers expect to be able to access their financial information quickly, simply and securely regardless of the channel they choose, whilst assuming consistent levels of service even when they move from one channel to another.

"There is still a general lack of consistency in service levels across channels," says David Hamilton-Matthews, vice president of business and product development at Fiserv. "We believe that the underlying cause of this inconsistency is the absence of an enterprise blueprint for channel renewal. Many institutions have invested in channel application solutions that are best of breed in a particular channel domain such as Internet banking, branch platform, teller or call centre, and rely on enterprise middleware to provide a common integration layer to the core banking systems.

"While this strategy has led to some overall improvement in channel consistency, the largest key driver of channel experience has not been addressed – the business process. Within each channel application resides business and process logic that determines the behaviour, and therefore the end-user experience, of the channel. For example, the way in which the branch platform vendor has designed key customer servicing processes will be different from those designed by the call centre solution vendor and the Internet banking solution vendor."

"Tier one banks have disparate legacy systems which still play a huge part in the core systems processing," says Peter Axson, head of banking operation solutions at Unisys. "The move towards a multi-channel environment means that they need availability to support the requirements of the system 24 hours a day and built-in agility to keep pace with market demands. There are still many issues with integration of systems across channels and visibility of information. For example, if a customer has recently been online and then calls their bank, the call centre operators are unlikely to know that they have just been online. This is something that needs to be addressed in order to achieve consistency and the service excellence customers are looking for. Customer expectations and technological advancement in other service industries are driving the need to deliver this quickly. Customers have more information and choice than ever before, with institutions vying for their business. If the customer's needs are not fulfilled when they want them to be, they will go somewhere where they can be."

So the challenge for all banks, large and small, is not only to strengthen customer relationships by providing the best level of service, but also to reconstruct and automate their business processes to achieve the best possible efficiency and consistency. This means that the IT systems that currently support each service require review and extension. The technology used must be future-proofed to suit integration of existing and future development platforms whilst acknowledging that within a bank's legacy systems reside vital components of the organisation's competitive edge, the mission-critical processes and systems that form the heart of the enterprise.

"Legacy systems encompass huge value for any organisation," says John Billman, product director at Micro Focus. "The proven critical business logic within these systems represents a heritage of business knowledge and implementation that delivers both core functions and competitive differentiation for an enterprise. By unlocking the value of these legacy systems organisations can reuse this proven business logic and modernise their applications. Enterprise Application Modernisation through reuse of legacy systems provides a low risk approach that enables the rapid extension of existing applications to meet new business requirements such as new channels, Web enablement and application integration."

Legacy systems can be modified selectively to provide new services whilst retaining the original system but developing new requirements through the use of service calls. This is convenient and can be used to gradually migrate to a service oriented architecture (SOA) whilst protecting the investment in current systems. SOA is a key technology concept to achieve a high level of reuse and avoids the extreme cost and risk of complete systems replacement. At its most abstract level, service orientation views everything as a service provider. Service providers expose capabilities through interfaces, and the SOA maps these capabilities and interfaces so they can be orchestrated into processes. The service model is fractal: the newly formed process is a service itself, exposing a new, aggregated capability.

"Aggregating data is key to striking the right balance between a dynamic front end and an efficient, low cost back end," says Nick Jasper, senior business manager at Apak Group. "Most Tier One banks have multiple systems and databases, and therefore a lot of duplication. For them aggregating data would be the key to striking the right balance between a dynamic front end and an efficient, low cost, back end. For those below tier one it may make more sense to consider newer systems which embody SOA principles as part of their core design." While there are different perspectives on SOA, there is widespread agreement that it is not a product or a technology but an approach, a style of architecture that uses the service model to enable integration across diverse systems, capturing the idiosyncrasies of diverse and often proprietary platforms, technologies and protocols. So, it defines a way to integrate different applications, both within a bank's own walls and across them. According to Gartner analysts, by the year 2008, SOA will provide the basis for 80 per cent of development projects. Having more flexible applications translates to lower costs and faster time to market. "Sceptics claim that SOA is just another acronym for the same old promises of more flexibility and greater agility through reuse of technology components,"says Julian Dobbins, senior marketing development manager at Micro Focus. "Object oriented (OO) architectures and then component based development (CBD) promised levels of reuse, but neither were applicable to legacy applications because of assumptions about technology and interface paradigms that did not fit. In addition, competing standards reduced the opportunity for reuse between diverse organisations, teams and packages. SOA does not presuppose an OO or CBD model, and applies equally to procedural programming and other paradigms for application construction. SOA offers technology-agnostic reuse.

"The appeal of SOA is that it embodies good practice, but it does not set out to standardise to a level sufficient for implementation," adds Dobbins. "SOA is useful to formalise the conceptual bridge between legacy and contemporary technologies like J2EE and .NET. There is almost universal agreement that SOA is a good model for application composition and reuse and this is leading to adoption in many financial organisations."

So how can SOA enable integration of core legacy services with future development platforms? "Since one of the biggest problems with legacy systems is the range of in-house knowledge of the systems, the ability to introduce new feature function without in-depth knowledge of the legacy systems enables banks to expand the scope of the systems without having to re-engineer the base systems," says Chris Smith, senior vice president at Slaterlabs.

"The legacy applications must be converted into re-usable core business services," says Dobbins. "This means peeling away the original operator interface from the underlying 'services' in the applications that perform useful business functions. "These core services are redeployed to their host platform in such a way that they can be invoked though some well chosen SOA-based middleware. SOA does not presuppose any processing paradigm or data formats. Legacy applications use a wide variety of both, and connections may be made through customised adapters or third party tools."

An SOA approach helps to deliver a number of benefits to banking customers, including lower costs, ease of adoption and an improved customer experience. "Reusable business components mean less lines of code to build and maintain," says David Vander, global managing director of banking at Microsoft. "When these components are developed and supported using a combination of commercially supported software running on commodity hardware, modern application development tools and Web services, banks can benefit from lower costs in multiple ways, including a lower cost of acquisition, development and integration; lower ongoing maintenance costs; and smaller investments related to the renewal of the next channel."

"Using a SOA approach within a core banking project can significantly reduce the effort and complexity involved in migration, integration and implementation,"says Smith. "In particular, the new application can be introduced gradually - module by module - addressing the banks areas of highest priority first. Also this approach can also help ensure a higher ROI".

Banks should also consider the end user when renewing channels, in particular the ease of use and the training burden. Microsoft believes that using smart clients and connecting enterprise solutions with the smart client desktop environment gives end users a rich, familiar, intuitive and easy-to-use interface. This helps greatly reduce adoption challenges and training issues, and speeds the time to benefit.

More importantly, customers enjoy an improved experience as data is shared seamlessly and reliably across all channels such as Internet, ATM, call centre, teller and other channels. "By creating a strategic approach to channel renewal that emphasises reusable business components, processes can be optimised, data can be reused, new scenarios can be implemented more quickly, and issues also can be resolved more quickly," says Vander.

"The combination of benefits helps banks put in place the ability to attract and retain their customers more profitably than their competitors," added Vander. "Today, we're seeing that many banking institutions around the world are beginning to reap the benefits of this approach to channel renewal."

"It makes business sense for an industry that recognises the importance of exploiting competitive advantage through technology to consider an approach that allows them to identify, upgrade and reuse existing legacy assets, while also taking advantage of new technologies," says Dobbins. "A move to service oriented architecture and Web services offers banks the option to do this."