In the financial services industry, everything is dependent on IT. This stretched from a bank’s response to changing risk profiles, to its delivery of new products and services. Yet a significant amount of the IT budget is spent on integrating new systems into the existing architecture. That could all change as the industry embraces open standards. Steve van Wyk, global CIO for ING, talks to Jim Banks about what lies ahead.
The banking industry is acutely aware that its risk profile can change rapidly and that it must become more agile to manage risks as they evolve. IT is crucial to any change a bank makes and plays a significant role in all kinds of risk management, from business continuity to data security. Yet it must also make products and services easy to access.
For CIOs, balancing the requirement for enhanced data security with the need to streamline the flow of information through a complex organisation is a big challenge.
The industry's approach to such issues, and the constant challenge of integrating new technology to deliver better products and improve customer service, could be about to change dramatically. An ongoing initiative to promote open standards across the industry is rapidly gathering momentum, and will change how CIOs approach the development and implementation of new systems.
"There is always a trade-off between security and the flow of data," says Steve van Wyk, global CIO for ING. "Processes must be simple, open and accessible for clients, but you need the right security in place to protect their interests. We look for security measures that provide comfort and protection, ease and openness - that is what we get paid to do.
"But there are also other risks we must consider from a technological perspective; for example, regulatory risk. Regulatory changes force banks to adopt new systems and they need the ability to change in a timely fashion. Banks have an opportunity to respond to risk quicker, including new threats to security."
BIAN - service-oriented architecture
That opportunity comes from a fundamental change to banks' systems architecture that is being driven by the Banking Industry Architecture Network (BIAN), of which van Wyk is chairman. BIAN was created to promote a common framework for banking interoperability issues. Its aim is to be a major contributor to the knowledge and services needed to implement interoperability between banks, which will rely on service-oriented architecture (SOA).
"The idea is standardisation en masse to advance the technology agenda much faster," explains van Wyk.
"It gives the industry the ability to adopt new technologies more easily and to spend more time on areas that are of value to the client - like security - or new functionality rather than on integration.
"SOA has been around for some time, but what's new is that BIAN is looking to extend it across the entire industry. This would allow banks to extend functionality and choose their technology vendor on the basis of the functionality they offer, rather than spending their time on the integration of new technology into a proprietary or legacy architecture.
"When it comes to enterprise architecture, we are working with our business partners to drive the discussion forward and define the future direction of the industry."
It seems that many banks understand the value of SOA and how it could greatly improve interoperability. BIAN banking members already include Credit Suisse, Deutsche Bank, Rabobank, UniCredit, Standard Bank and ING.
"Different banks are at different levels of maturity, but many feel that this is a great step forward for the industry," says van Wyk. "Some are already taking advantage of the standardisation that BIAN is promoting, and all agree that is the direction we need to go in. Some are not ready to change the back office, but it is only a matter of time.
"We are getting closer to a fundamental shift in banking systems architecture, particularly as the vendor community becomes more involved. IBM and other banks have now joined BIAN, so I would say that we are near a tipping point, where adoption gains momentum and banks start to realise the gains from new entrants, and puts the emphasis firmly on the quality and functionality of new systems, rather than on the ease with which they can be integrated into an existing architecture.
Developing in-house or proprietary systems would be a thing of the past in a world working to BIAN standards, as banks would be looking to easily integrate off-the-shelf products into their existing legacy environment. In short, banks' IT spend will be directed away from extensive integration and towards value-added projects.
"We are accelerating the delivery of our BIAN framework with the expanding membership of BIAN," explains van Wyk. "Vendors accept that there is an inevitable shift towards open, interoperable standards.
That will be a centrepiece of everyone's technology policy. Proprietary stacks won't be such a part of banks' systems architecture, so vendors will want to join in with this trend.
"It will either happen to them or they can be part of the process of change. BIAN is now working on standardised frameworks that vendors can use in order to be compliant. There will come a time when their banking customers will ask 'Are you BIAN-compliant?', so the change is inevitable."
With open standards, competition among vendors would become more intense, which is likely to be of benefit to their banking customers.
"BIAN standards would describe the inputs and outputs required, so anyone could write the code," says van Wyk. "With the collaboration that is possible across the internet, anyone could enter this world to deliver feature functionality. This would definitely open the landscape of competition for vendors, which is exciting. It completely changes the world."
BIAN's flexible approach
BIAN standards promise greater agility and in keeping with that ethos, the initiative has a flexible approach to how standards are developed. BIAN members are able to choose areas to focus on developing standards in a collaborative, consensus-based environment. In the last 12 months, issues such as sales and service, document management, archiving, consumer loans and payments have all risen to the surface.
For the year ahead, portfolio management, trade finance and analytics models are all on the agenda. The approach that BIAN takes is symptomatic of what could be a new era of collaboration between banks.
"The industry is behind others in setting standards," says van Wyk.
"In the payments area, there is SEPA, which has been a focus for collaboration in the industry, but BIAN is the first area of consensus to touch the back office, which has not been a source of competitive advantage, but which becomes one as we agree BIAN standards with vendors.
"Because banks will not be spending so much on integration, they can focus on areas of differentiation. We want to have a plug-and-play environment where banks are buying from vendors on the basis of functionality and not worrying about integration costs, which have been a big waste of money in this industry. They will focus their investment on new feature functionality for their clients."
BIAN's SOA framework will improve the banks' ability to adapt to a changing risk profile, and to implement new technology to boost its product and service offering, radically increasing agility. For van Wyk, who was with Morgan Stanley at the World Trade Towers on 9/11, this is a big step in the right direction. From his experience of that day, he has developed an approach to risks that relies less on having detailed response plans and more on an understanding of the capabilities of an organisation to quickly adapt to any given situation.
SOA for agility
In essence, no detailed plan is likely to exactly fit the circumstances in which an organisation finds itself. The most important thing is to know what resources there are at hand and marshall them in the right way to manage through a crisis or change.
The banking industry is in a state of flux, and the ability to respond quickly and appropriately to a changing risk environment, and to rapidly deliver products and services that yield competitive advantage, has never been more vital.
"SOA will help banks to be more agile in terms of their technology spend," explains van Wyk. "There would be no need to focus on integration across the whole bank, which used to be required even on a very simple change. Changes could be quicker. Banks could focus specifically on those areas where they want to make a change. Agility is built into the architecture.
"Soon the noise will reach a level where all banks will have to start talking about open standards. In three to five years, it will be on the agenda of every bank as something they need to deal with. The need to be agile, and deal with a fast-changing risk profile and rapid-changing client demands is essential.
"For now, the industry wastes too much time and money on integration because systems are too monolithic. The SOA that BIAN proposes is the answer." Sour