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Wednesday February 6 2002 Web Services and the Banking Industry Finance and the Future The concept of Web Services has been closely watched and enthusiastically explored by many in the banking industry. In this article, we take a look at how the banking industry is looking at Web Services, what Web Services mean to them, and what a couple of companies are doing. More specifically, we'll look at an Investment Banking example and a Commercial Banking example. Investment Bank Initiatives Let's now take a look at "Tect Investment Bank", a fictional corporation based on a real case study from a major bank. Tect is a leading international investment bank in North America. Since it was founded in 1869, Tect has grown to encompass a market capital of about 42 billion US Dollars. It has 43 offices in 20 countries. Tect's business can be divided into 2 principle categories and 10 divisions. Each division has its own requirements, problems, and systems. Rather than detailing all of these, which would be beyond the scope of this article, we will look at an example of cross-division information. In this context, we will examine the relevant requirements and systems. Existing Business Problem and Technology Infrastructure Tect has massive investments in software applications. They conduct millions of dollars a day of business over the Internet across the region. They also provide a wealth of information on services, and a full range of online services and support information to its individual customers and institutions. From a data perspective, Tect have huge volumes of data scattered throughout the enterprise that don't effectively communicate with each other. These business drivers can be traced back to two groups of issues, skill-set issues and ownership issues. Skill-set issues include having the right people, being able to afford to keep the right people, and focusing on core competencies. Ownership issues include the blurring of the boundary between knowledge and services, and the need for up-to-date information Accordingly, a number of transitory integration solutions were provided to solve the problems. Organizations had to connect point to point through data extraction, transformation, and loading. As described in the EAI and Web Services article, this type of integration can prove problematic. How Tect got started with Web Services Tect has a wide range of software applications that already utilize Internet protocols such as HTTP, XML, TCP/IP, and HTML, which are the building foundations of Web Services, as well as Java. The IT team at Tect had defined ambitious requirements for a next-generation infrastructure to support the growth the company was experiencing, and quickly recognized the potential of Web Services as the basis for some of its system. Using Web Services, there was not a significant amount of additional technological investment required. The Goal: make every Application into a Service that can be used on the Web The service we will look at is curve management. Curve management involves keeping historical data on the fundamental economic index or financial instrument price, and being able to forecast future prices based on certain time periods. The Commodity Trading department demands complicated historical curve information to help its customers and traders to make intelligent decisions in real time. This information usually comes from the Risk Management Department. The Commodity Trading department also helps to define the forward curve based on their knowledge of the market. The Risk Management department manages and evaluates the risks of the assets and portfolio based on both the historical and forward curve. Risk Management usually starts its new evaluation after the close of market, downloading the day's information from the Trading Department. The Corporate Finance department also requires extensive information on the historical and forward curves to build the pitch book and propose the valuation for mergers and acquisitions. Tect traditionally had a team to synchronize all the curves. Since all the three departments have their own IT system, every department built its own way to keep the data. To further complicate matters, Risk Management outsourced the function to an outside firm. After two and half months hard work implementing a Web Services integration solution, the Tect IT team had built the first internal curve management services for the whole company. Risk Management has subsequently stopped outsourcing the service, preferring to take the data from their own company in real time. As the Commodities Trading division tracks the market, Risk Management get the information to add to the historical curve. Commercial Bank Initiatives Investment banking isn't the only area of the financial services industry that can take advantage of Web Services. Our second example looks at the creation of a commercial virtual bank, "EdgeCoBank", another fictional corporation based on a real case study. EdgeCoBank is located in the Southeast region of America. It is insured with the Federal Deposit Insurance Corporation, and provides all the usual commercial bank services, such as loans, deposits, credit cards, and bill payment. This is a virtual bank, with no physical branches, built from scratch based on a Web Services framework. As with a more traditional bank, a virtual bank needs to manage all the core services of its business operation. It does this through the Internet. Aside from the normal application integration challenges, security and authentication are of paramount importance. The user's identification has to be authenticated not only with the bank's internal service, but also with the external services that EdgeCoBank outsourced to and provides for other businesses. The following diagram illustrates the scope of EdgeCoBank's business services:
The use of Web Services helps EdgeCoBank's applications to become operating system independent and language independent, thus easing their integration. Its services are integrated with loans, credit cards, deposits, real estate planning, etc. The virtual banking system is also integrated with wireless carriers to provide customers with their banking information on portable devices as well. Since the virtual bank provides a very reliable banking service, it got the contract from a company who decided to outsource all of their credit union banking services. The virtual bank integrates its services into the company portal and allows all the employees from the company to access their financial services with ease. For example, Company A gives their employees a bonus on car loans when they purchase a particular car; EdgeCoBank will deduct this bonus from its car loan repayment amount automatically for employees of Company A. Company B helps its employees with a rebate if they buy products from Company B; money will be deposited into their account with EdgeCoBank. One service that deserves further mention is the Identification Service (ID Service), which provides synchronized authentication for both internal and external services. The implementation of the ID service is only written once, but it is used by all the applications based on the Web Services framework. Conclusion One way of describing the use of computer systems in business is as follows: Business = Existing Infrastructure [Applications] + Business Rules In these terms, the addition of Web Services to the equation results in a potentially interesting situation: Existing Infrastructure [Applications] + Business Rules + Web Services = New Business As well as presenting a relatively simple means for integration (both internally between applications and externally between businesses), Web Services can open up old functionality to new consumers. It should, however, be stressed that not all systems are suitable for exposing as Web Services, either because of their architecture or content. The extended PDF version of this article is available now. Web Services and the Banking Industry by
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