Questions about Web services and their uptake in financial services create a very black/white answer set. Some claim there's no usage; others say critical mass has been reached. The answer is somewhere in the middle.

One goal of the SOAP and UDDI message set was to let people discover services on the Web, and then connect to and start using them. We'd go shopping for mortgages and insurance policies by querying UDDI repositories and connecting to them. That hasn't happened. This vision was born during the dot-com craze and several aspects weren't defined: how to pay for such services, how to differentiate between them, and how consumers connect to them. The uptake of consumer-oriented Web services hasn't happened, which often leads to the conclusion that Web services have failed.

Web services also sought to offer better integration of the business processes of a value chain. Web services are being deployed to achieve easier integration, but this integration is mainly inside the firewall. Cross-company integration isn't happening on a large scale. There are two challenges with cross-company integration.

The first challenge isn't related to Web services but to resolving the business challenges associated with the tighter integration of any two companies. The second relates to the absence of the accepted standards that make any integration easier. To get to a broad standards acceptance, we must complete two sets of standards:
1.   The core Web services infrastructure standards (related to messaging, security, and transactions), which are nearing completion.
2.   Business-oriented standards in support of the processes to be integrated, which need definition. Industry bodies (IFX, OFX, ACORD, FSTC, etc.) are in the process of releasing Web services versions of their message standards.

This leaves us with Web services as a tool for internal integration. There isn't one financial institution that hasn't delivered a project using Web services. Here are some examples:

Travelers Property Casualty replaced their auto glass claim processing system with a Web services-based glass claims management system. This system reduces the overall claims processing time by 50% and lowers administrative cost by 20%.

Web services can lead to significant savings in development cost and significantly reduce the cost of the supported business processes by allowing for a greater degree of automation.

The future holds interesting opportunities for Web services. In retail banking, banking/call-center software vendors have created a Web services interface layer to business logic components, simplifying support for multiple channels. However, each vendor created their vocabulary. This helps with internal integration but doesn't allow for best-of-breed integration of various vendors. The ATM industry worked within the IFX forum to prevent such a fragmentation. Many of the upcoming IFX releases focus on ATM-related business processes. With IFX Web services mapping, we can envision the creation of Web services-enabled application servers accepting this IFX protocol. In wholesale banking we see a set of initiatives developing standards to integrate the accounts payable/receivable modules of ERP systems with the cash management systems of banks. The most exciting usage of Web services is in markets where the distribution of financial products is being split from the production of these products. In these markets rapid integration of new products in an existing delivery infrastructure, or the creation of a new distribution concept (e.g., franchised banking centers), will be key to survival. These business drivers will drive standardization between producers and distributors.

Every financial institution is experimenting with Web services, and most have small pilots in production. Until sufficient standardization happens in financial services-specific Web services standards, internal integration will be where the most success is achieved.

Published Jan. 31, 2003— Reads 10,662
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About Wim Geurden
Sr. Technology Strategist - Banking