Microsoft Perspectives on Payments and Core Banking in Financial Services

Real Time Risk Management at Sibos with Cloud Trading Technologies

Colin Kerr — Thu, 15 Sep 2011 14:35:00 GMT

With only a few days to go to Sibos Toronto, today I would like to introduce you to another of Microsoft’s Sibos stand partners. Cloud Trading Technologies is an incredibly innovative financial services partner with a focus on Electronic Trading and Risk Management. To provide some more insight to latest developments and their Sibos presence, I thought I’d invite Howard Tolman, Managing Director to share some thoughts.

Howard, thank you for taking some time to discuss innovation in Electronic Trading and Risk Management. What are some of the trends you see with your particular solution area focus?
Thanks for the opportunity, Colin. Over the last 25 years or so trading has increasingly been delivered electronically, extending the dealing room right out to the client desktop. Running alongside this has been the increased regulation and the need for banks to be instantly aware of their clients exposure. Credit and portfolio management issues will become more prominent and will in future be addressed across all asset classes. Real-time risk management will become mandatory rather than optional and the applications managing them will become more sophisticated and better designed.

I completely agree. As latency is reduced, risk management must stay ahead. How does your solution address these challenges?
Cloud FX delivers a proven and cost effective solution that enables financial institutions to extend trading outside of the dealing room. By use of the Cloud FX Risk module, Prime Brokerage, margin and risk management are handled in real time, ensuring both the client and Financial Institution are instantly aware of their current position and controls stop them exceeding them. We work very closely with partners in the connectivity space for post trade STP which will support the industry's growing focus on regulation, CCP clearing, risk mitigation and cross-asset reporting. This is a field which requires significant intellectual input and we are well placed with a design team with an eclectic mix of academic skills.

Have you exhibited at Sibos before?
This is the first time that Cloud Trading Technologies will have exhibited at SIBOS and we thank Microsoft for inviting us to be on your Stand. I personally have attended many SIBOS's in the past and we look forward to catching up with business colleagues old and new.

What are your primary messages for the Sibos audience - and what technologies are being leveraged?
The cost of delivery is becoming as important as the product itself. Use of The Cloud enables the distribution and operation of sophisticated solutions in a far more cost effective and scalable
manner. If you would like to find out a bit more about the Cloud FX Suite of products then come along and visit us on the Microsoft Stand.

Other than visiting the Microsoft stand (C125), how can people who may not be at Sibos contact you to find out more about your solutions?
There is information available on our website www.cloudtradingtechnologies.com or I can be contacted on +44 (0)20 3206 1464 or by email howard.tolman@cloudtradingtechnologies.com

Howard, many thanks for your time today, and i look forward to seeing you in Toronto!

Streamlining Payments at Sibos 2011 with ProfitStars

Colin Kerr — Wed, 14 Sep 2011 21:33:00 GMT

As the countdown to Sibos Toronto continues, today I would like to introduce you to one of Microsoft’s Sibos stand partners. ProfitStars is part of Jack Henry & Associates, Inc. and is a long standing financial services partner with a focus on deposit automation and payment solutions. To provide some more insight to latest developments and their Sibos presence, I thought I’d invite Brandon Kunz, Manager of Product Strategy and Marketing, to share some thoughts.

Thank you for taking some time to discuss innovation in automating and streamlining payment processes. What are some of the trends you see with your particular solution area focus?
At ProfitStars we are seeing the continued proliferation of self-service channels and the explosion of payment schemes around the world; however, financial institutions still grapple with maintaining support for legacy cash and cheque payments. Leading financial institutions are leveraging deposit automation and related payment solutions to reduce costs and
mitigate risks associated with processing paper-based transactions across branch, online, mobile, and other channels. In doing so, they are streamlining business processes in a way that converts transaction-centric exchanges to value-added interactions that improve the customer experience and strengthen their brands.

How does your solution address these?
ProfitStars is ranked as the #1 provider of branch deposit automation and remote deposit capture solutions in the U.S., and that expertise extends to customers around the world. One of the things that sets us apart is our ability to automate and streamline payment processes from the point of presentment and on through the enterprise processing stream to final resolution. Essentially we use technology to do the heavy lifting and remove extensive manual processes from the front office as well as the back office. For example, through the use of imaging at the teller line, we can not only truncate the processing of check transactions, where truncation is allowed, but can actually capture information on the check that can be used to inform other systems, as well as remove a large percentage of keystrokes required to process a deposit or payment in the branch. As a result, the teller is freed up to spend more heads-up time with the customer, learning
about life events that may require additional bank services and making referrals as appropriate. In this case, the time and effort to make a deposit has not only been reduced, but the client has been steered to a needed service. The customer relationship has been strengthened, while the cost, effort, and risk of accepting and processing the transaction have been reduced. This is a true
win-win scenario for the financial institution and its clients.

Have you exhibited at Sibos before?
No, this is our Sibos debut.

What are your primary messages for the Sibos audience?
Leading financial institutions are again recognizing the importance of becoming customer-centric businesses. They’re turning to technology to facilitate change, but also want to be sure that the technology they invest in is time tested, proven in production, and industry accepted. ProfitStars is committed to helping these financial institutions realize the true value of technology to enhance their operations and gain the flexibility and agility they need to compete in a constantly evolving market.

Other than visiting the Microsoft stand (C125), how can people who may not be at Sibos contact you to find out more about your solutions?
Several ways: Visit us at www.profitstars.com, call 1.877.827.7101, and follow us at twitter.com/profitstars.

Many thanks for sharing your perspectives, Brandon. Look forward to seeing you in Toronto.

Countdown to Sibos 2011 Toronto

Colin Kerr — Fri, 26 Aug 2011 20:46:00 GMT

I hope those of you in the northern hemisphere enjoyed your summer and took time out to be with friends and family. Now the summer is drawing to and end, the kids are back at school, and that means one other thing: Sibos is right around the corner. Just 3 weeks to be precise! Microsoft financial services has been a regular exhibitor at Sibos since 2004, when BizTalk Accelerator for SWIFT was first certified with what is now the SWIFT Ready Financial EAI label. However as our presence at the event has grown over the years, we also use this event to showcase the innovative banking and capital markets solutions of partners. I'll provide more introductions to partners in the coming weeks, but here's a quick summary in alphabetical order.

BIAN - the Banking Industry Architecture Network is a ‘not for profit’ organization which seeks to accelerate the adoption of Service Oriented Architecture (SOA) in the banking industry. This is achieved by promoting convergence towards a common services landscape and semantic standards which makes it easier and more cost-effective to integrated such services. Microsoft is a founding member of BIAN.

Cashfac – Based in the UK and a second time Sibos partner with MIcrosoft, Cashfac simplifies complex cash management. It automatically manages many bank accounts and virtual bank accounts in a real time, straight through process. Cashfac also processes high volume collections, payments and balances with complete
transparency.

Cloud Trading Technologies provide best of breed online trading solutions using state of the art Cloud Technology on the Microsoft Azure cloud platform. Applications
available include comprehensive Online Trading solutions covering all client types and characteristics from banks to retail players, Prime Brokerage, Margin
and Risk Management together with relevant back office functionality and sophisticated pricing and decision support tools.

Luup, a second time Sibos partner with Microsoft has proven, in-depth market experience in developing, deploying and running managed mobile money services that are both innovative and banking-grade. We focus on partnerships with financially-regulated organizations, meeting all requirements of our customer segments: from retail banks and corporate banks to money transfer organizations and exchange houses.

With Opentext solutions, financial service providers can rapidly deploy content-centric business solutions that increase efficiencies, improve customer service levels, mitigate risk, accelerate product development cycles, streamline deal-related processes, and generate competitive advantage. OpenText solutions for Financial Services are based on a framework that ensures the right application and resource support for processes across the industry's entire value chain.

peterevans is a leading independent provider of front to back office solutions for the financial services sector. Clearly focused on the securities and investment market, and built upon more than 24 years’ experience of providing solutions to this sector, peterevans presents a sophisticated boutique approach in a homogenized market place. Like the best wealth management and private banking service providers, peterevans remembers that each client or prospect is unique and individual. With this new suite of applications we can help ensure that you deliver extraordinary products and services to your customers.

ProfitStars® encompasses the products and services provided by the 18 companies Jack Henry & Associates, Inc. (JKHY) has acquired through its focused diversification strategy. These highly specialized products and services enable diverse businesses and financial institutions to increase revenue and growth, mitigate and control risk, and control costs.

Temenos, a multi-year Sibos partner with Microsoft is a banking software specialist, with its award winning T24 core banking platform at the heart of its solution
portfolio. Our consistently high annual investment in research and development enables us to constantly invest in new technology, functionality and in meeting
new regulatory requirements, allowing us to deliver products that are consistently 'state of the art'.

In addition to partners, several members of our leadership team will be speaking. This includes the Innotribe sessions on Big Data, Microsoft group treasury on ISO20022, and other thought leadership sessions. For more details, please see our Sibos page.

I hope the weather is better than the rain of Amsterdam or the typhoon of Hong Kong. Whatever the weather, I hope to see you there at the Microsoft stand C125.

Mobile Payments and Corporate Social Responsibility

Colin Kerr — Tue, 07 Jun 2011 17:26:00 GMT

As the debate about digital wallets and mobile payment models rages in the US, many point to the very successful mobile schemes in markets such as Africa as proof positive that a mobile payments infrastructure can be sustained as a viable model. M-PESA in Kenya is perhaps the flagship model, now with over 14M accounts and 28,000 cash agents in just 4 years since being launched in 2007. Of course, the infrastructure is not provided by the banking system, but by a mobile phone carrier, Safaricom. The model of course is that subscribers (account holders) add cash to a virtual wallet in the form of stored value. Value can then be transferred to another suscriber to credit their wallet balance. That in turn may be redeemed for cash at a participating agent office. One reason for the success of M-PESA and similar schemes in emerging markets is because mobile networks became more ubiquitous than traditional hard-wired payment and transaction networks.

Mobile Healthcare Vouchers
But let's take the mobile payment a step further in emerging markets and apply this to an industry perspective - healthcare. It is probably impossible to overstate the importance of accessible healthcare services in emerging market countries. Just reviewing the numbers from the World Health Organization shows the dire need, yet many of these same countries also have highly developed mobile networks and a high number of mobile phone users.

Just as there's a growing wave of financial inclusion initiatives, here's an extended idea for Corporate and Social Responsibility (CSR): mobile healthcare vouchers redeemable at a clinic for specific services. This could be for vaccinations, pre-natal care, pediatric services etc. being offered through the mobile device, this also allows the clinic/health organization to issue vouchers when treatments are due and track that service has been provided. As the mobile phone becomes de riguer for financial transactions, the opportunity is there to leverage that for multiple other uses.

Abolishing Checks (Cheques)

Colin Kerr — Fri, 22 Apr 2011 20:34:00 GMT

Those of you who know me have heard that I am passionate about the game of hockey (the variety played on ice rather than grass). The NHL playoffs have just started and so this is my favorite time of year. It's a fast-paced game and it takes physical and mental stamina to win four best-of-seven series against top 16 teams before you can hoist the Stanley Cup. Many experts believe this is the hardest team trophy to win in professional sports. Physical contact is inevitable and "checking" (using body contact to separate your opponent from the puck) is an important part of the game. You can see some good examples of that in action here. So imagine my shock when reading a headline stating that checks should be abolished!

Thankfully the news was about another kind of check - you know, the paper ones that make you impatient when the person in front of you at the supermarket pulls out their checkbook to pay for their groceries. The Finextra article in question can be found here. The news is that after the UK Payments Council voted to eliminate cheques by 2018, UK MPs have decided to launch an inquiry into this. Checks, or cheques, are an expensive mechanism for banks and merchants to manage. Processing of paper is intrinsically more expensive and time consuming than electronic payment methods at the point of sale and in back office processing. It is natural that banks, merchants and payment processors would prefer cards or other electronc transactions - not least because of pre-authorization of the transaction - and cheques accordingly are in terminal decline in all major payments markets. In an industry where innovation is moving into mobile and digital payments, support of cheques as a payment instrument is a somewhat schizophrenic reaction. I understand preserving 350 year old buildings, but it is probably about time we moved beyond supporting 350 year old payment instruments when at the same time investment in EMV chip and PIN, mobile payments, and digital wallets intensifies. In the US, regulation has actually extended the life of cheques through the Check21 Act. As for innovation, scanning cheques into a mobile device for remote deposit is innovative, but it does the same thing. Both initiatives have electronified and simplified the processing, but do nothing to discourage cheque use.

So how do we reduce the number of cheques in circulation? The answer isn't in processing efficiency, it's in disincenting their use. Payments, like all products and services are price sensitive. By raising the fees associated with cheque issuance and processing will aid the transition to true electronic transactions. In the meantime, next time you are at the supermarket, keep your head up when waiting in line or you might get 'checked!'

Mobile 'Banking' and BI - Enhancing Operational Productivity

Colin Kerr — Thu, 14 Apr 2011 16:15:00 GMT

Hardly a day goes by without some new innovation in mobile payments or mobile banking being announced. It’s hardly surprising, as ‘consumers in control’ are demanding banks provide services that meet the capabilities of mobile devices. But the other thing one notices is the almost complete focus on consumer applications – and very little on corporate banking. A couple of months ago I posted a blog interview with Georg Fasching of Luup, one of the few providers of payment and authorization applications for corporate treasurers. However, yet another area of value for mobility is within the bank – the integration of traditional banking operations applications with mobile devices.

An operations manager will often be around the bank in meetings or perhaps at other off-site locations. Possibly they were in Texas at the NACHA conference this month! Of course these managers can probably log in to various applications for management reports or address escalated issues by logging in from their laptop. But I am now seeing more interest in mobile applications as a quick yet secure means of accessing certain operations activities. For example:

· Summary views of operational status (queues, rejects, repairs)

· KPI dashboards of daily operational activity, funds flows or branch performance

· Exception conditions requiring intervention or delegation

Microsoft’s technology partners are looking into how mobile device applications can be integrated to some of the traditional banking and payments applications. There’s obviously something of a challenge integrating real time mobile business intelligence (BI) with batch based systems, but value-add scenarios can still be developed in those situations. Regardless of the data types and user roles, the key to success is the depth of the BI stack.

The Microsoft BI stack, which in January 2011 was rated at the top of Gartner’s Magic Quadrant for BI, allows for integration of multiple data types and sources through SQL Reporting Services. On the consumption side, the self-service capabilities allow analytics and reporting through the familiar Microsoft Office suite of products. The next step is also making that available through mobile devices. The result is a cross-device solution using the same data sources, but enabling different consumption models. As in interesting exercise in this experience, check out PushBI from Extended Results. This is a ‘horizontal’ technology solution, but think about how something like this might apply to your bank, or as a vendor, add value to your applications.

The end of cash for payments? Not so fast!

Colin Kerr — Fri, 18 Mar 2011 16:48:00 GMT

Picking up on my recent threads about mobile payments as a form factor (NFC Payments - Build It and They Will Come?), and with the current state of market buzz around mobile and alternative payments, I am certainly a strong proponent for advancing innovative payment methods for wholesale and consumer payments. We need improvements in efficiency and ease of use, as well as lowered risks and costs. This of course has driven many of the technology innovations in the news today. We demand to be connected socially when mobile - and the payments experience is becoming an extension of that. Although the increasing growth and shift to electronic payments is inexorable, there's an increasing debate on whether cash will (or should) go the way of the dodo. But we shouldn't count cash down and out just yet.

The tragedy playing out in Japan this past week highlighted that in times of crisis, there's nothing like cash in hand as the universal method of payment. By all accounts the banking system in Japan survived and is functioning well after the earthquake and tsunami - such is the level of disaster preparedness. But Mizuho, Japan's second largest bank, reported outages in its payments and ATM networks - coincidentally as demand for cash surged.

Why the demand for hard currency? Unlike during the peak of the financial crisis in the US two years ago, such a demand is not a 'run on the bank' because of fears of bank failure. More likely it is the desire for cash in hand as the most liquid of assets - and the most universally accepted method of payment. In crisis situations the seller dictates payment terms. We shift from a stance of "how we want pay" to seller terms of "'what am I prepared to accept." If electronic transactions (by any method) are perceived to be become unavailable or unreliable in the face of power and network outages, acceptance preferences will revert to the most convertible payment instruments - and cash in hand is the most convertible of all.

NFC Payments - Build It and They Will Come?

Colin Kerr — Fri, 04 Feb 2011 23:10:00 GMT

What is a Mobile Payment Anyway?
A somewhat rhetorical question, but every day there are new startups, alliances and technology announcements about the next generation of mobile payments: most recently, NFC enabled phones. The problem with mobile payments is that everyone has a different definition of what constitutes a mobile payment! This is complicated by different geographic expectations, mobile users’ experiences, payment systems, regulations and the relative strength of mobile telecom versus banking infrastructures. Not all scenarios are workable in all geographies.

When developing a mobile payments strategy, the first objective is to recognize the different forms of mobile payment interactions. In other words, who are the payers and the receivers, and what are their usage requirements. A recent white paper co-written by Microsoft and M-Com, a premier mobile payments company with worldwide solution offerings, defines four basic mobile payment use cases - each of which can be split into more complex examples:

1. Pay to Biller

2. Pay to Person

3. Pay to Merchants (and other remote commercial entities)

4. Pay to Retailers at Point of Sale (POS), including transportation etc

In the UK there is a well-known idiom, "horses for courses." In essence, this means that what is right for one scenario may not be right for another. The same is true for a mobile payments solution. Each scenario above (even when offered in the same country) likely demands a different model of interaction based on the needs of the payer and the payee at the time of payment.

NFC Payments - Build it and They Will Come?
So this brings me to the recent spate of announcements heralding in the NFC device era. I think Aaron McPherson at IDC Financial Insights summed up the issues for the US very well in a recent blog. Enabling devices is a step in the right direction for some mobile payment scenarios but widespread adoption in the US is still some way off. My 'feet on the street' evidence to support this is based on the local store of a national office supply company that installed contactless POS devices about three years ago. Payments geek that I am, I often ask a cashier how many times people pay with a contactless card. Usually the answer is ‘handfuls’. That's not in a day, or a week - but ever! The reality is that contactless payment technology in one form or another has existed for several years, but technical capability doesn't automatically drive adoption.

Now - that situation applies to the US, but the rest of the world is of course a little different. NFC and the concept of contactless and phone-based transactions have been very successful in parts of Asia. I also believe that NFC transactions at POS from mobile phones will become mainstream in the US, but not for quite some time. The US consumer market is notoriously slow to adopt new payment mechanisms (debit cards, direct debits, chip-based cards) where technology capability was never the issue. Ultimately there needs to be a compelling value proposition to use a phone over a card (NFC, chip, or mag stripe) before we’ll ever see mass adoption. Even then, we must not forget that the mobile payment experience needs to cover all the use cases to be of true value to payers and receivers. Ideally, the mobile experience will become consistent and seamless – regardless of payer/payee scenario. That’s what it will take for mainstream replacement of that plastic rectangle in our wallets.

Going Beyond 'Five Nines' Uptime on the Microsoft Platform

Colin Kerr — Thu, 27 Jan 2011 23:25:00 GMT

Payments processing has always demanded a high performance, and highly resiliant platfrom. This is true of Fedwire and other RTGS systems, national ACH systems, and card transaction platforms alike. As the first of these systems was implemented in the 1970s and 1980s it isn't surprising that mainframe architectures have prevailed in this space ever since. For three decades banks and major retailers around the world have driven ATMs, POS devices and card switching on mainframe hardware. As these systems age, and new payment instruments and channels are developed, payments system modernization becomes critically important. As applications are removed from the mainframe, the operating cost per application becomes higher. Many banks I speak with are looking for alternatives that will release the from the handcuffs of legacy architectures and operating costs. Of course, the new platform must have the uptime availability credentials of the mainframe world and a reduced cost of ownership.

S1 Corporation and Stratus, two of Microsoft partners in the payments industry offer a solution stack that changes the game. By using the Stratus fault tolerant server hardware running Microsoft Windows Server 2008 as a platform, banks and major retailers around the world can benefit from the functionality of S1 Corporation's payments solutions. A white paper recently released by S1 Corp and Stratus shows that configurations using Windows Server 2008 can achieve uptime approaching "six nines" (99.9999%) of availability. Putting that in context, that's about 32 seconds of downtime per year!

To find out more about the study and the white paper, please drop me a line or contact S1 or Stratus directly.

India and the Race to Financial Inclusion

Colin Kerr — Wed, 15 Dec 2010 16:05:00 GMT

I just returned from my annual trip to visit partners and customers in India. In one year I could see quite a difference in the infrastructure developments, but also how the pace has picked up in developing new banking services. The economy is expanding rapidly on an annual basis (8.9% in 2010), and growth is exceeded only by the economic powerhouse of China. Much of India's banking system has been through a recent automation spree, but the pace of growth and demand for new banking services has been stretching the country's banks, especially the state banks that currently cover large percentages of the existing banked population. But some estimates indicate that up to 60% of India's population remains unbanked.

A prevalent theme in all the emerging banking markets is "financial inclusion;" providing low cost, accessible banking services to low income groups, typically at or below the poverty line in each country. In India, financial inclusion has been a pressing national policy issue of the central bank, the Reserve Bank of India. A 2006 report exhorted the nation's banks to offer such banking services, but many of these people groups are in rural areas where a lack of infrastructure and the cost of service provision make development of physical banking centers an unrealistic proposition. But that might be about to change.

For the first time in years the Reserve Bank of India seems set to grant some new banking licenses to commercial enterprises. In addition to more mainstream banking services, organizations applying for a license must submit plans for addressing financial inclusion. Clearly, efficient and innovative use of technology will be a cornerstone of any strategy to overcome the cost issues of rural banking, including the cloud and mobile phone technologies to deliver 'branchless banking.' With up to seven new banks being created, the existing commercial and state banks have a small window of opportunity to accelerate solution development before the newly licensed banks enter the space with the advantage of deploying state of the art banking infrastructure.

The race to financial inclusion will be a significant challenge for all the banks, but at the same time an incredible opportunity to change the future of banking. As someone focused on innovative banking and payments solutions, it's an exciting time for the industry.

Global Adoption of ISO20022. Is it possible?

Colin Kerr — Mon, 15 Nov 2010 22:47:00 GMT

It is easy to think of ISO20022 as a Europe-only set of message definitions because of the machinations around SEPA, and so the broader value of ISO20022 and its global applicability can be lost when it is viewed only as a SEPA issue.

At Sibos 2010 I was delighted to participate in a panel discussion at the SWIFT Standards Forum hosted by Marc Delbaere, head of standards strategy and architecture at SWIFT. The other panelists were Richard Valk from ING Investment Management and Dominique Sheuren of Bizliner, and our discussion topic was the value of ISO20022 for internal and not just external use. We had a pretty lively discussion, because ISO20022 has typically been considered a ‘new standard’ for external integration of payments from banks to the outside world; but all of us could see tremendous value of adoption internally within banks. My view is that ISO20022 is in fact more an architectural component: a foundational element in any bank’s payments infrastructure. Because of a standard dictionary and defined transaction flows, it is a natural candidate for a ‘payments bus’ to transport transactions between applications, regardless of payment type.

I was asked a question about the likelihood of adoption in non-European markets – particularly the USA. One aspect is certainly that solution vendors more widely support ISO20022 because it makes their solution architectures more efficient. Banks in any country therefore stand to realize these benefits as a critical mass of applications support the standards – and more importantly – that are typically deployable globally.

But capability and adoption are two different things. Mass adoption still requires a forcing function. Are there drivers for adoption other than the unlikely (and unwelcome) event of it being regulated? Absolutely – although still in early stages, ISO20022 adoption can grow globally. For example:

· Growing use of the SWIFT MX messages which are XML based upon ISO20022 definitions.

· Green field payment infrastructures such as in China. CNAPS, the Chinese National Advanced Payment System, is a new national high value payments infrastructure and supports ISO20022. It’s a strong likelihood this will drive ISO20022 payments solutions within banks.

· Payment systems technology renewal – and the growing availability of ISO20022 based applications.

· Countries for which SWIFT is a national market infrastructure, such as Canada. I’ve talked to several of the big Canadian banks that are considering internal adoption as they need to renew payments technology. This may in fact be the beachhead into North America.

So what of the US? It is possible? Even in that most proprietary of domestic markets, there is a chance. Consider some of the activities currently in progress:

· The Common Global Implementation (CGI) initiative – and its adoption by major cash management banks and global corporate treasuries, such as Microsoft group treasury – is driving a unified standard implementation of ISO20022. Microsoft takes a leading role in CGI definition and adoption.

· Fedwire and the CTP format for extended remittance. Although not true XML or ISO20022, the CTP does use common data definitions. Banks adopting this may well adopt ‘pure’ ISO20022 in their internal systems and then do final conversion to Fedwire CTP.

Some of you may be aware that Microsoft is a founding member of the Banking Industry Architecture Network (BIAN) which maintains a proactive and complementary relationship to ISO and the value proposition of the ISO20022 standard. The payments service landscape being developed by BIAN defines business semantic models for payments and is integrated with the ISO20022 definitions and dictionaries. This gives banks the opportunity to define their payments business models in accordance with BIAN definitions, and implement actual transaction flows using ISO20022.

In closing. the following links provide additional information about BIAN, and also the specific collaboration between BIAN and ISO20022 in an article in Finance in Windows. Of course – you can always just drop me a note too – I’d like to hear your thoughts.

Innovation at Sibos: “Mobilization” of Transaction Workflows with Luup

Colin Kerr — Tue, 12 Oct 2010 15:01:00 GMT

There are two areas of corporate payments innovation that I expect to receive more attention at Sibos this year. First is e-invoicing, a process that is gaining considerable momentum as companies seek to further digitize the financial supply chain. The second is the adoption of mobile devices for treasury transactions, but also to increase efficiencies in banking operations as the workforce becomes less tethered to the office. To provide some more insight to latest developments, I thought I’d invite Georg Fasching (GF), vice president of products and solutions at Luup, a leading mobile payment solutions provider and one of our Sibos partners, to share some views.

CK: George, thank you for taking some time to discuss innovation in payments. Let’s start with e-invoicing. What are some of the adoption trends you see with e-invoicing, and corporations and banks embracing it?

GF: Thanks for having me, Colin. E-invoicing has tremendous potential, not just in the financial supply chain, but also for banks’ corporate customers. Luup has several projects in this area that are still under wraps. I can confirm though that tier-one solutions for corporations are just around the corner. A carefully designed mix of different digital access channels allows for e-invoicing to offer immense cost savings and efficiency gains. The mobile phone channel offers clear advantages for corporate transactions on the go, and initial feedback from companies on the opportunities that lie ahead is highly positive.

CK: We hear so much about mobile technology in the consumer space, but what is the role of mobile technology in the corporate payments arena?

GF: In today’s corporate world, time has become more valuable than it ever was and this trend is unlikely to cease anytime soon. The “always on” nature of mobile technology enables stakeholders in the corporate payments arena to maximise every second to its fullest. Mobile devices featuring Luup’s white-labeled services enable users to operate time-critical processes anytime and anywhere. We innovate so that mobile technology can really address the many pain-points corporates currently face and offer wide-ranging support for those mobile devices that most companies use.

Leading mobile technology and customer-centric features, such as reliability, ease of use, scalability and banking-grade security, as offered by Luup, bring new opportunities to the corporate payments arena.

CK: Are there corporate banking solutions that readers should be aware of?

GF: Luup’s Corporate Banking Solution for example features dedicated products that deliver a range of value propositions - from removing the cost of cash handling, to virtualising operations and boosting efficiencies.

CK: Certainly operational improvement is a big issue. How else can mobile devices be used to generate operational efficiencies?

GF: At Sibos, Luup is launching a remote authorisation product, which is another product from Luup’s Mobile Corporate Banking Solution. Such innovation is set to bring even greater operational changes than the electronic channel brought. Financial institutions and their corporate customers will benefit from revenue generation and cost reduction opportunities across multiple business areas.

It enables corporate banks, and the corporations they support, to move their staff into the modern era. Gone are the days of paperwork, chasing after signatures, and waiting days or weeks on approvals because someone in the chain is travelling and has no access to the current process. By using their mobile device, requestors and approvers are empowered to act anytime and anywhere on requests such as purchase orders, travel or budget requests, payment runs, or any other otherwise bureaucratic and time-consuming business process. The common feedback from head treasurers and executives in large corporations proves that a powerful tool such as mobile based remote authorisations is an immense time saver, exposing countless operational efficiency gains.

CK: That sounds like an integration challenge. How do you address that?

GF: Early on in the product development life cycle we identified the potential integration challenges and worked hard to assess potential solutions. Luup’s decision to leverage the Microsoft BizTalk Server not only makes designing products easier and mapping business processes for our remote authorisations product efficient, but also helps to ease integration into a wide range of different systems. In addition to Microsoft components, Luup is for example integrating TEMENOS T24 core-banking components for a banking-grade overall service and streamlined integration with core banking systems.

CK: I see Luup has taken a complete view of the mobile enterprise experience and understands the user experience, but also the complexity of multichannel integration. Georg, I appreciate you sharing your insights into these innovative technologies, and look forward to a successful Sibos.

GF: Thank you Colin. We look forward to demonstrating our services on the Microsoft stand. As they say, ‘meet you at Sibos’.

To learn more, please visit Microsoft and Luup at Sibos in Amsterdam on stand C413, or contact Georg directly on Georg.Fasching@luup.com directly to make an appointment.

Stimulus for Road Construction? How about Payments!

Colin Kerr — Fri, 17 Sep 2010 21:02:26 GMT

Living in the Chicago area, I've spent my fair share of time in traffic congestion trying to get to the airport. (Anyone familiar with Chicago ORD will also know that finding a plane that leaves on time is another challenge - but that's a different story). Chicago is known for having only two seasons - winter, and construction season. This past summer has seen reconstruction of the roads in full gear as projects from the stimulus funds (correctly known as the American Recovery and Reinvestment Act, 2009)) kicked in. My frequent rides to the airport now take much longer than usual, and a recent trip had me thinking about national payments infrastructures and what it takes to modernize them.

At the risk of being drawn into a political discussion (I won't), it seems to me as a layman that there are many roads in the US being rebuilt that still had some life left in them. They weren't perfect and had been patched and repaired, but in large part I wouldn't have put them on the priority list for rebuilding. Pre-stimulus, I doubt that many of these roads would have been rebuilt because there simply wasn't a business case to justify the investment required. When you look at the current state of payments infrastructure in mature payments markets, you can make the same argument.

The US for example has ACH and Fedwire networks that were established in the 1970s. They work well for the original design, but of course there are limitations that are difficult to overcome and restrict the ability to address the future needs of consumers and corporations. While many countries are implementing near real time low value systems, speeding up the cycles of ACH (a batch based system), forces additional challenges on banks with long running batch processes on predominantly mainframe applications. Adoption of new data structures such as XML and ISO20022 for additional remittance information has been challenging to implement to say the least. As I say, these examples are challenges to modernization, but is it enough to create a compelling reason (and funding) to invest in true modernization?

So let's think about some recent drivers of change and modernization. In 2001, when cheques in the US were still cleared as paper items, they were transported around the country in planes. Those planes were grounded after 9/11, and so cheque clearing was effectively halted for days. This played a major part in driving the Check21 Act which enabled the exchange of cheque images and data in place of physical paper. In the UK, consumer advocacy groups played a large part in forcing the regulation that resulted in the Faster Payments initiative. Of course, there is also the SEPA initiative, again driven by regulation and without a clear business case for banks, and it seems that only mandating an end date for compliance will complete the long-running course. All of these initiatives have resulted in innovation being used to dramatically change the payments landscape, but it is doubtful that any of these initiatives would have happened without regulation.

I'm not a fan of more regulation - banks have enough on their plates - but I'll close by asking a provocative question. Payment systems are a complex but vital component of a country’s financial infrastructure. We have the technology, but is regulation what it takes to modernize for the next generation of payments processing?

High Performance Banking

Colin Kerr — Fri, 03 Sep 2010 18:47:47 GMT

This last month I talked to a few analysts about the market direction of core banking modernization, and I was pleased to hear that these initiatives continue to advance. Of course, not all banks are willing to give up their legacy systems as part of the drive for technology modernization, especially in the area of core banking operations, but more and more banks are looking to implement modular solutions on cost effective technology to deliver innovative products, improve efficiency and lower costs. For those banks willing to embrace change, some of the main questions asked relate to platform scalability and transaction throughput. How well will a new system handle peak workloads experienced during end of day processing, or transaction spikes at month end? As my business grows, how well will the system scale to accommodate a growth in new business, or entry into new markets? These are all key questions that need to be answered by the application provider, and the platform vendor.

Microsoft + Temenos = High Performance Banking
As you may have read, Microsoft and Temenos announced a global alliance in late 2009. One of the objectives was to collaborate closely and commit resources to fully optimize the performance of Temenos T24 on the Microsoft platform of SQL Server and Windows Server. This week, I'd like to point to an example outcome of that collaboration that addresses the questions about performance and scalability. A recent benchmark was designed to simulate a real world bank environment of 15M customers with 25M accounts, spread across 2,000 branches. That's a fair-sized institution for any mature banking market. The results show very impressive online transaction processing rates of 3,400 transactions per second, demonstrating the solution's ability to handle peak workloads. Just as impressively, the platform also scaled near linearly, therefore giving banks added confidence when estimating the impact of future growth. You can read more about the benchmark here. Temenos and Microsoft will be exhibiting together at Sibos in Amsterdam this year, so I encourage you to stop by to learn more.

Payment Screening in the Cloud

Colin Kerr — Fri, 06 Aug 2010 20:51:00 GMT

This week RBS found the spotlight in an unenviable way when it was fined GBP 5.6M by the Financial Services Authority (FSA) for insufficient controls over payments screening processes. According to news articles, the list of transgressions include a breakdown of manual procedures and also inadequate technology functionality. Regulators in the UK and USA are notoriously strict when it comes to enforcing transaction screening for blocked parties due to the potential risk of terror financing and other illicit purposes. Lloyds TSB and ABN AMRO have also fallen foul of this in recent years.

The lot of an ops manager responsible for the screening function is not easy. Payments must be scanned against multiple watch lists issued by government bodies, beneficiary details in the payment may be mis-spelled, alternative spellings in foreign languages cause challenges too. As the list of blocked parties grows, and the tactics used by nefarious characters around the world results in an increasing number of false positives. I don't envy anyone with the responsibilty for the timely update of watch list databases, and development of compliant processes and procedures.

Pressures on Risk Management
But it isn't just high value international payments from less regulated countries that require scrutiny. Payments made over domestic 'low value' systems are increasing in value, and there is a general trend toward reducing the latency in payments execution across the board. More batch systems are giving way to realtime processing. In turn, this places extra pressure on risk management and compliance controls to intercept suspect transactions, and for ops managers to apply timely decision making at the review process.

Up In The Clouds
A knock-on aspect of this is an onus on government regulators to disseminate and publish the data changes as expediently as possible to eliminate lag in the system. I believe that cloud computing is a natural environment to help mitigate some of these risks. Microsoft's cloud platform is called Azure and enables new paradigms for hosting, managing and parsing data in a highly scalable environment.The ability to store and manage reference data such as watchlists, and make that data universally accessible to compliance vendors and banks around the world could significantly reduce latency and errors in data management.

SEPA: The Future is Integration Management

Colin Kerr — Mon, 26 Jul 2010 19:23:00 GMT

It’s not quite so fashionable to talk about SEPA these days. After all – aren’t we all wishing the rules and solutions were are all defined and implemented? But there’s still a fundamental challenge that banks (and corporate treasuries) face: integration among both legacy formats and legacy systems. Payments hubs are still often discussed as a solution, but the stark reality is that even after several years of industry discussion, few banks have implemented a payments hub to address SEPA.

Integration Frameworks
Don’t get me wrong, I still believe in the value of a hub. The centralization of processing to ‘break down the silos’ is still a major issue as banks strive for efficiency and cost savings. However, the effort involved to implement a hub strategy is considerable and can make these projects very daunting (especially if no application is replaced). One approach that is gaining more traction is the payments framework as a means of managing the flow of SEPA transactions between new and legacy components. This enables banks to start on a technology renewal path in a phased approach, with or without a hub. A big-bang replacement of payment processing is no longer required as flows can be migrated in phases by reconfiguring the integrated workflows as new systems and payment schemes become available.

Fundtech, one of the top payments technology companies in the world is one of Microsoft’s key partners. Some of you may remember that the companies jointly announced a new payments integration suite at SWIFT Sibos in 2009. This solution provides not just XML-based integration for payment schemes, but also facilitates payments management and monitoring with a dynamic dashboard for business operations. This is actually a payments-vendor implementation of what Microsoft calls the Payments Services Factory. The benefit of an approach like this? Banks can embark on the technology renewal program yet also retain the flexibility to adapt to future rule changes mandated by SEPA and the PSD. I encourage you to download a video of the Fundtech solution and see for yourself.

SWIFT, Cloud Data, and Sibos

Colin Kerr — Fri, 09 Jul 2010 17:31:00 GMT

Closing the Door on Data Privacy?

After 3 some three years, the EU Parliament has approved the Terrorist Finance Tracking Program (TFTP) which outlined the rules for investigation into suspicious payments that may have been exchanged between banks via the SWIFT network. Hopefully the final chapter on the SWIFT data privacy issue has now been written, but this does serve as a good illustration of how important the geo-location of data becomes in financial services; particularly with the increasing interest in cloud-based financial services solutions. Banks from any country need to ensure that their cloud provider has the ability to store data, with redundancy, within a specific geographic region.

Amsterdam, here we come

While on the topic of SWIFT... I'm writing this in early July, but Sibos 2010 planning for Microsoft is well under way. Microsoft has been a major exhibitor at Sibos since 2004 when the BizTalk Accelerator for SWIFT (A4SWIFT) was introduced to the market. Being SWIFT Ready Financial EAI certified, this solution provides banks with a common integration layer for linking internal systems to each other, and of course to SWIFT Alliance software. By natively supporting SWIFT standards in XML, many banks have realized significant efficiencies when they use A4SWIFT to convert from legacy-based SWIFT and payments integration.

Microsoft is again committed to showcasing solutions from our financial services technology partners. We also look forward to the debates on innovation and standards. For more information on the Microsoft presence, and our stand partners for on partners for 2010, I encourage you to check the Microsoft at Sibos page throughout the run up to the event. Better still – I look forward to meeting you in Amsterdam.

Prepaid Money Laundering?

Colin Kerr — Fri, 25 Jun 2010 21:00:00 GMT

In the United States, the Financial Crimes Enforcement Network (FinCEN) was established in 1990 and is, in general terms, charged with implementing measure to prevent misuse of financial systems for criminal activities. With specific regard to payments, money laundering and terror financing are the hot topics that come to mind. However, when one things about preventing these types of activities, wire transfers and high value international payments executed across interbank networks have typically been the most publicized point of scrutiny – especially when this must be balanced against privacy concerns The best example of this in recent years is the subpoena to investigate suspicious activity that may have resulted in SWIFT transactions, as discussed in an earlier post, “Bridging the Atlantic.”

Alternative Channels for Financial Crime
But as regulations tighten, and real-time scrutiny of traditional transactions increases (not least because of the multi-million dollar penalties banks face for non-compliance), perpetrators of criminal activity will naturally gravitate to less regulated means of moving funds. As the payments industry seeks to innovate with new payment types and new delivery mechanisms – such as prepaid and mobile payment transactions – there is greater opportunity for these channels to be ‘abused.’

On June 21st, FinCEN published a Notice of Proposed Rule Making (NPRM) seeking to add greater transparency around one rapidly growing payment type: prepaid devices (cards, phones, key fobs etc with pre-loaded monetary value). The concern is that a subset of prepaid devices may be issued by non-financial entities, and therefore the issuing process is not covered by current financial services industry regulations. The NPRM proposes that the Bank Secrecy Act be applied to the issuers (sellers) and will impose obligations on parties involved. Clearly the goal is to identify "the who and the why" of selling prepaid instruments.

Personally I believe this is a worthy step. Current transaction values may well be relatively small, but with the increase in transaction volumes, the opportunity for prepaid instruments to be used for nefarious purposes can only increase. However, one final point of note is to take lessons learned from the SWIFT case. FinCEN will be challenged to find a balance between transparency and privacy.

For more information on Microsoft’s risk and compliance solution areas, you might enjoy reading the blog of my colleagues, Sai Sireesh and Jeff Jinnett.

An Intelligent View of Payments

Colin Kerr — Thu, 03 Jun 2010 14:19:00 GMT

Regular readers of this blog will know that I have some passion for integration technology when applied particularly to payments. However, fixing the plumbing is just one part of the challenge that banks face, another is understanding just what exactly is going on within payment operations across the different formats and applications.

As we move from batch to realtime, the requirement for real time analytics and business intelligence becomes more acute. Operations managers need to know about the state of payment operations regardless of client, payment type, delivery channel or settlement method. This is particularly so when clients are becoming better educated about the payments process, and have higher expectations about the level of service demanded from their banks.

At Microsoft we have a view that in banking “the customer is in control.” This means that they demand when they want to be serviced, what information they need, and made available through what channels. Corporate treasurers are particularly influential in this area. In addition to operational reporting and online inquiry, mobile and web portal access to information is also critical to provide access to payments information.

In the current competitive and regulated payments environment, rapid and direct access to information is essential. On one hand corporate treasurers demand insight and visibility into their transactions as they endeavor to implement a more integrated financial supply chain using “just in time” concepts learned from manufacturing. On the other hand, banking regulations, payment screening, and liquidity requirements have operations managers demanding a level of insight not easily found from legacy batch processing environments. Yet further still, product managers want to see profitability by product and gain the ability to model the effect of changing features or transaction volumes.

Although coming from different ends of the payments value chain, these consumers of payments information have the same basic need: reliable and timely insight into payments processing to satisfy clients and mitigate risk. Achieving answers to these challenges requires a business intelligence (BI) solution that transcends operational and technology silos and enhances the value of integration beyond mere plumbing.

Recon Renaissance

Colin Kerr — Fri, 14 May 2010 20:52:00 GMT

This week I’ve been talking with a couple of our partners that offer reconciliations solutions. Typically reconciliation products are defined and marketed as GRC (Governance, Risk and Compliance) solutions. Of course this makes sense due to the traditional emphasis on accounting reconciliations and position management, and is an area attracting a large amount of bank investment: with good reason (ask the hundreds of people who fled SWIFT Sibos the day that Lehman’s went under).

Changing the Face of Recon

Let’s face it though, recon has never been the most glamorous part of banking, but perhaps this function is about to have a renaissance. With the globalization of commerce and associated banking transactions, real time position management becomes increasingly important – between institutions but also within an institution. The faster a bank can identify an exception, the quicker it can be isolated and corrected. In response, the recon function is moving more centrally in the enterprise and is growing in scope beyond accounting entries. There is real business value in ensuring internal systems are sending and receiving the correct number of transactions, applying matching rules and tolerances, before dynamically alerting operations staff of an exception. Clearly the recon function is moving from next-day/end of day balancing to becoming more of a real-time nerve center.

Convergence with Payments Strategy

As the industry discusses payment hubs and frameworks, a major benefit is the ability to more centrally manage processing, identify exceptions, and repair transactions. Of course, the routing, validation and translation rules for payments go way beyond what recon does, but the need to manage the flow of transactions, identify problems and fix them in a timely manner is pretty similar.

So is there a convergence in strategy between payment hubs and recon systems? Because recon is a ‘risk’ system, and payments are 'transactional,' are these similar initiatives on parallel courses, or do banks recognize that a real-time recon system can enhance the quality of payment processing? Let me know what you think.

Same Day ACH – but is there a Place for Real Time?

Colin Kerr — Fri, 07 May 2010 15:35:00 GMT

In my recent posts you’ll have noticed a recurring theme of moving from batch to real-time systems. Flying back from the NACHA payments conference last week I was thinking over the future of payments services, or products. Payments are being seen as an increasingly important contact point in the quality of a banking relationship, but just processing transactions cheaply, reliably and as quickly as possible isn’t a product differentiator, that’s the baseline for being in business. Of course, the phrase “as quickly as possible” can vary significantly from country to country based on local clearing and settlement mechanisms. At NACHA there was discussion (accompanied by a dose of skepticism) of moving to same-day ACH. This is essentially compressing next-day ACH into a tighter batch schedule. Apart from any operational challenges of what are predominantly mainframe operations in a complex back office environment, there must also be concern from payments product managers about low cost ACH transactions cannibalizing their higher margin Fedwire business. To put all that in perspective, let’s consider what happened in the UK.

Faster Payments

Of course the UK has far fewer institutions, and there are no time zone challenges to deal with, but it is a good example of a more aggressive approach to payments network modernization that was implemented (at least according to various consumer advocacy groups) at delivering a better quality payments service to customers. In contrast to the US approach, the UK has implemented the 'Faster Payments' initiative to move from an archaic three day cheque clearing to a payment confirmation you can bank on (pun intended) in 20 seconds. Essentially this was achieved by taking features from both card and ACH networks. With a transaction limit of GBP 10,000, there is some overlap with the national high value system (CHAPS) for consumer payments, but that limit is low enough to allow CHAPS to handle interbank and corporate urgent payments.

From the payments product manager’s viewpoint, covergence of payment systems and cannibalization of revenue streams is inevitable as the trend to real time systems and risk continues. But it’s better to transfer revenues in-house than have another bank take it away altogether. The key is to add value to the customer at the point of service, and speeding up the availability of funds is an important part of that.

From the Shadow of Eyjafjallajokull

Colin Kerr — Mon, 19 Apr 2010 19:29:00 GMT

Having blogged last week about the replacement of a custom mainframe banking solution with a vendor mainframe banking solution at Citi, this week I’m turning to an organization taking an entirely different track. Currently under the shadow of the ash clouds drifting over northern Europe from Iceland's Eyjafjallajokull volcano, is a banking data center in Copenhagen, Denmark. The Skandinavisk Data Center (SDC) runs banking operations for over 150 banks across Denmark, Sweden and Norway. Cost reduction initiatives in back office processing are certainly not new, but the recent financial crisis certainly exacerbated the need to trim operational budgets. Like many banks, SDC sought a lower cost platform for mission critical operations but without the need to immediately rewrite vast amounts of legacy code. The solution? Danish newspaper ‘Bǿrsen’ reported that SDC has committed to replace its mainframe processing by 2012 with Microsoft Windows Server running on Fujitsu hardware. Of course, the difference in scale between Citi and SDC is huge, but with an estimated saving of over 100 million Danish kroner (US $18M) per year, that is serious money indeed!

Rock and a Hard Place

Bank CIOs are often between a rock and hard place. There’s a need to replace that aging technology for core operations and payments, yet perhaps unable at this time to invest in a completely new SOA-based real-time system. SDC has found a way to move forward. By porting legacy code to a modern more cost effective platform, they can immediately reduce costs and buy time and flexibility to implement a code renewal strategy.

Back to the Future?

Colin Kerr — Fri, 09 Apr 2010 19:47:00 GMT

Last month Citi, typically known as an IT innovator in the financial services world, announced it is to replace its aging legacy core banking system with another mainframe-based batch system. Because of the relatively large number of mainframe solutions specific to the US market, and a host of outsourced solutions that also run on the mainframe, perhaps I shouldn’t be surprised. But generally speaking, banks in other mature markets are recognizing that they suffer from inflexible batch systems and are rapidly approaching a “skills cliff” of appropriately skilled and priced resources in COBOL and CICS. Furthermore, banks remaining on batch based systems typically also suffer from lower efficiency ratios that those on modern real-time systems.

Drivers for Real-time

Progressive banks in Europe and Asia are starting to recognize that the back office also profoundly impacts the customer experience. I’m not just talking about the risk of long-running outages of batch systems that were identified in the March 2010 report from Bob Hunt at TowerGroup. On a day to day basis, transaction processing excellence for retail and corporate clients alike is as big a contributor to customer satisfaction as any traditional client-facing initiatives. As a result, Microsoft sees technology renewal projects in any part of a bank being considered with three factors in mind: cost, operational control, and the impact on customer experience. This is driving the move to real-time systems based on a modular architecture, such as from Microsoft’s strategic partner, Temenos.

Influence of Foreign Banks

To see beyond the US penchant for batch systems, we need to consider the number of US banks owned by overseas institutions such as BMO and TD Bank from Canada, and Santander, HSBC and BBVA from Europe. Over time, the playing field in the US market has changed, and the homogeneity of mainframe solutions at US-owned banks may start to become a greater disadvantage. My view is that overseas-owned banks in the US will be in the vanguard of larger institutions moving to real-time core systems, therefore raising the bar on (lower) efficiency ratios and more agile product development. It will be interesting to see what operational pressures the traditional mainframe, batch-based banks find themselves under in the next 5-10 years based on domestic competition from foreign banks.

Jump Starting Payments Integration

Colin Kerr — Mon, 15 Mar 2010 22:07:00 GMT

The topic of payments system integration has in the past usually dwelled on topics such as real time or batch requirements, message queue interfaces and of course, support for payment standards. All these of course are very important in any payments integration project, whether to support implementation of a new payment system, or the renewal of infrastructure technology. As I visit financial institution customers and our technology partners, a recurring theme appears in discussions about payments integration: simplifying the ‘plumbing’ and the need to know more about what is happening in the environment between the applications.

Complex Plumbing

Payments by nature are a transaction type with a lifecycle spanning multiple internal processing steps and applications. As described on an earlier post there are applications for delivery channels, compliance screening, account posting, settlement instructions, transaction routing and foreign exchange to name but a few. The traditional silo view of operations provides information about a payment at a point in time within an application, and certainly most banks have a well-engineered ‘hand-shake’ between applications to ensure delivery and provide an audit trail and transaction status, but that typically takes a significant amount of development effort to implement and manage.

Payments Message Bus

With the techniques offered using service oriented architectures (SOA), Microsoft has developed IP components to simplify the amount of custom engineering required to implement an integration framework. Our view is to provide the right balance between a flexible toolset and the need to have prebuilt payments integration components that streamline the development effort. The key is to provide value to customers and partners but without being too prescriptive in the solution components. After all, every bank is different but the principle drivers behind integration projects are the same. Using an enterprise service bus (ESB) architecture model, our approach is to create reusable services for common payments integration functions such as transformation, audit trail and tracking, a message database and business activity monitoring (BAM). The result is reduced complexity of solution and integration costs, and the ability to centrally monitor activity ‘between the applications’ for the lifecycle of the transaction.

How's That Core Banking Replacement Going?

Colin Kerr — Mon, 01 Mar 2010 15:58:00 GMT

Core banking system replacement is arguably one of the most challenging technology projects in banking today. I often liken core operations to the engine room of a ship: it's an area that hums away in the background, needs regular care and maintenance, and historically has run that way for some time. In some instances, code written almost 35 years ago is still powering core systems in mature markets. I blogged a couple of weeks ago about challenges with the business case for replacing the core systems, and it is easy to avoid the issue if the systems are not suffering breakdowns or outages. But I would ask the question: does a shipping company wait until the engine fails before replacing parts or renewing the engines? Of course not - the risks are too great. I argue that the same situation applies to banks because the reputational damage, financial loss and security risks are too great, but the reality is that the older these systems become, the greater the chance of a catastrophic outage.

Gradual, Modular Renewal
I also recognize that ships make use of a dry dock where they can be taken out of service for refits. This of course is a luxury that banks do not have, therefore it is difficult to overstate the business and technology challenges of replacing major systems while keeping the bank running normally. For smaller banks this would typically be implementing a new package solution, testing in parallel and then switching over. For larger banks with a high level of integration complexity, and a mix of package and custom components on multiple platforms, a more gradual replacement of components guided by a strategic architecture blueprint and governance council is more likely.

Standardized Architecture Models
With either approach, there is real value in modeling banking services and processes consistently across the industry. This simplifies bank and application architecture and promotes interoperability, re-use of processes, and greater choice of solution providers with more open standards for integration. Such an approach can lower the implementation and integration costs of core banking projects, and result in an ongoing benefit of a simpler infrastructure to support. These are also some of the key objectives of the Banking Industry Architecture Network (BIAN). In addition to Microsoft and several of our key global partners such as SAP, SWIFT, SunGard and Temenos; several leading global banks including Credit Suisse, Deutsche Bank and ING are also active participants in defining and implementing standards for banking architecture models.

Whether you are a bank or a banking technology provider I encourage you to check out the BIAN website, download the white paper, and to consider what value your organization might derive; but also what it could contribute to the industry challenge of core replacement.