Instant Messaging

A technology initially meant for teenagers, instant messaging is sweeping the financial world so fast it's become difficult to control. Hip to a hot new communication tool, financial executives like UBS Warburg managing director Ursula Mills are intent on benefitting from its power firmwide.

Welcome to the new Wild West of corporate culture, where one of the most explosive pieces of new technology to hit town-instant messaging, an enticing electronic conversation hall initially meant for children- is infiltrating institutions like booze at a bring-your-own party. And it seems everyone has been left scratching their heads trying to figure out how they can benefit from this technology while also scrambling to get a grip on the dicey issues of security and liability. Instant messaging, or programs allowing individuals or groups of people to have real-time conversations and information exchanges over electronic channels, has been introduced to financial services in a most unusual way; in many cases, by employees using consumer versions, leaving firms and their IT shops in a quandary about how best to control and use the tool for business. The bumpy trail began with banks trying to supply employees with crude homegrown and internal instant messaging products.

Many employees-particularly those in sales, service and trading who need to communicate instantly with people outside of the company and not just with a select list of co-workers-found the rudimentary internal systems to be lacking, and chose to bring in their own instant messaging products from home. The spread of these rogue products did more than wreak havoc on IT departments; almost as quickly as an instant message can be sent from San Francisco to Hong Kong, instant messaging is becoming a key communication tool in financial services.

Only recently has upper management at financial firms become aware of just how deeply consumer IM products were unofficially deployed throughout their organizations. "It's really difficult to gauge how many consumer products are being used (internally)," says Timothy Lim, associate in JP Morgan Chase's investment banking architecture group. "But it's definitely been, and still is, a concern."

When financial firms began discovering earlier this year just how widespread unofficial communications products were throughout their organizations, much of the emphasis was immediately placed on the security risks and federal compliance issues posed by consumer tools. But the uncertainty is starting to clear as vendors, en masse, rushed to upgrade the functionality of their products to meet the needs of financial institutions, which they view as the sweet spot of prosperity. "The products are mature now and offer banks everything they want, and also everything they need," says Robert Mahowald, an analyst with Framingham, MA-based IDC. But what banks want to do with an enterprise IM system remains unclear.

Few financial services organizations are ahead of the instant messaging curve, a shortcoming that's in part allowed many employees to use the technology at their own discretion-and ultimately without management having a clue. "It's been completely unsanctioned, completely unmanageable, and completely out of control," says Maurene Grey, research director at the Gartner Group, noting the most popular IM tools weren't designed for use by mega-corporations. Like their adolescent target audience, IM products are still experiencing a lot of growing pains.

Besides the consumer IMs being a "super highway for viruses," it's also nearly impossible to confirm a person is actually who they say they are during an IM session. But perhaps of most concern to banks is that consumer tools don't log records of communications-something required by the SEC and NASD for "any conversations, electronic, verbal or paper, so long as it's related to business," says John Heine, spokesperson for the SEC. And on Wall Street that's a huge issue, especially with the scandals highlighting the uses and abuses of electronic communication. "It's become better to have damaging information and know that you have it instead of having it pop up in the middle of a trial or an investigation," says Michael Osterman, president and founder of Black Diamond, WA-based Osterman Research.

Like it or not, IM looks like it's here to stay and more corporate IM use is expected nterprise vendors are playing up their compliance- friendly logging and auditing capabilities. The three major consumer IM vendors-AOL, Yahoo! and Microsoft-all recently announced beefed up enterprise offerings that archive and encrypt communications. Osterman says a survey conducted in September by his firm showed that 85 percent of all organizations have some level of IM use-22 percent higher than when the survey was first done in July 2001. He says that figure should crack 90 percent by the end of the year.

While the value and potential of instant messaging may be clear to many employees, proven business cases for such a tool are few. The use of IM in financial services hasn't been managed well enough for clear blueprints to exist. But there are a handful of banks, such as investment bank UBS Warburg, that have been utilizing IM across the enterprise long enough to have effectively engrained it throughout their corporate culture.

Ursula Mills, a managing director in technology operations for UBS Warburg, says the investment bank is one of the heaviest users of chat and instant messaging on the Street. The firm began developing its own tool in 1996, something Mills says allowed it to do two things: reduce the opportunity for employees to bring consumer IM into the organization; and also give UBS Warburg a jump start in getting a clear idea of what it wanted to get from instant messaging, and how it was going to get it.

Almost seven years later, UBS Warburg has between 16,000 and 17,000 employees across the globe and 6,000 external clients with a secure version of an enterprise instant messenger on their desktops. The tool no longer belongs to UBS Warburg, who three years ago sold the product to Chicago-based IM vendor, Divine, and the product is now known as MindAlign. "We recognized this was going to become increasingly commoditized software and wasn't necessarily something we wanted to maintain in-house," Mills says.

The tool, internally dubbed "Interchange," runs on a UBS server that gives the firm complete control, unlike the consumer versions of AOL, Yahoo! and MSN that all run over the Internet. "It's one of our key collaboration tools," Mills says. "Over the telephone and video conferencing, it's our collaboration tool of choice." The idea, Mills says, is for UBS Warburg employees to utilize IM on more than just a one-to-one-basis-chat sessions that can function much like a conference call, but with the ability to exchange documents and spreadsheets with co-workers in UBS offices across the globe. And the tool has the ability to record conversations, so if one party in New York leaves an established "room" at the end of their day, a team in Switzerland may pick up where New York left off hours later at the beginning of their business day.

UBS Warburg isn't the only financial institution that relies heavily on instant messaging and chat, but they're among the most advanced. Other banks like Deutsche Bank, Lehman Brothers, Credit Suisse First Boston and JP Morgan Chase have been formally using IM for several years. Lim says JP Morgan Chase rolled out the IBM-Lotus Sametime product across the entire institution nearly two years ago and now has 15,000 out of about 90,000 employees across the company using the tool daily.

Instant messaging may just be the start of something bigger. "We believe the chat function is where the greatest potential lies," says Mills. Besides the internal uses of IM, UBS Warburg has begun embedding some of the chat functionality into its trading tools for increased communication with external clients; to date about 5,000 external clients use the current UBS tool. The need for such instant communication with external clients is a large reason why UBS Warburg and JP Morgan Chase say they couldn't completely prevent consumer IM products from entering the organization.

Much like in the early days of the railroads running on non- standardized tracks, different instant messaging products cannot communicate with one another. Mills says the best way for UBS to communicate safely and efficiently with external clients, in lieu of total interoperability, was to get employees and clients using the same IM tool. "The only way we can all possibly communicate with each other is to have a version of every product on your desktop, and that takes up valuable real estate," Mills says. "Is a broker going to have 10-15 different IM products so he can communicate with all of his clients?"

The lack of interoperability-not just between consumer products, but also between enterprise IMs-is an enormous issue that could continue to suppress the formal spread of instant messaging at the corporate level. "If you're AOL, why would you want your product to become a commodity?" says Black Diamond's Osterman. "The real value of an AOL is that they have the most users and that's why they're so popular."

Analysts estimate there are about 50 IM vendors in the market right now. And for much the same reason that UBS Warburg spun off their in- house IM tool, financial institutions will likely seek vendor solutions to support their instant messaging initiatives.

To speed up the spread of IM, Mills and Will Meldrum, head of the deals team in the global markets group at Deutsche Bank, are heading up a new organization, founded by seven banks, known as the Financial Services Instant Messaging Association (FIMA). The organization is what Meldrum calls a "pressure group" that plans to put the squeeze on vendors to make products interoperable. One of the first things that needs to be established, Meldrum says, is a standard technology that IM services are built on, whether it be Session Initiation Protocol for Instant Messaging and Presence Leveraging Extensions (SIMPLE), Jabber or .Net. "We don't care which one takes ascendancy, so long as vendors do it quickly."

Once that happens, IM is expected to play a greater role in the retail banking sector. Tom Iati, senior analyst at TowerGroup, says the "more real-time nature" of the investment banking business led the industry to seek out rogue devices for instant communication faster than other members of the financial community. But there are a number of banks and credit unions using instant messaging internally (and officially), as a mean to increase efficiency and customer service. A number of large banks declined to comment on their use of IM because, as one banker in a technology group put it, "when you're the blood and guts of an institution, you don't want to give away your real secrets."

Chris Dodge, the IT manager at Metairie Bank and Trust, says his bank has nearly 80 employees using an internal IM, supplied by WiredRed, throughout its six branches across Louisiana. "It's more a tool for our floor people, loan officers and back office people," says Dodge. If a Metairie employee is with a customer, and the employee needs to quickly check the status of a loan, "rather than walking away or picking up the phone, they just pop a question to whoever's available and might know the answer," says Dodge. "It allows for a smoother interaction with the customer."

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