It's unlikely Microsoft will ever advertise its banking expertise to a broad national audience, but it's an increasingly prominent part of the company nevertheless.

For the past two years, banking clients have unexpectedly been asking Joe Pagano for advice on basic business issues as well as technology. Pagano, managing director, worldwide banking and capital markets at Microsoft, says clients want to know two things specifically: 1) What's your point of view on how we can run our business more effectively and efficiently, to the point where we might improve our cost/income ratio and create a cost savings model? And 2) How can Microsoft help us reimagine our bank in an architectural building block way?

"Do banks think of Microsoft first on these board-level questions?" says Pagano. "Usually no, but we're in the discussion. It's become clear to us over the last two years that they see Microsoft's point of view as one that matters when it comes to bank efficiency and customer experience."

Citing the architect Yoshio Taniguchi, who designed the Museum of Modern Art in New York and once said, "Architecture is basically a container of something. I hope they will enjoy not so much the teacup, but the tea," Microsoft has created a technology modernization roadmap that, naturally, shows where banks can use Microsoft products as they strive for a more modular, integrated infrastructure. The document, which is called Microsoft Industry Reference Architecture for Banking, is based on the work of the Banking Industry Architecture Network, a group of bank technologists, led by ING executives, who are mapping out services-oriented architecture blueprints specific to banks.

The Microsoft version details specific technology-driven idyllic scenarios in a bank and the Microsoft technologies that can make them happen. For example, "Jane is browsing the internet to shop for a refinance on her home to take advantage of the favorable interest rates. She does a search and finds options for mortgages and refinancing. Jane selects a bank whose link is near the top of the search results." The products a bank could use to make this happen, according to the document, are Microsoft Web Platform, Application Platform, Internet Explorer, Visual Studio and Bing Search.

"A byproduct of sound architecture is a seamless customer experience," Pagano says. "If we do our job as an industry thought leader, the customer should experience technology in a way that feels seamless."

In preliminary research, Microsoft staff found that the basic business model of banking in the U.S. is broken. Looking at a January McKinsey report on U.S. banks, Microsoft executives found that the average return on equity for U.S. banks is 11%. "If the business model doesn't change, given new costs and new regulations, that ROE will drop to 7% in 3 years," says Pagano. The problem with that is the cost of capital is 9%, which means the business model is failing.

Meanwhile, Microsoft technology partner Temenos had conducted research showing that the banking industry has the largest IT spend of any industry in the world — 14% of total expenses in banks, versus the cross-industry average of 7%. "We concluded that this is largely due to the business process, application and data silos in banks," Pagano says. "We thought about how Microsoft could help," Pagano says.

Although the reference architecture document maps business technology needs to Microsoft products, Pagano says the company embraces open models. "We don't expect to come into a bank in a mission critical area and rip and replace," he says. "Our solutions are additive, they integrate with existing technology."

"The difference in our architecture — it's an open data model, you can get data into Microsoft and out of Microsoft," Pagano says. "Some other solutions you can get data in but you can't get it out."