Over the years, Microsoft has earned a reputation as the banking industry's best friend and its biggest potential competitor.

The Redmond, WA-based software leader's entries into payment processing, account aggregation and financial content often have led bankers to debate whether Microsoft is helping them or just trying to build a better mousetrap. Even Chief Executive Officer Bill Gates' years-ago allusion to bankers as dinosaurs still rings in the ears of many executives in the financial industry, according to Paul Jamieson, director of banking and payment services for Gomez Advisors.

"If you go back through their history," Jamieson states, "Microsoft has always walked a fine line between its ambition of going after new opportunities in financial services and the fact that one of the largest markets it serves is financial services."

But over the years, Microsoft has, for the most part, shed its all-powerful image among bankers who feared being cut out of the financial loop. After some bumps and lumps along the way, Microsoft seems to be on the right track with financial services, one of its largest corporate vertical markets, and ready to tackle new fronts, including large enterprise computing.

Microsoft long has commanded the consumer desktop through its ubiquitous Windows operating system and also has captured consumers and financial partners through its shrink-wrapped and later online financial tools like Money and Investor. On a different front, Microsoft's NT software is an increasingly popular platform for community banks and credit unions, since back-end operations often employ Windows NT rather than Unix. "NT is just huge among [a segment of] banks and brokers," says Jamieson.

Now, as part of a larger strategy to move up the computing food chain and get into enterprise computing, Microsoft is making inroads in certain enterprise areas, including transactional software.

A recent deal sums up this effort; in May, Microsoft announced a plan to provide banks with "ultra-secure" software for Internet-based transactions. Working with Blue Bell, PA-based Unisys, and Baltimore Technologies, a secure technology company headquartered in Ireland, Microsoft is developing a secure commerce product that will run on its Windows 2000 operating system. The software will follow the framework of Identrus, the authentication-oriented banking alliance.

With its new PKI-based system in place, Microsoft believes that banks will be able to perform more sensitive corporate or business-to-business functions online, such as verify letters of credit, rather than having to handle these tasks by time-consuming, expensive overnight delivery.

Warren Lewis, Microsoft's worldwide industry manager for banking, maintains that B-to-B commerce is "not a brand-new business for Microsoft." Lewis works for Microsoft's Financial Products Group, which changed its name about a year ago from the Desktop Finance Division. He admits, however, that with the advent of Windows 2000 and the company's over-arching .NET strategy, the software company is pushing deeper into the enterprise at financial institutions. "With the introduction of Windows 2000," Lewis says, "we are developing a strong and documented story of flexibility and scalability."

Before going to Microsoft, Lewis formerly worked at a bank, where he says he "more frequently had to worry about down times on Novell than on NT." He points to Internet banking deals with the likes of J.P. Morgan Chase as recent proof of the company's mounting success.

But many Microsoft critics and Unix proponents would question whether the software company's products are scalable and fault-tolerant enough to fit the bill for more sensitive or mission critical operations. Historically, Microsoft products often seem to fall short of the company's initial promises and expectations-but given their vast popularity, they do tend to catch up in many areas.

"NT software is not known to scale as well as Unix," says James Van Dyke, research director for the payments and banking practice at Jupiter Media Metrix. "But they have made some strides there. ... That's where [some of these] partnerships can be of great benefit."

Other analysts agree that in the

enterprise market, Microsoft will follow suit, with initial lukewarm results leading to more positive performance. In his recent report, "Making Microsoft Sites Work," Forrester Research analyst Kyle Johnson makes the case that in spite of some earlier faltering, the company is starting to make good on its promise of workable enterprise solutions.

"Microsoft's first attempts to leap to the enterprise software market fell short," Johnson says in his report. "As recently as last year, the desktop giant had to concede large sites to Unix-based competitors."

This year, however, Johnson agrees with Microsoft's argument "that it has closed the performance gap to a margin so narrow that few companies will notice." As proof in the enterprise pudding, Johnson cites Microsoft's success in handling high-performance and commerce sites for the 2000 Olympics, USA Today and J.C. Penney's. In addition, the market researcher's own independent tests gave high marks to the advanced server software's architecture, reliability and security features.

To top it off, Johnson believes that "Microsoft turned the corner to enterprise viability" with recent developments like Windows 2000's support for server clustering and similar releases that kept user companies from having to buy new hardware. This approach, Johnson says, "put Microsoft over the scalability hump."

But, Van Dyke of Jupiter recalls that Microsoft has needed to adapt its approach to the financial services market. Over the years, forays into businesses like bill payment processing not only have diverted Microsoft from its core strengths in software development, but also have continued to fuel rumors among bankers that the company was out to steal their business. "Their initial estimation of financial services was as wrong as their initial estimation of the Web," Van Dyke says.

While it continues to build online consumer financial content on the Microsoft Network, Van Dyke says Microsoft erred by expecting boxed software to be its trump card, adding that the compoany is "not as dominant in shrink- wrapped personal finance software as they thought they'd be."

As for the software company's ill-fated attempts at payment processing, even after teaming with First Data Corp. and Citibank, Microsoft failed to lift its payment processing venture, TransPoint, off the ground. According to published reports, the subsidiary had little revenue and most subscribers were in a free introductory phase when TransPoint was sold to CheckFree last February.

Van Dyke believes this loss in particular has helped Microsoft to realize that "while they're great at technology, building the kind of relationships it takes to handle processing is more than just great technology."

Hence, Microsoft has gone back to basics, in a sense-enhancing functionality in existing software, as well as going after new markets. Jamieson of Gomez points to Microsoft's recent financial industry wins, including deals with Orbiscom and Cyota, top companies in the limited purpose, or single-use, online credit card technology market. Building this type of functionality into its retail financial products could prove very appealing to Microsoft's bank partners.

Jamieson says Microsoft appears to be moving toward more of a subscription model-more like ASPs and less like boxed software purveyors. This will make the company "more of an outsourcer to banks," he says. "Microsoft cannot afford to look like a bank competitor."

Van Dyke says the company clearly is committed to bank technolgy. "It's important when you look at Microsoft, to take a long-term look at them."

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