The financial sector produced its share of technology hype during the new economy years. You cant blame folks if the next next thing, a wave of Internet-related innovation called Web services, is being met with healthy skepticism. Its more evolutionary than it is revolutionary, says Pierre Fricke, evp of Web Application Infrastructure at DH Brown Associates. Many gurusinstitutional, research and vendor alikeare placing their bets on Web services to drive the next chapter of finance technologydramatically upgrading disappointing automated customer management strategies by electronically breaking down barriers between products, firms and customers, and perhaps creating a whole new line of business in the process. But a lot of the horn-blowing that used to accompany new gadgetry, software and Internet plays is gone this timeeven from people who are selling the technology itself. Its not a magic wand. It doesnt change the need for a bank to reorganize and streamline its operations, says David Littlewood, director of worldwide financial services for Sun Microsystems, a firm whose Web services customers include Bank of America.
If Web services arent a magic wand, then what does the technology do? Web services are business and consumer applications that use standards and protocols to allow different systems to interact with each other, sharing data and serviceswithout the need for manual translation. These conversations let applications bypass operating systems, programming languages and middleware. Passwords and other information are stored in Universal User Profiles, which give users access to multiple Web sites and services. The idea is to achieve instant links between the on-line processes of different companies. If it works as advertised, Web services could shrink tech budgets, create new interactions among businesses and make the Internet more user-friendly. You can provide one interface with a customer, rather than having them go through multiple parts of an organization, Littlewood says. Its a development that could advance customer management, which hasnt fully realized its potential at most institutions, because it can be a major aid in channel integration. Instead of visiting different Web sites for functions such as on-line investment research, trading, mortgage pricing and taxes, all of that would be available at the same place, perhaps for a feegiving rise to business for providers of universal profile providers, which would control access to customers. That could place e-tailers such as on-line financial services firms at competitive risk, since access to their business would in effect be driven by another entity.
McKinsey estimates Web services can cut the time and money needed for systems integration, likely the largest IT expense, by up to 20 percent. Further savings could come from unbundling functions and activities within organizations. McKinsey researchers say that will make it easier to outsource applications such as order fulfillment and inventory control.
For now, Web services are being used primarily to shore up back-office operations, which can use the new technology without being concerned about Web security, a major bug that still has to be worked out. However, the more advanced plans for Web services, such as using the technology for cross-selling or leveraging personal information for complex customer service, will have to wait until the data can be adequately secured. Security measures are said to be in the works, but widespread protections are not expected until 2003 at the earliest, Fricke says.
Sun Microsystems is among a trio of heavy hitters, including IBM and Microsoft, who are making big investments in Web services, practically guaranteeing the technology will be pushed for some time. The only question is now effective the technology will ultimately be. McKinsey says firms would be best served by considering how much cost and delivery time can actually be reduced. The simple stuff will start to ramp up soon, but anything where multiple parties are involved probably wont get going until 2003 or 2004, Fricke says.
