Each hour, an international retail bank routes its faxed and Web-based trade confirmation and transaction orders-workflow comprising 25,000 data factors-through its new enterprise content management system. Another non-U.S. firm, this one a global investment bank, uses the same solution for trafficking all content from its Web portal.
That an ECM solution manages disparately sourced data for storage, day-to-day operations, CRM analytics and regulatory compliance isn't noteworthy, except this ECM system from UK-based software firm Alfresco is built on open source technology. A bank entrusting open source for enterprise document functions, which normally falls to products from full-shop proprietary vendors, is the head-turner.
The banks, which were not disclosed by Alfresco, are examples of institutions that increasingly are drawn to open source solutions for front-end and middleware IT functions. Instead of paying for seat licenses of a commercial ECM product, these firms get Alfresco's product free and pay only for support services and development assistance under a dual licensing model. "A lot of the people we have engaged with have said [they] are actively seeking open source solutions and view this as a priority," says John Powell, Alfresco president and CEO. Alfresco is not displacing any banks' Documentum or Vignette systems, Powell concedes, "but we compete with them in the project [level]...[t]hese are projects where the economics of open source make it a lot more compelling."
Embraced for years in government and other industries, open source is beginning to assert itself in lower-level banking applications. Looking to bring cost savings, break free of vendor lock-in and eliminate worries about long-term support of proprietary products, bank IT executives are moving systems out of mainframe-based technologies to modern frameworks such as Java 2 and J2EE and Microsoft .NET.
Many banks have been long familiar with open source environments thanks to widespread adoption of Linux operating systems, and are already well along in using Java frameworks as "the accepted norm" for in-house application development, says Sajay Sethunath, chief architect of the BearingPoint's financial services business consulting unit in Atlanta. "Not using them is considered wrong, pretty much."
Wrong because their development libraries, such as Apache Struts, used to create Java Web apps, are now considered as reliable and feature-intensive as most commercial software by users who are part of a vast community constantly researching for weaknesses and improvements. Plus, these open source tools are readily interfaced with bank's existing platforms. Alfresco, for instance, can offer ECM on a Linux, Unix, Macintosh or Windows platform.
But open source is still not a viable resource for more second-tier and back-office processing applications for banks. Even a popular open-source database management system with an estimated six million installations-MySQL-is not considered prime-time for banks because of maintenance issues and lack of track record in running mission-critical banking systems. "With HydraNet, Struts and Spring, those are development libraries and don't require a lot of support," says Andrew Komolov, vp of client solutions for Exadel, an open-source component supplier for enterprise solutions with the financial industry and others. "JBoss [application frameworks] and MySQL are a different story, for that matter. That's next-level open source, where it's a pre-packaged solution which requires...support and maintenance as well. That's where the open source movement becomes a grey area."
"Beyond the business risk is the regulatory risk of going with open source," says Celent senior analyst Bart Narter, noting how no North American banks have ventured into open source territory for core system operations. A bank could cope if the Web channel servers went down, but customers could still conduct transactions with ATMs and branches. An open source core meltdown would get a major FDIC spanking. "You're not going to see it supporting the absolute core functionality of the bank," says Narter.
Sharing that doubt is Michael Gallagher, the global manager for enterprise architecture with ABN Amro, where open source development has gained steam in divisional areas like in ABN's mortgage group and its Mortgage.com Web site. Consulting with Exadel to find available open source modules and tools, ABN Amro built a site complete with advanced servicing levels more than six years ago: online access to home lending products, loan and re-fi application forms and real-time access to current lending rates. "In the case of Mortgage.com, there really wasn't a proprietary system [in 1999] available...so there really wasn't an opportunity to buy a package."
"What we haven't done is dive into things like Sugar CRM, or those sort of open source, high-level applications," says Gallagher. "Open source is beginning to move successfully into that area. I think a lot of small to medium sized organizations can get a lot of benefit from those sort of open source applications, but from the scale of operations that we do, it's not quite there yet. But we are actively watching it."
Like many institutions exploring open source, ABN Amro has a bevy of community expertise to draw from to assist in solution choices and toolkit options, from developer community sites and even in-house programmers who've been reared in the Linux and Java era. Working with Exadel helps sort out solutions suitable for large-scale deployments, for which there are approximately 100,000 open source projects of varying quality and applicability, according to Komolov. "And you can't name more than 100 that can be used in enterprise applications," he says.
An open source partner can also be a lifeline to functionality. An Alfresco client needing ECM integration with an imaging system, for example, can install a pre-built interface-a feature that may not be available to a smaller institution from a commercial vendor. "The ability for either the customer or the community to customize the system is something you don't really find in a closed source world," says Powell, a former COO of Business Objects who co-founded Alfresco in 2005. "You have to find all sorts of licenses to get your hands on the code."
How far up the chain of operations will open source eventually go in banking? Sethunath notes that the investments of big vendors in open source, such as IBM with Linux, indicate a continuing experiment across fields and applications. "But banks are still looking at what in open source they should adopt," says Sethunath. "If you look at the landscape, there are thousands, if not tens of thousands of things in open source-everything from an ESB to networking communications."
BearingPoint advocates banks make a serious examination of open source alternatives and ignore ongoing "myths" of open source such as security loopholes and inconsistent support issues.
ABN Amro's Gallagher also sees open source's acceptance growing, but not just an escape from proprietary offerings. "I don't tackle it as an open-source vs. commercial activity," he says. "When we go to architect a solution, we look for the best possible solution whether its commercial, open source or even home-grown.
"What I'm really interested in seeing is how open source moves beyond the geek tools or infrastructure software, and moves into these end-user applications. To me, there's plenty of value to be had if there's a successful move."
