More financial services companies are studying the open-source format as a way to save money by working together on projects that do not provide competitive differentiation.
About 25 banking executives met this month for an open-source brainstorming session in New York as part of a symposium sponsored by the technology magazine Information Week and CollabNet Inc., a Brisbane, Calif., provider of open-source software and development services.
John Stepper, the global head of equities trading technology for Deutsche Bank AG, complained that banks are wasting time and money building in-house systems that simply replicate the work of competitors.
The Frankfurt company has 4,000 employees writing applications for trading, and its annual software development budget approaches $1 billion, yet "what we spend on competitive advantage is in the low single digits as a percentage of our spend," Mr. Stepper said. "I would be proud to be a part of an effort by the banks to come together to reduce the waste in our industry."
Though no decisions came out of the hourlong session, several people said that all financial companies must have regulatory compliance software, but it provides a competitive advantage to no one.
David M. Sherr, the chief executive of New Global Enterprises Inc. of Pleasant Hill, Calif., who works with banks on technology implementations and who attended the session, said afterward that he considered it a constructive start.
"Banks have not been known for thinking differently," said Mr. Sherr, whose career has included stints at Citicorp, J.P. Morgan & Co., and Charles Schwab Corp. "They're catching up with the way the world is."
Open-source software provides a new way for banks to collaborate, as they have in the past through industry cooperatives or joint ventures, Mr. Sherr said. "The competitive advantage is found mostly in the customer interface."
James E. Rohr, the chairman and chief executive officer of PNC Financial Services Group Inc., sounded a similar note in a keynote presentation at the Bank Administration Institute's Retail Delivery conference in Las Vegas last month, when he talked of the commoditization of the banking business.
PNC can provide a competitive offering in the front-end business of issuing credit cards, but not in the back-end business of transaction processing, Mr. Rohr said.
His Pittsburgh company exited the card market 12 years ago by selling its portfolio to MBNA Corp., which agreed to market cards under the PNC name. However, with the growing prominence of plastic payment products, "we felt we needed that card," he said.
When its marketing contract with MBNA (now a unit of Bank of America Corp.) ran out in September, PNC brought the issuing and receivables back in-house, but it outsourced the processing to U.S. Bancorp's payments division.
PNC also has a merchant processing joint venture with First Data Corp. of Denver.
Mr. Rohr said that processing is not an area where PNC feels it must offer a competitive service, and that outsourcing the function to U.S. Bancorp, or collaborating with First Data, lets his company participate in the card business while reducing its costs.
"We own the relationship. They own the platform," he said. "We need to own at least the front end of these products."
In the same vein, many banks have formed cooperative technology ventures to share the costs of supporting new technological initiatives.
For example, Viewpointe Archive Services LLC - a venture owned by five big banking companies and used by them and six others as a shared repository for digital check images - has been the business model, and perhaps the default archive, for the Check ACH Coalition, which hopes to use the automated clearing house network to carry instructions for check payments while making the images themselves available on demand.
In a different example, the Society for Worldwide Interbank Financial Telecommunication is nearly a year into a pilot test of a "trade services utility," which 19 international banks are using to match purchase orders, invoices, and other shipping documents on behalf of their corporate clients.
Chris Conn, the regional solutions manager of supply chain services in North America for Swift's banking industry division, called the service "a common utility in the cooperative space so that banks can compete in trade services."
The service, which is scheduled to begin full-scale operation in the first half of next year, "automates a certain part of what would otherwise be done manually in a bank's back office," Mr. Conn said. "Banks could have spent their own money to build these matching systems in their back offices," but four years ago they decided to do it through Swift, because "a match is a match is a match."
JPMorgan Chase & Co. is following a different approach to collaborating. In June it released an internally developed transaction processing system, the Advanced Message Queuing Protocol, to the market under an open-source license.
John O'Hara, a vice president and distinguished engineer in JPMorgan Chase's investment bank in London, said that the initiative could be exactly the kind of test case that the financial services industry has been looking for.
Sharing open-source computer code might pose less operational risk to competitors than sharing the processing, he said. "The fact that a bank is involved will be an interesting oar in the water for the industry as a whole."
Still, some observers said they are skeptical that an open-source approach will get off the ground in the financial services industry.
Peter Redshaw, a research director at the Stamford, Conn., research and consulting firm Gartner Inc., said that Deutsche Bank is involved in a couple of major global securities trading initiatives; in one case, it is one of nine big banking companies pooling their trading data, and in the other, it is one of seven forming an exchange to reduce transaction fees.
"That's a much bigger game than collaborating over a little bit of software," Mr. Redshaw said.
