The latest buzz term in tech circles is Web services, which - objectively speaking - is basically a type of middleware that lets disparate computing systems talk to one another over the Internet, both within a company and between companies.
Depending whom you talk to, the 18-month-old Web services effort is either the best revolution in recent years, or fraught with security risks, a lack of standards, and other problems.
The concept is so new that many top technology executives at financial services firms would be hard-pressed to define it. Even the Web Services Interoperability Organization, a standards-setting group formed in February by about 100 technology vendors, does not offer much of a working definition on its Web site, which says that its goal is to "promote the development of interoperable Web services."
Web services essentially tries to create a common language, like Esperanto, for all generations of computing systems - including legacy systems - so that they can communicate, despite clashing code, languages, and levels of sophistication. While critics say that not all systems are equipped for it, enthusiasts say they are already seeing results from their Web services implementation.
For example, there is no ambivalence about Web services at Merrill Lynch & Co., where the chief technology officer, John A. McKinley Jr., calls himself a "passionate lunatic" on the subject. Merrill is already is using Web services in almost all of its business units, and this puts it ahead of many other financial services companies, he said.
"We have pursued the Holy Grail of reusable software for 20 years, with mixed success," Mr. McKinley said in a recent interview. "Web services is the first pragmatic approach to reusable software assets."
With Web services, programmers with no experience in mainframe coding, for example, can use tools they are familiar with to access a mainframe. "We're breathing new life into legacy systems," he said.
At a Web services "boot camp" Merrill held last month for its top 200 information technology professionals, Mr. McKinley, who is also an executive vice president, laid down a policy designed to ensure that virtually every application the company develops will adhere to Web services standards.
Any department that chooses not to embrace Web services technology must defend that decision, he told the troops.
Merrill Lynch said that it is using multiple vendors in its Web services effort. Some that spoke at the "boot camp" were Microsoft Corp., International Business Machines Co., and BEA Systems Inc.
Web services is based on the extensible markup language, or XML, which hundreds of banks and other companies use to identify the content of electronic documents.
Recently, three standards - known as SOAP, WSDL, and UDDI - have been created to enhance XML and have facilitated the development of Web services. The three standards describe, much like a phone book does, where XML applications can go to find particular functions and, much like an instruction manual does, how to work with those functions.
Promoters of Web services say that the result is increased interoperability among applications, which is great for companies with big system integration issues. Basically, any two applications wrapped up in a Web services layer can pass information back and forth freely.
Merrill Lynch started working with XML technology in 1998, Mr. McKinley said. "The nice thing is that now there is enough critical impact of standards that we are seeing real impact."
The company is now generating productivity gains two to three times larger than normal, he said. For example, it recently spent $30,000 to use Web services to update a system in its institutional business; using traditional interface technologies, the project would have cost about $800,000, Mr. McKinley said.
"We've gone from a period of 'Why Web services?' to 'Why not?' " he said.
On the flip side, some argue that Web services technology is not "there yet." There is general confusion over XML, the immaturity of current Web services protocols, and the inflexibility of legacy systems. There are also security concerns, as well as tight IT budgets.
"Security is a key, key problem area and concern," said Jim Salters, the director of technology initiatives and project development at the Financial Services Technology Consortium, an industry group that evaluates emerging technologies.
This month the group began testing Web services in corporate cash management. Mr. Salters said that security issues explain why virtually all Web services applications so far have been implemented internally.
Another problem is the turf battles among computer vendors seeking market share - under the guise of a commitment to open standards. Vendors may be impeding the technology's progress by seeking to keep their own stamps on Web services. Microsoft, for example, has .NET, Sun Microsystems Inc. has Sun One, and IBM has WebSphere.
"It will play itself out, but there are a lot of unknowns," Mr. Salters said.
Ted Schadler, an analyst at Forrester Research Inc. of Cambridge, Mass., who published a report about Web services in May, concluded that it could have a big impact on how institutions collaborate with one another. For example, instead of the manual information handoffs that occur today in the mortgage industry, originators could easily link up with other organizations to get credit scores or flood certifications electronically, he wrote.
"Web services is a bad name for a very good idea," Mr. Schadler wrote.
Analysts also talk about the "enormous potential" for Web services to "revolutionize information technology." In this case, they are talking about allowing individuals and companies to hook up with organizations other than clients or the service providers with which they have established relationships.
For example, retail banking customers could get information about another bank's mutual funds or insurance products - or access other companies' portfolio analysis tools - through their bank's site.
However, such industry-altering implementations seem far off.
Jerry Silva, a senior analyst at Tower Group, said that current Web services standards cannot support transactions that take a long time to complete, such as mortgage originations or credit card transactions, nor do they address transaction integrity issues, such as auditing and nonrepudiation.
Vendors are further complicating the situation by approaching these requirements differently and creating interoperability issues, he said.
Mr. McKinley is upbeat about the problems at hand, and says he is confident that the competing vendors will come to terms with one another. He even gave credit to Microsoft, which is known for strong-arming adherence to its version of open standards, for its intellectual contributions to Web services.
But both Mr. McKinley and Mr. Salters pointed to the vendors' participation in the Web Services Interoperability Organization, which calls itself WS-I for short, as evidence that differences are likely to be resolved.
