The demands and rules of the constantly developing digital economy are compelling all players to realign their strategies for survival and success. In line with market shifts and newer challenges, businesses are continuously adapting and reconfiguring their maze of IT assets, systems and entire business operations to meet changing customer demands of different markets, addressing faster time-to-market realities and leveraging competitive differentiators.
Organisations are looking to increase the flexibility of developing applications using standards to achieve interoperability. As an extension, they have to manage a set of infrastructure resources comprising processors, networks, storage and applications efficiently enough to capitalise on the advantages of new or reoriented business models and system management techniques.
Financial enterprises, already in the throes of massive and constant change, also have to handle the tremendous demands made on them by the information economy.
The need for agility
New business opportunities and multiple avenues wrought by the fast-paced adoption of the internet, tremendous enhancements in communication technologies, intersection of multimedia technologies and ubiquitous electronic transaction capabilities are reshaping the very nature and structure of financial institutions the world over.
Regulatory change (set off by a raft of requirements such as Basel II, Patriot Act, anti-money laundering and Sarbanes-Oxley), alignment of competitive market forces, commoditisation of basic services and a clutch of industry pressures are clearly driving new spending patterns and consolidation initiatives on the part of all the important players.
A highly competitive environment is compelling more and more companies in the banking, financial services and insurance (BFSI) arena to increase their non-core activities. Customers are demanding anytime, anywhere services delivered cost-effectively through a number of convenient channels.
These forces have necessitated an upgrading of legacy and custom-built core banking systems to ensure integration of data across the enterprise. The challenge to enterprises is clear – achieve the agility to adapt, and adapt fast, or perish.
SOA as the answer
SOA is a computing paradigm or a resources management approach that represents the concept of turning business functions into reusable services that any application can use, regardless of the technology, the location or the channel used. It promises to provide enterprises the agility they need to rise to the challenges facing them.
The financial services industry, among others, have been early adopters of SOA. As previously mentioned, many financial enterprises were bogged down with incompatible architectures and a rash of legacy applications. Now they are being driven to SOA by the need to cost-efficiently process high transaction volumes and leverage benefits from economies of scale. However, as they move to SOA, they face new challenges: the investment in exposing applications as web services, the leveraging of legacy applications within an SOA framework, the still-evolving technology and standards landscape for SOA, and the need to change business processes to derive the true benefits of SOA.
It is ultimately in the last area, the ability to develop truly end-to-end business processes around an underlying services infrastructure that the greatest business benefits of SOA lie. Today, business processes are siloed in multiple applications. It is difficult for business to even get a true end-to-end view of the business process, let alone optimise it or change it quickly to meet changing business needs.
SOA is the answer here – with application functionality exposed as services, business processes can be extracted from the applications in which they were trapped, and developed for end-to-end efficiency.
The impact on IT
In this context, the role of business managers and IT managers and the inter-linked objectives come to the fore. IT divisions within financial organisations have been grappling with distributed systems such as mainframes, servers, different databases, among a myriad of other applications and processes. The swirl of changes wracking financial industry business models, such as mergers, acquisitions, co-branding alliances, business restructuring and outsourcing is directly impacting the way IT is handled in financial institutions.
Now, they have a new task before them – to learn how to transform their IT assets to deliver SOA, thus providing reusable services that are available to business processes cutting across lines of business, across products and across departments.
While in the short term SOA is one more thing that hassled IT managers have to handle, SOA promises ultimately to make the their job easier in the medium to long term. This is because SOA delivers, if implemented correctly, the ability to evolve and adapt to a fast-changing business environment.
When implementing SOA, it is imperative to align technology and business strategies. SOA plays an important role in realising IT as a service for organisations looking for horizontal infrastructure integration strategies.
There are many scenarios and examples in the financial services industry wherein SOA and web services have to be designed in order to interact seamlessly with various applications, irrespective of the division, unit or department.
So whether it is a full-service financial institution offering low-cost internet banking through in-store kiosks in retail outlets, or a financial services organisation implementing a web-based, automatic dispute-resolution system in order to pare costs, or a large consumer credit card provider looking to establish a collaborative infrastructure for providing reusable services to various lines of business and users; all have to adopt the flexibility and scalability of SOA and thereby move away from traditional silo or “boxed” designs towards more flexible, component-based building blocks. In effect, financial services organisations that move towards SOA will have to revisit the traditional ways in which they developed, managed and implemented IT solutions.
New technologies are driving transaction friction and interface “points” out of the traditional financial value chain, resulting in more cost-effective opportunities for commerce outside the traditional confines of firms. The ability to offer financial transactions online has raised the personalisation sweepstakes in services and given rise to a new class of players such as online brokers, online banks, asset advisers and wealth managers who offer personalised services.
Monolithic and large enterprises therefore have to be nimble and innovative enough to hold onto their existing customers and become even more service-oriented. However, the business imperatives to reduce capital and operational expenses and respond rapidly to business demands would continue.
Today, SOA has become widely accepted in the extended IT community of financial organisations as an important strategy that addresses the complexities of enterprise application environments typical of the financial services domain. However, the restructuring of systems capabilities into services presents a much broader opportunity for restructuring of business responsibilities and processes around the service concept.
The SOA approach should allow financial institutions to use many different applications, programming platforms, and development technologies in line with changing business demands and industry shifts.
It should be about building an SOA successfully in a heterogeneous environment in which the strengths of many platforms (legacy or otherwise) can be realised. IT in financial organisations has to build services and make them available to any application developer so that they can quickly create applications on demand, regardless of the back-end systems and structures required to execute these services.
SOA promises many benefits to companies in the BFSI sphere, but a clear understanding of SOA is required if the gap between the reality and vision of SOA is to be realised. This calls for various “units” in a financial enterprise to share computing resources more efficiently to leverage the most out of SOA investments.
The cornerstone of any SOA approach is to enable enterprises to respond quickly and flexibly to market changes, thereby supporting innovation and business growth. Any SOA exercise should include a steadfast organisational commitment and involve close co-operation between business and IT.
As early adopters of SOA, the financial services industry is expected to be more agile and responsive to evolving business scenarios and market shifts in the years to come.
