SOA cannot address every IT problem and is not necessarily the way forward for all banks but there are some powerful motivations for banks to adopt it, not least of which is the ability to develop a seamless experience for customers. Wendy Atkins reports.

It seems that every couple of years a new buzzword hits the industry. Today, CIOs in the banking, telecoms and government sectors are being inundated with information about service-oriented architecture (SOA). For bankers, it is an interesting concept that could significantly improve customer management but there are still challenges ahead.

SOA provides patterns for the design, development, deployment and management of a loosely coupled business application infrastructure. “SOA is essentially a group of services that work together to create transactional environments in which each transaction consists of one or more of those services acting in unison,” says Andrew Price, director product management at ACI Worldwide. “In a SOA environment, each service must be self-defining. In other words, a user of the service must programmatically learn all of the details that are required to access that service. This has the advantage of enabling faster, cheaper application integration that makes the creation of enterprise-wide reusable services possible.”

Reaching a definition

To many people, SOA means using internet protocol (IP) processes and technologies to provide application data and functionality over the internet, extranet or intranet. “But, although web services are very much the favoured way of implementing SOA, they’re not SOA,” says Ian Smith, senior business consultant at global IT consultancy and outsourcer CGI. “For example, you could build a SOA solution using old-fashioned programming languages but you would probably still need some service-enabling technologies such as XML to finish the job.”

Different market sectors use SOA slightly differently. “As the use of SOA is still emerging – and is still being defined and pinned down – it could be driven by the way particular sectors traditionally tackle things,” says Mr Smith. “The telecoms, government and banking sectors all operate differently, so what we see for banking may be a relevant way of using multi-channel services. Taking this approach, you replace the point-to-point connections for getting business information with a loosely coupled federation of services. These typically encapsulate account or product-centric data and logic.

“In the banking sector, SOA enables a joined-up organisation to be achieved. For example, you can start making an application over the internet and then go into the branch to complete the application process without having to repeat information. This enables banks to take advantage of what’s happening in one channel to give the customer a seamless experience by using common services.”

SOA is far more than a technological concept, though. Some analysts call it a philosophy, others a business process. Sandy Carter, vice-president of SOA and WebSphere at IBM, says: “By creating these services, you are able to define in business terms, not IT terms, the underlying architecture that allows business flexibility. In this way, SOA is the blueprint or DNA that drives business integration. It provides a framework for systems and enterprise integration that allows information systems to be more flexible in adapting to dynamic business requirements.”

Banks catch the wave

SOA has often been regarded as a concept that is being pushed onto banks by aggressive technology companies. “There seems to be a lot of annoyance out there that some organisations are reinventing themselves as SOA experts,” says Mr Smith. “Typically, these organisations come from a background in middleware and object orientation, and some have development environments that need new life breathed into them. Having said that, there is an increasing pull of SOA from banks and financial organisations. For example, when CGI had a meeting with the director of a top 50 FTSE financial services company, the first comment he made was ‘I’d like to talk about SOA’.”

Banks are beginning to consider SOA because, if implemented, it can deliver a whole host of benefits. It can provide a valuable tool to grow customer relationships and it can protect against fraud, strengthen compliance programmes, overcome the limitations of legacy systems, eliminate the operational silos separating business units and address the problem of inconsistent business processes. However, Mr Smith points out: “You may need to look at the benefits that accrue across business units because no one unit may get enough business benefit to make a SOA approach worthwhile.”

Multi-purpose tool

SOA enables banks to utilise existing infrastructure. “In the vast majority of cases, particularly on HP NonStop systems, legacy applications do not interact easily with other applications because their interfaces are closed and proprietary,” says Mr Price. “However, with web services and SOA, the effort spent enhancing legacy applications to support complex business rules is not lost.”

SOA enables banks, which are facing pressure to improve profits on existing investments, to open up services to provide a better customer experience by offering flexibility and a faster response. These abilities are essential in a business environment where industry consolidation and outsourcing have combined with greater competition in recent years. Acquisitions and mergers mean that business processes are increasingly fragmented across a bank, making it difficult to adapt processes and be responsive.

“Companies can take advantage of [mergers] by looking at the best practices of the companies they have acquired. Who does customer loyalty best? Who is best at motivating customers to use credit cards? They are looking across their enterprise and identifying the best practices, and then using SOA and the integration underlying these processes to introduce them across the business,” says Mr Carter.

The whole picture

By integrating multiple banking channels, banks can get a total view of their relationship with each customer, enabling them to improve their service. This means that customers can be better managed and can have a seamless experience of their interactions regardless of whether they communicate with the bank through the branch, call centre, internet or ATM.

In turn, this helps banks to retain and expand relationships with their existing customers.

“SOA can improve customer management when it is applied intelligently and driven from a business view. The customer experience can be much better when dealing with the bank and information can be provided in a far more integrated fashion,” says Mr Smith. “In the longer term, with improvements in standardisation, banks can focus on making the services they provide more flexible. Here they can focus on presentation of their services and not spend so much time on back-office systems restitching information.”

SOA can also help cut costs. “Once an application is part of a SOA environment, it can easily be accessed by any other application without changing the application. This allows for substantial savings in terms of redevelopment and integration costs,” says Mr Price.

IBM says it helped Bank of America’s card services division identify $40m of cost-savings over two years. “The key was developing a component-based business model to identify opportunities and eliminate redundancies,” says Mr Carter.

The customer experience

However, while SOA can create, adapt and re-use services to significantly cut costs, some insiders believe its primary business benefit is improving the customer experience. “The technology is much better at enabling banks to provide value-added customer services than to cut customer costs,” says Mr Smith.

“People often ask whether SOA will cut costs. But it depends on what platform you are looking at. If you start with existing software that has to be wrapped and is only used in one business context, your short-term costs could be twice as much as if you hadn’t taken the SOA route and simply developed another one-off solution.

“In the longer term, once you get a reasonable level of re-use, you could cut costs by 30%.”

Detractors and challenges

In spite of the powerful motivations for banks to adopt SOA, analysts warn that bankers should not think of it as a silver bullet that can address all their IT problems. Although SOA can address some of the challenges of silo functionality, it also poses new questions. For example, who will take the first step to do something new? And how does the bank incentivise the business? How can business units that have been historically secretive regarding their data, objects and processes be persuaded to share their information? Banks talk of ‘tearing down their silos’ but unless these questions are addressed, they could end up creating numerous new silos in their IT infrastructure that require yet another layer of middleware to overcome.

There are challenges that come even earlier in the decision-making process. In spite of a certain amount of vendor hype, the technology is still considered immature, with a lack of standards and a scarcity of best practice models being cited as detractors to implementation.

Not for everyone

SOA also may not be the right way forward for every financial institution. “Most banks looking at SOA come from the B2C market,” says Mr Smith. “In the B2B and more specialist markets, banks may not get the same return. For example, in very specialised organisations carrying out high-performance activities, processing is very well understood but very complex or mission-critical. Because of the nature of their business, these banks may not be looking to open up what goes on in certain parts of their systems for the benefit of the whole organisation.”

SOA appears to be an attractive option for banking organisations operating in a mature B2C market. By providing a seamless view of the banking organisation that offers better ways of managing and communicating with customers, it could play a part in bringing the business and technology functions in banks closer together.

Inevitably, more standards and technologies will come along as SOA matures and this will have an impact on the way it is implemented. However, only time will tell whether the reality lives up to the hype.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter