Service Oriented Architectures for the Financial Services Industry

In the past, many banks have run their businesses with rough estimates of their process and product costs, largely because there had never really been a need to apply certain measurements to their business applications. Numerous business silos developed over time and IT departments supplied point solutions for specific business problems, thinking vertically by silos rather than horizontally by services. This worked well in the “pre-Internet” era.

Nowadays, change is the constant element, the new paradigm, and “business flexibility” is the norm. The changing financial services landscape and banking business value chain requires an IT driven differentiation. IT needs to become the enabler to the retail or investment banking businesses of today’s banks.

Banks have begun to understand this and see the future of financial services moving towards the industrialization of financial products, looking much more like the manufacturing industry. They are also becoming aware that such a concept will require a much more flexible and loosely coupled IT infrastructure: getting there will not be easy but the industrialization of financial products will require new way of building IT architectures which will allow banks to support all of their internal processes in an integrated manner and also allow them to service their customers better, faster, and cheaper.

When looking at the overall financial services landscape, the value chain in the Global Financial Services Industry seems to developing in the following direction: sales banks, product banks and services banks. IT will therefore need to support the core competencies of a bank, as defined by its core profile and raison d’etre. SOA is well positioned to answer this calling.

In the past, banks would ask themselves whether IT was one of their core competencies and the answer to that question was never clear cut. Looking forward however, it is recognized by most large financial institutions that IT must become an underlying service which enables the business of banking to react faster to changing market demands.

Some are calling this the agile bank of the future where applications are developed once and leveraged many times across a high speed network, whether they be voice, video or data applications and where consumers subscribe to services and where the world looks rather flat than silo-ed as in the past. Today’s modern world CIO’s believe more and more that the idea of maintaining network management separately from the increasingly integrated management requirements of all of the other infrastructure elements supporting the actual business process is very quickly becoming obsolete.

In concluding, banks are faced with some fundamental challenges: Optimizing customer service and satisfaction with cross selling efficiencies, managing an ever increasing complexity of their banking businesses, while trying to reduce the costs of running the business, mitigating operational risk whilst business interactions will be forever scrutinized and need to be compliant with new regulations, and last but not least, embracing new technology trends as IT becomes more and more of a weapon for competitive differentiation.

2. Why should you care about SOA for your bank?
A key concept and philosophy of a Service Oriented Architecture (SOA) is that it is an architecture that views network services as the primary building blocks for the IT architecture of the future. This in itself is a good reason to care about SOA if you are a CIO of a major bank. The network touches everything and is in a position to redefine the old silo-ed ways in which applications were developed. SOA is an architectural style whose principles help to achieve loose coupling among interacting software agents. In SOA, a service is a unit of work done by a service provider to achieve desired end results for a service consumer. Both provider and consumer are roles played by software agents on behalf of their owners and independent of each other.
Actually, in today’s world, there are quite a few SOA examples already. Let's look at one example of SOA which is likely to be found right in your living room. Take a DVD for instance. If you want to play it, you put your DVD into a DVD player and the player plays it for you. The DVD player offers a DVD playing service. This is nice because you can replace one DVD player with another. You can play the same DVD on a portable player or on your expensive high definition TV system. They both offer the same DVD playing service, but the quality of service is slightly different.
The idea of SOA departs significantly from that of object oriented programming, which strongly suggests that you should bind together the data and the processing functions of that data. So, in object oriented programming style, every DVD would come with its own player and they are not supposed to be separated. This may sound odd when you apply such thinking to commodities such as DVD’s. It is however the very way by which the banking industry (and others) have built many software systems to date.
The results of a service usually represent a change of state for the consumer but it can also imply a change of state for the provider or for both. After listening to the music played by your DVD player, your mood has changed, say, from "depressed" to "happy". If you want an example that involves the change of states for both, dining out in a restaurant is a good one.

The reason that we want someone else to do the work for us is that they are not experts. Consuming a service is usually cheaper and more effective than doing the work ourselves. Most of us are smart enough to realize that we are not smart enough to be expert in everything. The same rule applies to building software systems. Some refer to it as "separation of concerns", and it is regarded as a principle of software engineering.
Let’s look at how SOA addresses this need for loose coupling among interacting software agents? It does so by employing some architectural constraints as well as design principles:
1. A small set of simple and ubiquitous interfaces to all participating software agents. Only generic semantics are encoded at the interfaces. The interfaces should be universally available for all providers and consumers.
2. Descriptive messages constrained by an extensible schema delivered through the interfaces (XML Schema). No, or only minimal, system behaviour is prescribed by messages. A schema limits the vocabulary and structure of messages. An extensible schema allows new versions of services to be introduced without breaking existing services (new and non intrusive XML applications).
The Banking business and IT context of SOA:
We can argue that the long term competitiveness of a bank resides in its ability to offer excellence in customer service and that its success requires continuous change and adaptation. A service oriented architecture caters to such dynamic changes by way of its concept: loosely coupled consumers and subscribers, where the web browser becomes the interface of choice for both bank customers, bank employees, bank suppliers and business partners. And this where the challenge will reside for banks: banks must think their business processes and services as “enterprise wide” or horizontally across the business. Gone are the days of the business silos.
The benefits of SOA are clearly apparent: SOA will allow data to perform in truly independent and useful ways, across different applications. SOA will allow a bank to structure its IT applications in line with its business processes and, as a result, the bank benefits from:
Speed and agility to face change:
In its core design strategy of packaging applications into business units of work, service orientation reflects and models the business processes. As the business changes, developers can be easily map business process changes to applications and then implement the appropriate IT changes triggered initially by new banking business requirements.

Flexible banking business processes “connections”:
With the banking business processes packaged as modular, accessible business services, you can connect them where and when they are needed in order to optimize the processes across the banking customers, partners, suppliers as well as the bank’s employees.
Control over the banking business processes:
SOA actively manages the service flows and messaging of information or messaging, and can provide dynamic access to the business related data, which can be used to optimize business results and process costs (example: the provision of multi-channel customer-facing business applications).

3. Cisco’s vision for the Intelligent Network (IIN) and the Service Oriented Network Architecture (SONA)

Cisco’s vision of the networked bank of the future is referred to as the Intelligent Information Network or IIN. It is within this vision and the concepts of IIN, and in order to offer banks and their customers a more agile banking infrastructure, that Cisco Systems has defined its Service Oriented Network Architecture or SONA.

In Cisco’s IIN and SONA philosophy, IP is the pervasive network protocol for integrated data, voice and video and it is the network touches all computing resources as well as provides shared transport and fabric infrastructure for all business application logic, sometimes referred to as IP convergence. It provides an extensive set of network integrated services supporting a wide range of applications and their associated requirements in security, accuracy, reliability, flexibility, responsiveness, and compliancy within enterprise wide SOA deployments.

Cisco’s SONA helps banks or securities firms migrate from application based architectures to transforming themselves towards service oriented organizations.

With SONA,

• The banking network architecture becomes “services ready” and helps offload utility application functions away from the application resources, referred to as integration services.
• The banking network and application resource functions are treated and managed as virtual resource pools which are loosely coupled and totally re-usable. This is referred to as virtualization services.
• The use and re-use of application functions such as configuration, provisioning and management, as well as network resource functions, are automated and controlled by centralized business policies (demand driven real-time response) requiring the needs of specific business processes. This is called automation services.

A new feature of Cisco’s SONA architecture is the Cisco AON (application oriented network) family which complements current Cisco packet and content-aware products by providing true application message-level awareness of business applications. Historically, enterprises couldn't see beyond the network firewall and were essentially blind to factors affecting their business beyond that point.

Bankers (both retail and investment banking) will be able to use the Cisco AON solution to monitor and report on the transport and delivery of all types of messages on the network such as the profile of an equity order, monitored for its compliance for example. With this new network level solution, a bank or securities firm will gain much more granular information about the profile of the packets of information been transported over the IP network, and will allow the users to take action at any time during the “life” of the message.

The benefits of SONA (fully in line with the principles of SOA architecture) can be summarized as follows:
• Lower operational costs for banks while at the same time increasing application rollout flexibility, leading to faster and more efficient delivery of new financial products to the bank’s customers.
• Providing location independent, distributed capabilities and centralized management of network functional instances.
• Offloading of application utility functions to the network infrastructure implying non intrusive and fully “compliant with SOA” integration services.
• Providing a service oriented network infrastructure providing loosely coupled re-usable network based functions.

4. Conclusion

The Bank’s real-time networks (retail and investment banking networks) are the first place to start a SOA migration journey.

• Ask yourself whether you bank’s network will cater for future increases in network traffic of greater than 500% over the next 5 years due to the fact that the triple play convergence of data, voice and video will provide greater flexibility to service customers?

• Ask yourself what levels of service you can offer if the network is not ready to support the new interactions that will come from your customer’s various types of front end devices?

The management of such volumes of network traffic will itself become a daunting challenge. But the challenge of the longer SONA journey will be to create business services that operate smoothly and horizontally across the business stovepipes of the bank or a securities firm while at the same time connecting to all of the heterogeneous legacy systems. SONA will offer a collection of computer based services that communicate with each other and these services will be self-contained and operate across a distributed computer architecture.

Let’s imagine the ultimate architecture and customer facing infrastructure of the future:

1) THE CUSTOMER:
The banking customer can use any network based web-enabled device he or she wants to in order to interact with you the bank. Data, voice or video communications from a 3G portable phone, a laptop with, for example a video soft-phone, a personal computer at home, from the bank’s branch or call centre, or just a plain old fix line telephone. Unified messaging and collaboration applications across these various devices will become a standard benefit for the customer.

2) THE CONVERGED and INTELLIGENT INFORMATION IP NETWORK:
Between the bank and the customer, a large broadband IP pipe or connection for data, voice and video, defined to “SOA specifications” and loaded with interactive network services such as security, identity management, mobility services, storage and collaboration services just to name a few.

3) THE COMPUTING INFRASTRUCTURE:
At the bank’s headquarters for example, a centralized, virtualized data centre, call centre and more and where the IT infrastructure is “SOA compliant” and allows the business to be flexible and quickly adapt to business changes and multi-channel cross selling: applications are “built once” and available to many different profile of devices, therefore making it much easier for bankers to reach their customers quickly with new products.

For the architecture of banks in the future, the goal will be to create secure, on demand, integrated web services and products available in real-time to a bank’s customers (whether through data, voice and video).

The new paradigm presented by a services oriented architecture can be summarized as follows: the benefits for the banks are “develop once and cross-sell to many, integrate across silos of business processes, mitigate risk, while increasing operational efficiencies” at all levels of the business process of the industrialization of the financial services products of the future.

The new paradigm presented by a services oriented architecture can be summarized as follows: the benefits for the banks are “develop once and cross-sell to many, integrate across silos of business processes, mitigate risk, while increasing operational efficiencies” at all levels of the business process of the industrialization of the financial services products of the future.