Financial Institutions Web Services Spending Lags

TowerGroup study projects Web services will continue to grow, but the vision of the "networked financial services institution" will not be realized until the end of this decade, at the earliest.

The TowerGroup Inc. Tuesday reported that Web services have the potential to alter the business environment and competitive landscape with the financial services market, but that standardization and the development of new protocols remain a roadblock.

In a study titled "The Networked Financial Institution: Connections for a Successful Business Strategy," the group said financial services institutions spending on Web services is minor compared with overall technology spending. The Needham, Mass.-based TowerGroup estimates that by 2005 Web services will still represent only $8 billion of the $350 billion spent on IT by financial services institutions worldwide. Interest in, and spending on, Web services will continue to grow, but the TowerGroup projects that the vision of the "networked financial services institution" will not be realized until the end of this decade, at the earliest.

In addition, the report said widespread adoption of XML has helped drive the development of other Web services protocols that further extend its capabilities. The combination of standard telecom protocols, such as HTTP and IP, and these new Web services protocols will offer a technology "stack" that many institutions hope will level the playing field among technology vendors and drive better IT products at competitive prices, the report said.

Indeed, the report said, the lack of common platforms and protocols is a significant barrier to realizing the vision of the networked financial services institution. Web services adoption can be expected to drive momentum in the financial services industry as technology providers move toward true standardization.

Tuesdays report is the second in a series of new cross-sector TowerGroup Point of View Reports. The 50-plus-page report examines the current state of Internet-based networking standards and technologies.

"Its clear that considerable effort is still needed to build toward standards on which multiple vendors can agree," Jim Eckenrode, TowerGroups group director of Consumer Banking and lead author of the Point of View Report, said in a statement. "By independently developing extensions to existing standards like XML, application framework vendors end up creating closed architectures--the very phenomenon that Web services seek to prevent. Until common standards arrive, institutions will continue to rely on tried and true development and integration approaches."

In a classic example of the potential of fully developed Web services, Eckenrode said, a customer could use a banks Web portal to get information about mutual funds, mortgages, insurance, or any other banking or non-banking product--all in a single session. While the customer interacted with a simple interface, the network of institutions needed to fulfill the customers requests would be busy behind the scenes sending and receiving transactions based on Web services protocols.

The TowerGroup report said the group expects the typical deployment path for Web services to move from inside the financial services institutions to outside. System integration projects will lead the way, with Web services applied internally as a way to develop new functionality and integrate new and existing applications. Moreover, Web services will allow for easier and less costly development and maintenance of software applications, as well as giving a boost to application service providers. Ultimately, Web services will move outward as a means to connect institutions and their various partners.

Related stories:

  • W3C, OASIS Meet Over Web Security Standards
  • New Web Services Specs on Horizon