Banking IT standards could lead to greater servicing of rivals' customers, SAP banking industry head says

SAP global head of banking industry development Don Trotta said that greater standardisation could lead to banks processing basic activity in branches in the same way that banks' ATM machines process the requests of rivals' customers.

"Moving to a more standardised and industrialised approach in financial services would have deep implications from a cost, quality and choice point of view," Trotta said. Trotta is the current vice chairman of banking IT standards body the Banking Industry Architecture Network (BIAN).

Trotta also said that banks' IT systems would perform better and experience fewer outages and glitches if the financial services industry adopted the new open IT standards. He said that banking IT standards would help to simplify the process of upgrading and maintaining legacy systems.

This is a complex task because banks' existing software will often have been modified by them, which makes upgrading to new versions of it or to new systems difficult and can lead to system failure, Trotta said.

If banks were to stick to standardised software then updating or maintaining existing IT infrastructure should not lead to outages or glitches, he said.

"Any time something goes wrong as a customer you think 'somebody made a change'," Trotta said. "Upgrading from one system to another is always a nightmare." Computer glitches can occur because the underlying systems are "managed under a huge amount of complexity", he added.

BIAN is a standard-setting body with a membership of more than 40 banks and IT companies, including Deutsche Bank, ING, Microsoft and SAP. BIAN aims to reduce the costs banks and their IT suppliers face in integrating banks' IT systems. It also promotes a flexible "service oriented architecture" in the banking industry.

"Within each bank there is usually an IT architecture group that sets standards internally so we work with those groups to make those standards conform to the BIAN standards," Trotta said. "There has been a lot of time spent on how to protect the intellectual property (IP) of companies [involved in developing BIAN standards]. BIAN is a separate legal entity. All of the BIAN output is published and available to use for free. At SAP we don't see the standards as being our IP. We take the standards and implement them into our IP."

BIAN has identified hundreds of services that could be standardised within banks, he said.

"The benefit of belonging to BIAN is that you can influence the standards [in their development stage] and how they come out," Trotta said. "There are approximately 12 working groups who are crafting the standards and putting them to a rigorous review process."

Trotta, who was previously group chief information officer at Barclays and chief technology officer for Citibank North America, said it was mutually beneficial for IT suppliers and banks to work on banking IT standards to bring down the cost of systems integration. Banks have traditionally built their own internal standards around their systems architecture. However, when purchasing architecture from vendors they have often found that the underlying standards are not compatible, he said.

"Changing banks' software is not always difficult but the testing that is needed to make sure interconnected legacy systems don't break down [as a result of integrating the new software] is where the cost and complexity comes [for suppliers]," Trotta said.

This costs banks money and causes delays while banks try to integrate new software into existing systems, he added. "Standards can drive down costs and facilitate best practices for the whole industry," Trotta said.

BIAN's work on standards relates generally to "non-differentiating" services performed by banks, Trotta said. This refers to back-end operations that each bank needs to carry out, such as the way payments, deposits or loans are opened, processed and maintained.

BIAN does not work on systems designed to give banks a competitive advantage such as those behind 'big data' analytics which identify the best next product to sell to customers, he said.

Trotta said that BIAN's work on new banking IT standards will not undermine the security of banking systems because it takes place underneath the IT infrastructure layer at which security protocols apply. It is up to each bank to implement their own security, although there is already close collaboration between banks on issues such as fraud detection and cyber security whilst many banks also make use of the same security tools and software, he said.

Banking IT standards can also help drive innovative new services in the sector, such as in relation to mobile payments, he said.

"There is a real role in connecting banks with credit card companies so that a customer can do anything they would like to do and wherever they want to do it," Trotta said.

Facilitating instantaneous and on-the-spot banking and payments by "creating real-time ecosystems" will be important as this will be the benchmark that both banks and retailers will have to meet to satisfy consumer demand, he said.

Greater flexibility in the way software operates and the way it is being consumed, such as through the cloud, means that there will be lesser need for banks to modify software in future, Trotta said. Software is increasingly enabling banks to promote and sell new services to customers without changes to the underlying software being necessary, he said.

Trotta said that banks' boards are increasingly looking to improve the governance of IT systems purchasing.

These developments will help ease banks towards using more standardised IT architecture, with widespread adoption of standards possible within a decade, Trotta said.

"We are on a journey which will be multi-year but we are building momentum," Trotta said. "In the wake of the financial crisis there is a realisation that cost structures need to change. There is pressure to find ways to drive down the cost of IT services."

Change will be delivered in steps, with parts of banks' systems likely to be updated in line with BIAN standards as and when there is a business or regulatory need to upgrade, he said.

"The banks are not going to move [all their legacy IT systems] at once because it is too large a project to manage," Trotta said. "Things are moving a lot faster than they were. With the pressure the banks are under as well as the move to new consumption models around cloud [standardised IT systems] could be within the next five to 10 years," Trotta said.

Trotta conceded that as BIAN grows and IT banking standards become more relevant, the organisation would need to engage more with financial regulators on the work it is doing.

In the Netherlands, though, BIAN is hoping to gain regulatory approval for what it is doing after a Parliamentary committee in the country, the Dutch Banking Structure Committee, endorsed the development of banking IT standards as a way to help banks reduce costs and improve on the quality of IT services, he said.