Around the water cooler, in the IT department and now in the corner office, a lot is being said about the future of Extensible Markup Language (XML) - a standard vocabulary used to describe, capture, process and publish data on the Web. Unfortunately, even with a crystal ball it would be virtually impossible to predict the future role of XML in the financial-services industry. However, if current trends are any indication of the future, XML will continue to be a major driver of increased operational efficiency and profitability.
Wall Street & Technology and ILOG surveyed close to 200 information-technology executives, business executives and consultants in the financial services industry to learn more about the strategic importance of XML. The results reveal that today's leading financial services institutions consider XML to be absolutely "critical" to their overall business strategy (81%). The survey also reveals that XML adoption is growing at a staggering rate, with 78 percent already adopting XML or planning to implement an XML strategy during the year 2002.
In addition, survey participants believe that XML is important for integrating systems (38%), sharing data (33%), integrating channels (22%), fulfilling industry requirements / STP (19%), sharing applications (18%), and sharing business processes/rules (17%). Unlike other standards, XML enables the integration of systems and the exchange of data across multiple applications. XML will also allow other technologies to be implemented moving forward, such as Web Services. This article will explore XML trends and the most important applications in the financial services industry revealed by the survey.
Technology is increasingly recognized as a vital and strategic component to the continued success and profitability of a financial-service organization. Gone are the days when CEOs looked the other way when it came to technology issues. Today's executives understand that technology is about creating a competitive edge and affecting the bottom line. XML is being widely adopted in the financial-services industry for precisely these reasons - in addition to improving internal and external efficiencies. In fact, financial institutions are spending more on technology today than they ever have in the past.
Aside from XML adoption, the survey also revealed a growing industry wide trend that the IT department is not alone in making decisions around XML. In fact, 80 percent of those surveyed said that XML adoption is seen as a major business initiative that is being driven by senior management. Today, it cannot be ignored that vocabularies like XML are critical for reaching greater efficiencies and exchanging 'intelligent' data by supporting business rules.
XML AS AN INTEGRATION PLATFORM
According to the survey, the primary reason that companies are adopting XML is to support their systems-integration strategies. Financial institutions are finding that in order to offer specific services to customers, business partners and suppliers on the Web - such as verifying credit, placing orders or performing a trade - they need access to multiple systems in real time. XML provides the best solution for economically integrating these existing systems and enabling integrated business services to be delivered via the Web.
For example, as financial institutions begin to use customer relationship management tools (CRM) to manage customer data and services, they will need to tie together data and capabilities from multiple systems. These enormous data consolidation and systems integration requirements can only be fulfilled with a common XML standard. This is especially true in the financial-services industry, because of the high volume of data and the large number of systems involved.
XML allows the CRM systems to be readily integrated with other systems. Once the systems are integrated, CRM users can access data and make requests from multiple systems in real time.
Industry initiatives around straight-through processing (STP) driven by T+1 are making XML more attractive, since STP will reduce processing costs and improve operational efficiency by eliminating redundant manual processes. STP, also known as real-time processing, is the ability to exchange trading information across disparate applications, from front to back office as well as with various industry players, such as exchanges, depositories and clearing houses involved in the trading cycle. Nineteen percent of financial institutions surveyed recognize the importance of XML to fulfill these industry requirements. It would be impossible to move towards STP without a widespread common standard such as XML.
BUSINESS RULES RULE
XML is not only beneficial for the exchange of data, but also for the establishment and sharing of "intelligent data" or business rules. Business rules are the statements that describe, constrain and control the structure, operations and strategy of businesses. They can be found in corporate charters, marketing strategies, pricing policies, product and service offerings, in customer relationship management practices and in the legal documents that regulate businesses and industries.
Business rules represent the knowledge that a company has about its business - precious knowledge that must be implemented in computer systems, applied to products and services and made available to customers and business partners via the Internet and other channels. Business rules technology is key to the implementation of STP strategies, as well as ensuring the application of best practices.
Sharing of business processes or rules in the form of XML data presents another opportunity to not just share the "facts" (i.e. customer data, order date, invoice data) but to drive the exchange of back office or messaging data in pre-trade, trade and post-trade activities.
While no one has a foolproof crystal ball, this survey clearly indicates that XML is on the path to becoming the adopted standard in the financial services industry. XML will continue to evolve and become the driver in systems integration, STP, application sharing, and in the future Web services. All of this, in turn, explains why today's business executive (and not just IT) view XML as a significant business initiative.
About the Author
Maneeza Malik, director, Financial Services Markets, ILOG
With several years of experiences working with Fortune 500 companies in the financial and IT industries, Ms. Malik provides market intelligence and strategic guidance to ILOG's Industry Solutions Division.
WS&T is looking for commentary pieces for its online resource centers and print magazine. If you are an executive-level employee at a financial institution, feel free to submit a 200-word description of the topic you wish to cover to Managing Editor Anthony Guerra at [email protected]. A typical "Industry Commentary" piece might begin by describing an IT problem financial executives are facing and some possible ways to solve it, or merely an executive musing about the pros and cons of a new industry trend or proposal.