Web Services: Changing How Firms connect

By Maria Trombly | Securities Industry News | June 17, 2002

In the never-ending search to do business better, faster and cheaper, Wall Street firms are seriously looking at adopting Web services communication standards-and some are already doing more than just looking. Web services promise to revolutionize how computers communicate with one another in the same way that the World Wide Web revolutionized how computers talk to people.

And just as the Web standard, HTML (Hyper Text Markup Language), has been adopted by corporations for both public and internal intranet display of information, Web services will have a role in allowing internal applications to work together more efficiently, as well as integrate with external applications. "There has been a huge shift in the industry," said J.P. Athey, VP of Nasdaq's network Web operations.

"I do believe that the Street will have to reckon with Web services within the next two years, absolutely." For some firms, the day of reckoning has come, with some Web services-based applications already in production and others in the pipeline. According to John McKinley, EVP and CTO at Merrill Lynch, Web services play a critical part in the automation of the client channel, as well as the repurposing of applications. "Web services are the biggest thing we're emphasizing architecturally this year," he said.

For example, he said, Merrill Lynch built a market quote tool that the company was able to use on its Web site, its mobile applications, its call-center applications and in internal applications as well. And while many Web services are written from scratch, they don't have to be. It is possible to make legacy applications look like Web services by putting a shell around them that translates the application's proprietary inputs and outputs into the universal language, XML, a standard way to exchange messages of all kinds. Once an application is turned into Web services, it can be combined with a browser interface for instant Web-enablement or integrated with other applications for quick and inexpensive straight-through processing or combined with other applications to make for easy-to-use tools for brokers and clients.

"Web services will be one of the most powerful enablers of the concept of reusable software," McKinley said.

Other brokerages also putting the Web services interface on back-office systems include Credit Suisse First Boston, Morgan Stanley Dean Witter and Goldman Sachs, according to Dushyant Shahrawat, a senior analyst at Needham, Mass.-based TowerGroup.

"This could change the way we think about the development of infrastructure. We are advising our institutional clients to definitely get on board," he said. However, Shahrawat added that "firms aren't really close to using the standards for integration with external parties. The security standards are expected to be out by the end of 2003. And Soap doesn't yet support reliability considerations. What happens if the interaction gets dropped? Is it guaranteed? Is it reliable? It's still an emerging technology."

John Knightly, senior director of financial services marketing at San Jose, Calif.-based BEA Systems, agrees that wide-scale external applications of Web services are still more hype than reality.

"The security standards just aren't there yet for B2B connectivity. But there's so much within the enterprise that can be done to streamline by using Web services as a standard interface. It's all about application composition-once you have access to these services in a standard way, you can then begin to deploy new products and services on the fly much faster than you could before. That's extremely powerful."

Some firms are already pushing the Web services envelope, forging ahead and letting the standards-setting bodies catch up with them. But vendors, such as Microsoft, BEA and IBM, as well as technology providers like Integral Development Corp., offer their own takes on security, though some users are concerned that this will create divergent approaches and interoperability problems. Microsoft, for one, argues that a completely monolithic approach might have its drawbacks.

"Different people at different institutions have different ideas about where security should be in the format," said Kenny McBride, Microsoft's global industry manager for financial markets. "We're working hard to make sure that our technology will be the strongest, most stringent in the environment, but each institution and user will have different ideas about what security should be. Meanwhile, there are already some implementations of Microsoft's .Net Web services out there, he said. For example, the Brazilian Mercantile and Future Exchange has developed a national straight-through-processing clearing system.

"It's live, though only trades of over $5 million go across it because it's in a testing phase and that keeps volumes down. As the system stabilizes and improves, they will lower the boundaries," McBride said. Charles Schwab & Co. is also using Web services in its institutional Advisor WebCenter, which serves thousands of independent financial advisers who, for the most part, are relatively small firms without the ability to offer Web-based portfolio management tools to their clients on their own. But together the firms represent about 30 percent of Schwab's assets under management.

To serve the needs of these firms and their customers, Charles Schwab pulls data from an adviser's portfolio management system and converts it into XML. That data is then passed onto the Web platform, where it can be funneled to a number of different applications. One of those applications generates e-mail alerts, for example. Another is a third-party attribution analysis program. Yet another is Yodlee, which brings in data from the retail customer's nonmanaged accounts-checking accounts, credit cards, even frequent-flier miles.

"We really believe that the potential for Web services is huge," said Jonathan Warmund, vice president of Schwab Institutional.

"We fully embrace the notion of Web services and their potential-and, believe me, it has a lot of potential as more and more companies start to see what WSDL, Soap and XML can do." There are four major platforms on which Web services can be developed-Microsoft's .Net, IBM's WebSphere, BEA's WebLogic, and Sun Microsystems' SunOne, which now comes standard as a part of Sun's new Solaris 9 operating system. Since all Web services look alike-or are supposed to look alike-from the outside, an institution can use any of these platforms to develop Web services.

"We embrace them all," Warmund said. "Some work is done using .Net tools, some will be using BEA, and we're also a very big WebSphere shop. So far, we haven't had any problems moving the data up to a platform and sharing it between the tools." Adopting Web services means that products can be developed much quicker. For example, take Charles Schwab's relationship with Yodlee, the Web's leading aggregator of third-party data.

"We literally put it in in a couple of weeks," Warmund said. "XML protocols made that possible. In the old way, we would create requirements for different applications and hand them off to a technology group that figures out a solution, which often means proprietary coding and a year's worth of development and testing." The speed of development of Web services has also brought the business and technology people closer together.

"This is a paradigm shift," he said. "Instead of handing off something to the technology group, there's a lot closer interplay and interaction that's taking place. That's certainly been my experience." Next, Warmund said, he plans to let financial advisers pick from a menu of financial tools that they will make available to their customers depending on how they do business. After that, Schwab will offer online storage of documents so that the advisers can share confidential information with other trusted parties, such as attorneys or accountants.

"We're also looking at how we can apply banking capabilities for those advisers who might find it of interest," Warmund said. Warmund added that he hasn't found any shortage of Web services-based applications from third parties.

"We haven't come across a single firm that wants to leverage the Web that isn't thinking XML, isn't thinking Soap," he said. "The reality is that every firm that wants to wring out efficiencies and use the Net has got to do this."

According to Harpal Sandhu, CEO at Mountain View, Calif.-based Integral Development Corp., there are two ways to handle Web services security. Where Web services provide nonsensitive information, such as the company name that a ticker symbol stands for, there doesn't need to be any security at all. For interactions that involve sensitive information and instructions passed between business partners, Sandhu said, the two parties can agree on a security standard, or use a virtual private network.

"United Financial of Japan has been using Web services to deploy very sophisticated B2B2C negotiation, execution and straight-through-processing of advanced derivative transactions," he said. It's a two-tier system where larger customers automate the process using Web services and smaller clients, who cannot afford or do not have the expertise to use Web services, do it the old-fashioned way-with human beings logging into a Web site and manually entering the transactions. Those parties who've decided to automate the process and go through the Web services choose between using a private data network, if one is in place, or a virtual private network that runs over the public Internet.

Integral customer Citibank is also using Web services both on the private and the corporate and institutional sides, Sandhu said. However, he could not go into the details of the security measures taken by these clients, except to say that there is no need to wait for standards development.

"For someone to say, the spec isn't there so we're not using Web services,' that's a little lazy," he said. "Any time there's something missing, you can fill in the gaps. Then, as the specs become more defined, you go in and redo the parts you did yourself."