InformationWeek

Financial Services: Sharing Data To Get An Edge

By Udayan Gupta
Issue date: Sept. 9, 1996

f you listen to all the media stories about Wall Street and technology, you may come away convinced that preparing systems for the year 2000 is subsuming all other technology projects in the financial community.

Nothing could be further from the truth. Sure, making the year 2000's two-zero datefields work is a nagging headache. But a bigger concern for Wall Street is how to keep pace with technology without tearing apart the whole organization. How does a company adopt the latest systems and software, train users, and still not miss a beat in its regular business?

The choice for many financial services companies is to expand the use of and access to technology within the organization, focusing on connectivity and improved productivity. "We aren't slowing down on the introduction of technology. We simply are stepping up our technology training," says Howard Sorgen, CIO at Merrill Lynch & Co. in New York.

Speed and data availability have been the key competitive elements for financial services companies. To gain an edge in these areas, companies have experimented with a wide array of technology. But such experimentation has taken place with little internal coordination, leaving large financial institutions with disparate and confusing systems.

Not surprisingly, financial services companies are consolidating their technolo gy, says Jim Ogorchock, business development manager for financial services at EMC Co., a Hopkinton, Mass., data storage provider. Consolidation has meant finding ways to disseminate data and information across the enterprise and making data easier to use, he explains. There is greater emphasis on data warehousing, for example, and on finding ways to make data more accessible.

ESI Securities Co., a New York broker that specializes in trading technology, is also looking for ways to make data more accessible to more people. "We have moved from being a linear information process to an integrated process," says Jeanne Murtaugh, ESI's vice chair. Instead of different people handling data at various points in the chain, one person can have access to all data at once, dramatically cutting the time it takes to act on the data.

At many financial institutions, the focus is on expanding choice and connectivity, says Murtaugh. ESI has found that there is big demand for its trading products and services because th ey give users greater flexibility and are compatible with other systems.

Not The Enemy
Connectivity also is being sought through the Internet, says Matt de Ganon, president of K2 Systems, a New York Internet access designer. "Financial services companies are recognizing that the Net isn't an enemy competing to provide services. It's an additional conduit," de Ganon says. He adds that a growing number of financial services companies are willing to use the Internet to provide data to investors.

The Internet is also seen as a transactional tool, one that allows data gathering and information dissemination at a more rapid and cost-efficient rate. Equifax Inc., for example, plans to make credit data available to its subscribers on the Net, providing easier access to the data at vastly reduced prices, says Dan McGlaughlin, president and chief technology officer of the Atlanta company. Equifax keeps credit information on nearly 200 million U.S. consumers.

Acceptance of the Internet as an inte gral business tool is only part of the change at financial services companies. Many of them are abandoning proprietary software and hardware for more generic solutions, especially if those solutions provide the choices and connectivity that companies need. Technology users are searching for a common platform that can provide ready solutions and is easily scalable, says Jonathan Wolf, VP of marketing and sales for Track Data, a New York provider of market data systems.

Increasingly, IT executives at financial services companies are looking at a Windows NT environment, Wolf says. Many of the companies that traditionally have had Unix environments--such as First Boston and J.P. Morgan--are looking for greater connectivity. They are implementing off-the-shelf solutions instead of insisting on proprietary systems, Wolf adds.

Nowhere is this desire for choice and connectivity more intense than at Merrill Lynch, the financial services company with the highest annual IT expenditure.

This month, Merrill Ly nch will launch Trusted Global Advisor, a technology platform for its financial consultants. The system consists of 25,000 IBM multimedia PCs using the Microsoft Windows NT operating system and linked by 1,200 servers.

Using the NT platform "allows us to buy our applications rather than build," says CIO Sorgen. Merrill Lynch still uses Unix for industrial-type applications such as data-intensive analytical computation, but NT will become the norm for retail applications, he adds.

By turning to off-the-shelf applications, Merrill Lynch hopes to cut the cost of technology consultants. In order to hasten the use of new technology, the company relied heavily on outside consultants. Indeed, almost 20% of the company's IT expenditures over the past five years went to pay for outside help, says Sorgen. Now Merrill Lynch is looking to widely available solutions and in-house training to sharply reduce its technology personnel cost.

Keeping Control
Not that the company wants to avoid everything proprietary. Merrill Lynch is following the lead of financial institutions such as Citibank in offering its retail customers an online service with a wide range of uses--from stock quotes and other financial information to direct orders to financial consultants.

But instead of making the online service available on popular online networks, Merrill Lynch plans to maintain control over its customers' data. "You really don't want to allow sensitive data to pass across the Net without the development of some real security safeguards," says Sorgen.

Just down the block from Merrill Lynch, American Express is taking a slightly different tack. It, too, is focusing on technology integration, but American Express wants to create a global platform that is both easy to use and scalable.

American Express already has invested heavily in its ExpressNet and is focusing on developing a World Wide Web site for its small- business customers. In late July, it announced a joint venture with Microsoft to develop a trav el service on the Internet ( IW , Aug. 5, p. 35).

Channel Change
CIO Allan Loren says American Express is focused on two main goals: reengineering the company and helping to deliver new products. "We're changing distribution channels," says Loren, emphasizing the use of the Internet in helping distribute new products and expand the transactional capabilities of the company.

Nearly half of IT expenditures at American Express is going toward reengineering and new product development, Loren estimates, and about 40% is being used to maintain its technology operations. The rest is being used to determine new directions for the company in a highly charged and competitive business environment.

For other financial services companies, the technology challenge has been to find expanded use for data and consequently develop a broader range of products, says Equifax president McGlaughlin. Investment in technology at Equifax is related to moving away from mass-marketed, commodity information t o more customized information solutions, he says.

The company also is attempting to create more real-time data. Its data gatherers use notebook computers to record and transmit data, and the company plans a major investment in parallel processors to handle the bigger volume of data it hopes to soon generate.

Three years ago, all of Equifax's data was stored in mainframes, available only to Equifax technical staff. Now, says McGlaughlin, with the mainframes replaced by servers and networked PCs, nearly two-thirds of the data is at customer terminals.

"We're much closer to the leading edge now," he says. "New technology has allowed us to free up our resources and devote more of them to developing applications rather than storing data."

Too often in the past, technology investment has meant large computers and proprietary software, resulting in systems that didn't allow enterprisewide use of technology. The front and back offices remained separate entities.

Now, with the expanded availability of application software--ranging from enterprise resource planning to object-oriented databases--it has been possible to gradually merge the front and back offices and give users more data and more tools with which to use data.

The result, industry executives say, isn't simply improved productivity but also sharply reduced costs to the entire enterprise.

To view the IW 500 Financial Services chart in PDF format click here

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