Banking On Linux

A combination of economic, strategic business and technological influences is changing the relationships among IT and its business users and among IT organizations and their suppliers. At the core of these changes are new IT architectures based on Internet standards and new business relationships between service users and providers that leverage these new architectures. The next generation of system architectures that financial services providers will use needs to accommodate three broad business and technology influences: the banking industry's heritage, the drivers for change at banks and technology developments. Where these three paths cross produces forces that will change how IT solutions and systems are developed, sourced, acquired and owned.

On the supplier side, the competitive struggle of hardware vendors for differentiation based on performance, operating system, or loyal following is interesting, but tenuous. Open source software is pushing the standards stack ever higher, making commodities out of much of what had been differentiated just a short while ago. Instead of a barrier, technology in this era is an affordable enabler and easily allows a much improved although common level of capability for all. The advantages of the most skilled industry participants are more easily and quickly transferred to others, shortening product life cycles and narrowing competitive differences.

Meanwhile, IT organizations face several conflicting challenges: containing costs, managing increasing complexity and dealing with rapidly changing demands. The CIO is responsible for two basic business objectives: reducing operating costs by making the business more efficient, and increasing the opportunities for growth by enabling improved business agility. The two are not mutually exclusive, but when budgets get tight, the costs of operating, maintaining, and adapting systems take priority, squeezing the budget available for new software initiatives. The drivers of integration, cost containment and business agility make the case for a service-oriented architecture that can be assembled and reassembled as business demands require.

So, what does Linux have to do with this set of developments, if anything? For starters, the demand for return on investment, leveragability and support for service-oriented architecture is right up the Linux alley. Large banks and non-bank financial institutions (think American Express, GE Capital and others) are very interested in achieving these attributes. In fact, some of the largest financial institutions in the world are now running their Internet infrastructure on Linux server farms running Apache. This example is but one of many that illustrate the commodity-like environment referred to above.

In 2004, we have begun to see a broader variety of implementations of critical business applications running on Linux. For example, the multichannel world (think branch platform/teller, call center, Internet, self-service kiosk) is now beginning to venture out of Linux labs and into the real world. We expect to see both large and medium-size banks rolling out and signing off on Linux-based implementations across hundreds of branches, ultimately reaching thousands of branches. These implementations can include both Linux-based servers and desktops.

Bankers that are curious about, or even contemplating, the role of Linux at their institution should step back and look at the strategic drivers for their business and IT. In some but certainly not all cases, Linux is a viable alternative environment to support these strategic drivers. The question, "Is Linux in banking a dream or reality?" -- it can be answered with, it is real. Bankers need to figure out if it applies to their institution's needs.

Banks expect to realize a basket of business benefits from Linux-based implementations, which are just as ambitious as the next platform alternative. Execution excellence will, no doubt, determine the successful ones. We expect that a number of institutions, on a global basis, will be using Linux in ways that make an important contribution to the bank's bottom line.

For those readers who wish that Linux was a dream -- watch out. Because the real story is about how a bank and its solution partner(s) figured out how to solve a problem for which Linux enabled the answer. For those readers who think, or know, that Linux is real -- focus on making the best decision possible and then concentrate on achieving execution excellence. If you achieve this excellence, the decision was a good one. We expect Linux will be running behind more than a few of these success stories in banking.