Building a bank without walls

If you’re a Canadian, it’s a slogan as familiar to you as “It’s always fresh at Tim Hortons”. Oddly enough, though, it’s uttered by stern-faced Dutchman, Frederik de Groot, admonishing you to “Save your money!”

By now you’re probably well aware of ING Direct’s virtual banking model, but you might be surprised to learn that Canada was the place where the company pioneered its branchless banking initiative. And IT was a big reason for its successful launch.

Back in 1997, Netherlands-based ING Group selected Canada as the place it would test virtual banking. The business model was based on setting up communications-based service channels instead of physical branches to extract operational savings that could be enjoyed by customers – and to gain a sharp edge on traditional Big Five banks and their endless service fees.

Started up with only one savings product and a call center in Toronto, the concept was so successful that by 2000, the bank was expanding its product offerings. But Brenda Rideout, CIO at ING Direct, was concerned about future systems directions. “If we weren’t careful, we could wind up with a lot of silos for loans, mortgages and so on, much like other financial institutions.”

As a virgin bank without legacy system baggage, the company had a golden opportunity to avoid these traps. IT sat down with business to flesh out what a dream system with perfect processes would look like to accommodate business growth in different directions. What came out of these sessions was ING’s “one and done” guiding principle for system design that would allow its call center people to use just one interface to process any customer transaction. And the system would use the same processes for common transactions, such as address changes, regardless of product or channel.

“We didn’t call it SOA then but our foundation is SOA,” says Rideout. “That concept is exactly what we’ve done over the years, and it’s validated our vision.”

Creating a unified architecture
Technology has been more of a hurdle than the idea of SOA, says Rideout. “Some of the APIs and drivers we needed to integrate back-office systems weren’t available until recently,” she says. “That’s where the gaps between our original vision and systems lie.”

To create its unified architecture, ING Direct developed its proprietary middleware, called the Direct Gateway, in conjunction with IBM. This integrates processes conducted by its client presentation tier, called Web Talk – which is essentially a Web interface into the back-office system – and IBM’s WebSphere, which orchestrates all communications between the two.

The bank initially started building Web capabilities into its Direct Gateway, which was the easiest channel at the time as it had the least amount of functionality with the back-office system and no legacy baggage. Building on that base, ING then added inbound and outbound call centre transactions, and also scanning and imaging capabilities for paper transactions. The bank later added new products such as mortgages, GICs and loans, and new channels such as interactive voice response (IVR) as they became available. More recently, other components such as complaint tracking and a board of directors extranet have been added.

While the bank still doesn’t have a formal SOA project, Rideout says integration technology has caught up over the years, and the company is now involved in replacing its custom APIs, drivers and other components with generic, purchased SOA-type solutions.

“Another of our guiding principles is to keep things vanilla, as we don’t want to become an in-house development shop,” she adds. The company’s Web Talk presentation tier is also being upgraded to take full advantage of some of the new portal technology available today. “And WebSphere has a lot of the functionality we developed in-house, but it’s now part of the application.”

Teething pains
Identifying the future strategy of the business was Rideout’s biggest challenge in the early stages. The virtual bank concept was new, and customers weren’t comfortable using the Web to transfer money. As well, the company was considering whether or not it should offer checking accounts.

“But we exceeded our targets year after year by getting more growth than we anticipated, so scalability was a hurdle,” she says, pointing out that the customer base grew from about 150,000 in 1999 to 1.5 million today.

To tackle this, tools to do capacity management and testing were needed to establish the system’s response to such things as 1,000 concurrent customers using the “move money” process at the same time.

Rideout says they eventually found some good tools for this, but cutting through sales hype was a challenge. Many major vendors offer one-stop integration services, but she doesn’t believe any one vendor can do all things well. “The truth is, the key to success is finding out what the best tools are across the IT industry, and we did use a lot of different vendors.”

ING Direct’s IT policy is to solicit requests for proposals (RFPs) for technology purchases, and to do a proof of concept in all cases to ensure the tool lives up to the capability the vendors claim.

Project dynamics
The way the project was structured and managed was also a key ingredient to success. Executive support was strong, and people made time to define their requirements for the dream system’s development. Rideout was involved in the project from beginning to end, providing the team direction about future business strategies and developments, and ensuring these were taken into account in the system’s architecture. Being involved personally at the grass-roots level helped build passion and dedication in her team. “This wasn’t just a technology project, but our whole future,” she says, pointing out the attrition rate in the IT department has been less than 2 percent over the past five years.

On the business side, ten direct associates from the business units worked on the project and participated in focus groups on a regular basis. “They pretty well lived with IT during the process of developing the presentation tier,” says Rideout. These people acted as champions for the business and were deeply involved in prototyping new systems. “We had the luxury of being able to say, we will put this in place for only these 10 people and they’re going to use the system for all their calls,” she says. These associates worked with IT to resolve any issues that came up, and were later involved in user training.

IBM and some independent contractors also worked with internal staff. Although outsourcing projects in their entirety was the trend back in 2000, Rideout decided a more balanced approach would work better. The idea was to build one team and have all parties at the table throughout the process, and she tried to find the sweet spot between completely outsourcing or insourcing the project.

“The key thing we learned and continue to do is to ensure the project manager is an in-house person, as this helps bind the team together,” she says.

Going forward
As Canada was the test-bed for developing ING Direct’s virtual banking model, the systems architecture to support that was also shared and adopted when the concept was rolled out to nine other countries. “They all have a Direct Gateway with exactly the same architecture as Canada’s,” says Rideout.

At the international level, sharing between countries is fostered by the ING Group via an IT council. ING Direct CIOs from different regions speak with each other on a monthly basis, and meet in person two to three times a year. They set standards for their architectural frameworks, and share components developed within their business units. “For example, we gave our Web Talk code to France, and they translated it and put local regulatory things in place.”

The bank continues to build on its “one and done” foundation and fortify it with SOA components as new technology is added to enhance security and client service. The bank recently introduced two-factor security to combat phishing. Customers are authenticated by registering their PCs, and selecting a special image such as a car or a flower to log onto the online banking site.

In addition, the bank is planning to do a voice XML pilot project in 2007. “We’re looking into the possibility of directing clients more quickly to the types of transactions they’re look for, and not be forced to go down a tree of options,” says Rideout.

She believes the team delivered on the original vision of giving the business the ability to react and adapt to change rapidly with a responsive and integrated system. “I don’t know that we’ll ever be able to move as quickly as the business would like, but I think we put in a solid foundation that we can improve upon.”

QuickLink: 066594

Rosie Lombardi is a freelance writer specializing in information technology. She is based in Toronto.

Sidebar 1

SOA grows slowly in Canada

Unlike ING Direct, most financial organizations have a mass of silo legacy applications at the core of their systems. These are ripe for integration, but the number one issue in SOA uptake is the need to rewrite legacy code to be SOA-compliant, says Jamie Sharp, vice-president of customer segments research at Toronto-based IDC Canada.

By definition, a systems architecture is a set of design principles that is expected to defer future costs, he explains. “This is singularly the value proposition of SOA,” he says. But there is also an opportunity cost. Reworking existing applications may cost more, but future costs can be avoided because integration will be easier when new systems can be snapped on an SOA-compliant basis.

Financial organizations have been reluctant to tinker with their core legacy systems in the past. “But it’s rampant now,” says Sharp, pointing out the financial sector is the leading adopter of SOA. In Canada, about 48 per cent of financial organizations have completed their first SOA project, and 41 per cent say it is their preferred approach for new projects, according to a recent IDC Canada study. The main driver is the need to sell new products: legacy applications aren’t flexible enough to meet the time-to-market requirements of new product development, says Sharp.

But most of these are still one-off, tactical projects – there is not an enterprise-wide commitment to SOA for all systems development, says Sharp. “IT departments don’t have SOA skill sets yet and there aren’t enough case studies showing this is really proven, so it looks like a risky venture to financial organizations.”

Overall, about 40 per cent of Canadian companies across all sectors plan to invest in SOA over the next 12 to 24 months, compared with 78 per cent in the U.S. While there is typically a lag in technology uptake between Canada and the U.S., Sharp points out the larger size of many American firms means their integration problems are much bigger and more urgent.

The financial sector is in the lead, but uptake of SOA is a strong second in the public sector in Canada, says Sharp. The driver is the need to integrate back-end systems for electronic service delivery. “The need to aggregate disparate systems to get operational efficiencies means they have to rework their systems, much like core banking,” says Sharp. Uptake is otherwise anemic in sectors such as retail, telecommunications, and manufacturing, he says.

SOA is not the holy grail of integration, warns Sharp. “Integration is just slightly less challenging than it was two to three years ago.” Major vendors such as SAP, Oracle and Microsoft are rallying around the same standards for integrating systems. In the past, companies were constrained to write proprietary code to create interfaces. Instead, SOA creates an industry standard way of advertising what generic application programming interfaces (APIs) are available.

“So now I can find a print service on the network just by looking up ‘print service’, instead of ‘I need an HP-defined printer driver on this type of machine,’“ says Sharp. “SOA isn’t a revolution, it’s just the next step in standardizing the way systems talk to each other.”

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