Every night, Barclays bank processes between 28m and 30m transactions for its 16m customers. Barclays is a typical larger European bank in terms of its size and services; most of its peers face similar workloads.
Banks and finance houses were among the first companies to adopt enterprise-wide computer systems, and many still use technologies that made their debut in the 1970s.
Financial services companies have to keep these systems running, but they also have to bring out new applications in areas such as online banking or share dealing. Given the current economic realities of the sector, they need to do this at a time when IT budgets are falling.
Web services should offer a lifeline to hard-pressed financial IT managers. The technology lends itself to linking legacy systems, and its open and extensible nature means that work done now should also support future technologies. And the costs, if the vendors are to be believed, will be lower than conventional systems development.
Rather than throw away legacy hardware or software, web services allows banks to provide new links - or adapters - between systems and open up those systems to intranets or to external users, including suppliers and customers. As much of web services development is component-based, tools written once can be used time and time again.
With a typical bank running anything between 30 and 40 IT projects at a time, this is a significant advantage both in cost and time to market.
There are certainly plenty of voices in the IT industry saying that web services represent the future for banking and finance. "Banks that decide to ignore this technology risk losing out, in the long run, to more adaptive and flexible rivals," warns PA Consulting, the London-based consultancy and IT adviser.
The core IT suppliers to the financial sector, including Microsoft, Sun and Oracle, for once all seem to be singing from the same hymn sheet. There is certainly no shortage of material spelling out what web services could do for the banks.
Yet practical examples are harder to find. According to Daniele Bonfanti, senior research analyst for financial services at IDC, there are still too few reference sites to persuade IT managers in the sector to make the switch away from proprietary development and tried and tested middleware.
"No-one can demonstrate that the cost of implementation using web services is cheaper than traditional software," he cautions.
"In theory, it's true because it uses common standards and you don't need a specific solution for a specific IT environment. But vendors have to demonstrate to banks that this is the way they have to go."
Mr Bonfanti points out that banks are in a difficult position, with falling budgets but growing IT demands. IT directors in the financial sector are naturally cautious about spending their budgets on an unproven technology. Arguments among the IT vendors about which flavour of web services will dominate the market do little to help.
The real barrier, though, has less to do with the industry debates between Microsoft and its rivals than with the way the banks themselves are organised. The banks do understand the potential for web services; many are actively testing systems. But merely bolting web services on to existing systems is not an ideal solution. In fact, it could even be counter-productive.
"Banks have been developing IT infrastructure for 40 years or more. These legacy systems mean they have difficulty innovating in IT," says Adrian Harkin, banking director at PwC Consulting.
But web services provides a way to integrate legacy systems with new products and services, without the expense of porting old databases to a new platform, or of proprietary middleware.
A few years ago Barclays started to move its business to a new single platform based on web standards. The system serves the whole Barclays group, across all channels. Kevin Lloyd, chief information officer, says this is the only way a bank of Barclays' size can adapt to new markets and new technologies.
"To deliver a consistent offering across channels you have to slice the business horizontally," he says. "In the past, we built systems specifically for a channel, for example for branches or credit cards."
Barclays is using XML (extensible mark-up language) and Soap (simple object access protocol) to open up its systems. If a new channel comes along, all the bank needs to do is write the adapters for that channel and test them. There is a bank-wide policy of publishing and reusing XML components.
Mr Lloyd believes the bank is seeing quicker processing, fewer errors and lower costs. "We can't predict the next channel or device, but we don't worry about that any more," he says.
The need for financial services companies to develop new electronic channels to market is pressing.
A route to 'micro outsourcing'
Retail banks, investment houses and insurers all face price competition, and in some markets, price regulation. Mark Hipperson, an internet banking expert at COR Banking, estimates that online transactions could cost as little as a twentieth of the cost of a branch transaction.
One reason is that web services allows "micro outsourcing". A bank can, for example, bring in an application as small as a credit check or even checking the date and time from an outside provider, removing the need to develop and test in house.
But banks can also use web to develop entirely new products, taking advantage of the vast amount of customer information they hold. According to Mr Harkin at PwC Consulting, legal and accountancy services are high on banks' agendas. Web services is a quick way to build this functionality under the bank's brand or within its portal, without the need to bring the expertise in house.
Another example is online share dealing. PA Consulting is already using Microsoft's .Net to build a share dealing service for a client. "All the broker needs to do is put in a web services layer to offer its service to a bank.
"Without much investment they have a new business, the broker has leveraged off its infrastructure and the bank has low cost entry to the market," says Brian Browne, of PA's global systems integration group.
"We have done this before, but in the world of .Net and web services a lot of the problems of building one-off solutions go away. Everyone talks the same language."
