Academic journal article ABA Banking Journal

Shift from Proprietary to Open Gains Speed

Academic journal article ABA Banking Journal

Shift from Proprietary to Open Gains Speed

Article excerpt

In March, Microsoft, the banking industry's once-dreaded usurper, became an instant ally by committing itself to open (nonproprietary, industry-standard) systems and free choice of financial partners. Consumers will be able to use Microsoft's Money for online banking and managing their personal finances via Web browsers--Microsoft's, Netscape's, or anybody else's.

To appreciate the import of the new order, it will help to briefly review how we got to this turning point.

The aptly-named World Wide Web was first introduced in the late 1980s as a tool to help physicists weave webs connecting topics of interest in technical literature on the then-obscure Internet. The Web was commercialized in the early '90s, and took off in 1994 as the point-and-click tool for moving around the Internet (as the physicists did), and for interacting with programs at the Website (as in shopping at a cybermall).

Last year, banking technologists began to design financial applications combining these features. The idea is that a user sitting on any point on the Web is only one mouseclick away from any other point on the Web that she can identify by its uniform resource locator (URL). A URL might be the address of her bank or an allied service such as a stockbroker or mutual-fund manager. Thus the customer could, if authorized, switch from financial service to financial service, acquiring and selling assets at each stop--and all of the transactions could be tracked in a balance sheet maintained at the financial manager's site.

Overcoming the double handicap

Before this kind of Web switching, all the financial services offered and all users were linked in private (closed), proprietary networks. Meaning: every financial transaction had to go through that network's central switch, and pay a switchkeeper's fee. It also meant the network manager got to decide which service providers could participate. For example, the manager could decide that participating financial institutions had to use Company A, not B, as its online billpaying-service provider.

From a banker's point of view, this arrangement imposed a double handicap; banks couldn't collect the fees for transactions with their own customers, and they couldn't choose their own financial partners. Moreover, bankers worried that software companies--read Microsoft and Intuit (maker of the immensely popular Quicken financial-management package)--would win over their customer's loyalty by capturing the interface between them and their financial services. …

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