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Friday, September 19, 2008

Sibos 2008 - the event processing angle

Posted by Giles Nelson

I am writing this at the end of the Sibos financial services show in Vienna. Sibos is the biggest global banking event of the calendar with pretty much everyone involved in the core banking area present including commercial banks, central banks, regulators, vendors and consultancies. It couldn’t, of course, have take place at a more interesting time. The extraordinary events we have witnessed this week in financial markets permeated every panel session, presentation and informal discussion held.

Event processing is big in financial services but, so far, it has generally only penetrated the front-office and middle-office risk management functions for use cases related to trading. There are good reasons for this: in general terms the front-office uses technology to directly enable more money to be made. Core banking on the other hand is about doing what banks were set up to do – to take deposits, to give credit and to be an arbiter of financial transactions. The reasons for technology investment are quite different and are driven by increasing operational efficiency, lowering costs and improving customer service. It’s more conservative and as yet event processing has not penetrated this area to any significant extent.

There’s no lack of use cases, I believe. Here are a couple of examples around the processing of payments. Earlier this year the UK launched its Faster Payments Initiative. Finally in the UK (the Netherlands, for example, have had this for 10 years) you can now pay a counterparty who banks with another UK bank in real-time, rather than waiting 3 days for the payment to clear (it’s remarkable it’s taken so long to fix such a, frankly rubbish, state of affairs and indeed it took the regulator itself to force change). As an end-user of this I am delighted with the results. I can now make an electronic payment using Web-based banking and it all happens immediately – the transaction occurs in the way one feels in the modern Internet era that it should. However this does raise a problem: how does a bank do its anti-money laundering checks, its comparison with counterparty blacklists and all the other fraud checks in the 12 seconds it has for the payment to go through? The answer is – currently with enormous difficulties.  Event processing is surely part of the answer.

Here’s another example. Currently the European payments industry is going through a lot of regulatory change to bring about lower prices and more competition for cross-border Euro payments (PSD and SEPA are the relevant acronyms if you’re interested). This will force technology investment because consolidation will mean a smaller number of banks will have to process more payments at lower cost. Furthermore competition will increase and, for example, a business in France will be able to use a bank in Germany to deal with its payments. Now, I reckon that having insight into what is going on with my payment systems, being able to identify processing exceptions, being able to identify when my customer SLAs are being exceeded and so on in real-time will be a crucial part of ensuring a world-class operation. Payment systems will continue to use many different types of technology, from mainframe to modern SOA environments,  so you need something to logically sit above this, extracting relevant real-time information and analysing and correlating it appropriately. There are offerings from conventional BAM vendors that address some of this now but I think they won't be performant or flexible enough to deal with future needs. Some customer engagements support this.

All of this is really about risk management and it seems inevitable that this area is going to be a booming area of investment in the next few years. Knowing what is going on in your business transactions, as they occur, will become more and more important. For example, in electronic trading it is becoming vital to not only regulators and trading venues (such as our customer Turquoise who we announced went live with Apama this week) but also to brokers. They want to know what their customers and they themselves are up to.

I think Richard Oliver, Executive Vice President at the Federal Reserve summed it up well. When asked about the future role of technology in core banking and payment systems he responded that the “immediacy of information is going to be vital” and that it was going to be all about “getting value from the information flows”. I think that provides a pretty good fit for event processing.

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