Microsoft DNA for Financial Services

DNA-FS in Practice
With a vertically enhanced Internet architecture
Microsoft is winning converts in financial services
Research by IDM Staff

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As consumers have become more financially sophisticated, and as technology has made more complex financial products available, the organized institutions of banking, securities and insurance with their tidy regulatory apparatus have begun to unravel. Money Markets, Mutual Funds, Universal Life Insurance, Derivatives and other diverse instruments owe their existence to many changing societal forces - not least the rise of computers.

In recognition of these changes Federal and state regulators have eased many legislative strictures, and there is increasing pressure for outright repeal of separation-of-power laws in favor of an open financial services marketplace.

This agenda is arguably good for consumers. But without a well coordinated, flexible Information Technology strategy it will be difficult to achieve. Just as many modern financial products owe their existence to computers, the ability to deliver a seamless, individually-tailored financial plan to a client will depend largely on effective use of IT.
The Importance of Standards

From the customer's perspective, one aspect of information collection is strikingly clear: the data required by banks, stockbrokers and insurers is largely the same. Name, address, phone, home value, type of car, net worth . . . every company designs systems that require this data. They may not use it the same way - a bank uses home value to calculate a loan amortization schedule, while insurers use it to calculate a premium - but it's the same data.
From the financial service provider's standpoint, an interesting aspect of this cross-industry data is that none of it contains any inherent competitive value. Rather, value comes from how the bank or broker or insurance company analyzes and uses it to provide differentiating services.
If this common data could be defined in a standard way several key benefits would result. First, repetitive data collection from customers could be greatly reduced by using technology at the customer's desktop. Second, if this data were defined as components, the task of building applications - on the desktop or the server - could potentially be simplified and accelerated.

To that end, Microsoft introduced in late 1997 a framework for financial services applications, Windows DNA for Financial Services (DNA-FS). Based on the Component Object Model (COM), DNA for Financial Services is a multi-tier architecture that separates business logic from the database and user interface layers, allowing a common set of business rules to be applied to and integrated with a variety of user interfaces - notably web browsers. It also allows access to legacy data, wherever it resides - mainframes, minicomputers, desktop PCs, RDBMS, documents - via ODBC, OLEDB, emerging cross-platform support for COM and other data access technologies.
The Relevance of Components

A lot of good work has been done to define data requirements in the financial services sector. Most of it takes the form of flat file Electronic Data Interchange (EDI) definitions intended to allow integration of disparate systems. However, the monolithic nature of these standards and the difficulty of implementing them in legacy environments has severely restricted their adoption.

DNA-FS works this problem by leveraging existing industry data standards, re-defining them as components. These components can be combined to build applications, from simple data collection to complex back office systems. By logically grouping data definitions and packaging them as ActiveX components, financial services companies and ISV's can build applications with plug-and-play integration.

Of course, this is not the first - or only - attempt to define object standards for the industry. But unlike other approaches, Windows DNA for Financial Services makes no attempt to define a high-level system architecture that the entire industry must embrace before interoperability can proceed. Companies using DNA-FS are free to leave existing data models and business processes unchanged - or to develop new ones - without restriction.

In plain terms, DNA-FS defines a public interface to private data held by stakeholders across the financial services industry.

The remainder of this article looks at proof of concept initiatives in three industries that make up the financial services sector: insurance, securities and banking.

ACORD in the Insurance Industry

Windows DNA for Financial Services expands on pioneering work in the insurance industry by Microsoft in conjunction with the Agency Company Organization for Research and Development (ACORD) a non-profit standards organization.
These efforts have produced two ActiveX/COM-based standards: OLifE and ACORD ObjX. Both have been successfully implemented in production environments by some of the largest insurance companies in the US.
ACORD's AL3 EDI record format - in development over the last 15 years - defines 80% of the data needed to produce personal lines insurance transactions. Building on this foundation, a complete set of business components (person, location, auto, value, coverage, etc.) and their possible roles has been defined that can be assembled to build any higher level insurance transaction.
For example, an auto policy has at least one person with the role of insured, an auto, a collection of coverages and limits, a location, etc. An auto claim would have all of these - plus another person in the role of claimant.
The advantages of this approach are difficult to overstate. There are literally thousands of software vendors and insurance company developers writing code to capture the exact same information. Users of these systems are entering the exact same data over and over. By implementing the ACORD ObjX and OLifE standards, insurance software applications can be built more rapidly and data entered into any system can be shared without re-keying.
As important as the architecture's ability to reuse standard components is its flexibility to accommodate data and business rules that truly differentiate one company from another. For instance, an insurance company might determine that drivers who belong to an auto club (such as the AAA) have a lower loss experience and are therefore more profitable. Since this is not part of the common data, company-unique components can be added to the underwriting application to collect and aggrandize this piece of data.

This ability to concentrate on adding value to the product and collecting information that allows tailoring of the product to each consumer's needs has to potential to reverse the trends toward commodity insurance products differentiated only by price.

Windows DNA Framework for Banking

Most information systems in use in banking today are based on mainframe architecture that is 30 years old. While this was very effective when first implemented, changes in the business of banking have made dependence on this architecture a liability. When the customer interface to the bank was through the teller, a single, monolithic system for all transactions made sense. For most banks however, the teller window has become the least effective consumer interface. (See Intranet Design's article "Interactive Banking and Customer Retention" for additional background.)

To stay competitive, banks have added multiple delivery channels, most never contemplated when mainframe-based core systems were first designed. In addition to traditional visits to a teller at a branch, customers demand has resulted in extensive use of call centers, ATM's, Home Banking, kiosks and the latest trend - Internet Banking. Modifying core systems to accommodate these new channels is difficult, so each new channel often results in a new system, separate from all others.
Microsoft's Framework for Retail Banking, announced at a retail banking conference in December 1997, aims to provide a standard environment for application integration and data exchange. Recognizing that such an agenda is doomed unless it can enlist the support of an army of independent software vendors (ISVs), Microsoft wasted no time promulgating its message.
In February, more than 150 financial services ISVs attended a two-day Windows DNA-FS technical briefing on the Microsoft campus. Notable at the event was a proof-of-concept demonstration by TransLink Software, a provider of mainframe-to-web integration services, of DNA FS-compliant banking software.
The demonstration showed how financial institutions could leverage and extend their existing mainframe account transactions through all delivery channels in real time, using a DNA-FS compliant software package. The TransLink TxAccess Server leverages Windows DNA FS by mapping any dynamic front-end such as web servers, Visual Basic applications, and Microsoft Office desktops to mainframe transactions and data in real time. TxAccess Server provides a unique Direct Transaction Mapping™ capability that enables drag-and-drop bi-directional mappings of client requests with host transactions, eliminating costly and complex middleware development projects.

"TxAccess Server can be thought of as a universal translator between legacy mainframe systems and client/server software packages produced by Independent Software Vendors - that's why Windows DNA FS is such a boon for us," said Mike O'Brien, TransLink's president. "If banks combine our software and an ISV package that leverages the Windows DNA FS framework, they will have a single computing environment" that enables them to meet interoperability challenges.
Also demonstrated at the February briefing was ADI's BankingNT suite of applications, also DNA-FS compliant. ADI and TransLink software will be used in conjunction by BBBank and Stadtsparkasse Köln, two leading German retail banks.
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