XML and Other Standards Net Financial Services Momentum

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1 Technology, M. Knox Research Note 27 October 2003 XML and Other Standards Net Financial Services Momentum Extensible Markup has become an accepted technology in the financial services industry. Much work remains, however, to facilitate standards at the industrycontent level. Core Topic Financial Services: Financial Services Architectures and Emerging Technologies Key Issue What architecture models and technologies will enable FSPs to adapt to major industry trends such as straight-through processing, the real-time enterprise, corporate performance measurement and risk management? Strategic Planning Assumptions Three-quarters of FSPs will use XML by 2006 (0.9 probability). Through 2005, multiple XML-based industry standards will continue to be used within individual financial services industry sectors (0.8 probability). Note 1 Gartner's 2003 FSP Architecture Survey Gartner's 2003 FSP Architecture survey was conducted in June and July There were 1,002 U.S. banks (deposits of $500 million or more) and asset managers ($1 billion or more under management) in the survey. Interviewers screened the respondents to determine those knowledgeable about the technology architecture, data management, data quality practices and XML use of their enterprises. Gartner research indicates that Extensible Markup (XML) increasingly is being adopted within the financial services industry. This is most often being driven by internal applications integration requirements. The need to distribute data internally and external connectivity are lesser drivers. Despite its acceptance, most financial services providers (FSPs) still lack a strategic approach to XML. This results in inconsistent XML use and is contributing to the continuing struggle of industry XMLbased content standards such as Association for Cooperative Operations Research and Development (ACORD) and Interactive Financial Exchange (IFX) to gain broader industry adoption. Approximately half of the banks and asset managers in the United States use XML in some capacity in their organizations (see Figure 1). Based on Gartner's 2Q/3Q03 2/3Q03 Architecture Survey of 102 United States Banks and Asset Managers (see Note 1), more than 65 percent of all respondents expect to be using XML by year-end Additional FSPs will acquire packaged applications and third-party services employing XML. As a result, three-quarters of FSPs will use XML by 2006 (0.9 probability). Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Figure 1 Use of XML by U.S. Banks/Asset Managers Plan to Use by YE05 23% Currently Use XML 44% Neither Use Nor Plan 33% Have Enterprise-Level XML Strategy 8% Source: Gartner Research (October 2003) Deploy on Case-by-Case Basis 92% According to the survey results, banks are more likely than asset managers to be using XML 49 percent of banks report they use it, compared to 39 percent of asset managers. However, they are equally likely to be planning its use. Regardless of sector, however, the great majority of both groups use XML on a case-by-case basis, instead of implementing an enterprisewide XML strategy. This results in inconsistent approaches to XML adoption across the enterprise, and complicates agreement on industry content standards and industry-standard versions. One example of inconsistent adoption is Open Financial Exchange (OFX) and IFX, which can be found in different parts of the same bank. This situation will continue unless and until: 1) FSPs govern XML standards use to ensure consistency and interoperability and 2) there is increased adoption of specific standards among FSP customers and partners. The most important use of XML is for internal application integration (see Figure 2). This is particularly true for banks. The use of XML for internal data distribution and external communications with third parties, such as customers and suppliers, is hindered by the differing content-level standards used inside individual enterprises and within and across industry groups. 27 October

3 Figure 2 XML's Importance to U.S. Banks/Asset Managers Currently Using XML XML is very important in our organization for: Application Integration Internal Data Distribution External Communications 0% Source: Gartner Research (October 2003) Approximately two-thirds of the banks and asset managers that use XML use at least one of the industry content standards based on XML. However, none of the standards are used by a majority or even close to a majority of those firms. A joint GartnerG2/Securities Industry Association sponsored survey of investment firms regarding their straight-through processing (STP) initiatives had similar findings see "Survey Shows Industry Making Efforts Toward STP Initiatives" ( Some respondents may have under-reported standards use. Because XML is used on a case-by-case basis, instead of being part of an enterprisewide XML strategy, some survey respondents may have been unaware of some limited implementations. And, in some cases, the sectors most likely to be using a specific content standard are only partially represented by this survey of banks and asset managers. The potentially under-represented standards include: ACORD, which is primarily designed for the insurance industry Finance Markup (FINXML), Financial Information Exchange Markup (FIXML), Financial Product Markup (FpML), Market Data Description (MDDL), Research Information Exchange Markup (RIXML) and Society for Worldwide Interbank Financial Telecommunication Markup (SWIFTML), which are designed for the investments industry, and would be found in brokerages, as well as asset managers In addition, some standards are only applicable to a subset of the surveyed population. A prime example of this is Mortgage 27 October

4 Industry Standards Maintenance Organization (MISMO), which is specific to mortgages. Some of the standards, such as FIXML and SWIFTML, have prior versions of their standard that are not XML-compliant. In some cases, the XML-compliant versions may not be backward compatible with the preceding versions. This creates a barrier to migration to the XML-compliant version. Despite these explanations for the low use of some of these standards, it is still clear that none of the industry content standards has the majority support of U.S. banks and asset managers. FSPs use multiple versions of and proprietary extensions to the standards, further complicating the landscape. What is also clear is that all of the content standards depicted in Figure 3, with the exception of Open Financial Exchange (OFX), which is already broadly used for personal financial management (PFM) applications, has strong forward momentum. However, even with this momentum, none will be deployed by a majority of FSPs by year-end As a result, through 2005, multiple XMLbased industry standards will continue to be used within individual financial services industry sectors (0.8 probability). Although many of these are complementary, instead of redundant, issues of interoperability arise as FSPs seek to support a more-broadly integrated environment. This will slow the use of XML and related Web services technology for external communication and connectivity, as well as drive efforts to coordinate and consolidate the efforts of the different standards bodies. Figure 3 XML-Based Industry Standards Used by U.S. Banks/Asset Managers FINXML FIXML IFX OFX Percentage of FSPs using XML that: Currently use the industry standard Plan to use by year-end 2005 SWIFTML 0% Other standards used or planned by less than 10 percent include: ACORD, FpML, MDDL, MISMO, RIXML, Treasury Workstation Integration Standard Team (TWIST) and Extensible Business Reporting (XBRL) 27 October

5 Recommended Research "Hype Cycle of XML Technologies, 2003" "The IFX Standard Opens the ATM and POS Channels" "Interactive Financial exchange Standard Extends Its Reach" "Metlife: Insurance XML Early Adopter" Acronym Key ACORD FINXML FIXML FPML FSP IFX MDDL MISMO OFX RIXML SWIFTML TWIST XBRL XML Association for Cooperative Operations Research and Development Finance Markup Financial Information Exchange Markup Financial Product Markup financial services provider Interactive Financial Exchange Market Data Description Mortgage Industry Standards Maintenance Organization Open Financial Exchange Research Information Exchange Markup Society for Worldwide Interbank Financial Telecommunication Markup Treasury Workstation Integration Standard Team Extensible Business Reporting Extensible Markup Bottom Line: Although Extensible Markup is gaining widespread market acceptance and adoption, through 2005, multiple XML-based industry standards will continue to be used within individual financial services industry sectors (0.8 probability). This situation will become increasingly untenable because it hinders the business strategies of financial services providers, leading to coordination and consolidation across various standards efforts. In the interim, solutions that facilitate mapping and transformation among industry standards and standards' versions will be critical for interoperability. 27 October