Some newer online services can provide quicker, easier and potentially less costly integration with online banking systems than banks are accustomed to — but banks do not always want this.
Platform integration can often be a fraught process for banks, particularly when it affects core operations. In some cases, where large banks have been on acquisition tears, integrations have infamously taken years to complete because of the differences between the systems involved. Some vendors claim integrations can be handled in minutes with minimal updates in code, but experts say there is wisdom in taking a slower approach.
Like a lot of financial institutions, Veridian Credit Union in Waterloo, Iowa, is examining how best to enable person-to-person payments. It is vetting offerings such as Popmoney from CashEdge Inc. and Zashpay from Fiserv Inc., and one from the startup Dwolla Inc. The 153,000-member Veridian is weighing the speed and ease of integration, but these are not the only factors.
When it decided to offer mobile banking to its customers, which it launched in August, the $1.7 billion-asset credit union used a product from ClairMail Inc., in San Rafael, Calif., that required tapping into the credit union's core systems and building an application programming interface from scratch. The process took an entire year, said Brett Engstrom, manager of web services for Veridian.
"Our ClairMail integration was successful, but I wouldn't describe it as quick," Engstrom said. The yearlong integration was necessary for ClairMail to develop a new interface for Veridian's core processor, Fiserv Inc.'s XP Systems.
The extra work paid off, Engstrom said. "We were all pleased with the end result."
Industry experts said the timing and complexity of any deployment depends on what banks plan to integrate, and where. For the product range sitting atop banks' online banking servers, quicker integration is possible. But for deeper integration with core processing, slow and careful are still the operative motifs.
"If you need to get to core lending systems where all the reporting comes from, or all compliance analysis, you have to take this data down to the applications," said Rodney Nelsestuen, senior research director of the cross-industry group for TowerGroup, in Needham, Mass. "Then you have an integration issue that can be difficult and challenging."
Core integrations are still important, and inevitable, to a significant group of banks.
"There are scenarios where traditional integration is necessary," said Jost Hopperman at Forrester Research. Specifically, Hopperman said, host integration, or integration into mainframe computers, will be strategically important to roughly 12% of North American financial institutions in the next 12 to 18 months, though "there is a stronger interest [among these financial institutions] in nontraditional integration approaches," Hopperman said.
To serve that interest, many third-party vendors are developing online services that they claim banks can integrate in periods of time ranging from minutes to a few days. This includes open architecture frameworks based on XML, more easily installed software modules, flexible APIs and, in some cases, mere lines of code.
"It is important to satisfy a lot of customers' needs, and developing that big-bang application is not [always] realistic," said Stessa Cohen, research director of banking industry advisory services for Gartner Inc. "Web 2.0 will let [banks] create a lot of the most cost-effective applications, and banks will have to look at this."
Schwark Satyavolu, co-founder and chief executive of BillShrink Inc. in Redwood City, Calif., defended the speedy approach.
Satyavolu said all that is required for his product, StatementRewards, to work for banks is to add a thin piece of code that uses javascript to connect bank systems with his company's analytic engines.
StatementRewards examines billing statements for spending patterns and offers discounts on similar products. Satyavolu says it operates in much the same way that Google Analytics does.
Satyavolu, who co-founded Yodlee Inc., said older forms of integration to Web platforms frequently involved building a separate Web page or an API. Building a Web page or an API can be time-consuming and expensive, he said. What's more, every time something related to the application changes, the API on both ends also has to change.
By contrast, "to do the insertion [for Statement Rewards] is probably a day or two of work," Satyavolu said.
Similarly, the startup Dwolla Corp., in Des Moines, Iowa, which enables person-to-person payments through e-mail, has also designed an open architecture, XML application programming interface for merchants that at least one of its partners says is easy to work with.
"There are different integration steps involved, but if a [financial institution] wants to offer our product, it could take as little as 30 minutes to get them up and running," said Ben Milne, Dwolla's founder and CEO. To integrate all customers with Dwolla through the bank's online banking site might take as little as a week.
The Members Group, in Des Moines, which enables cash transactions between financial institutions, and which distributes the Dwolla product, said part of what's most successful about Dwolla is its open architecture. "If you go to the Dwolla website today, you can get the developer API for merchants," said Jeff Russell, the executive vice president of TMG, a subsidiary of Affiliates Management Co. And he said that, while Dwolla does not openly publish its API for financial institutions, "you could write code to integrate to this tonight."
(Jointly, Veridian Group, the service organization unit of Veridian, and TMG provided $1 million in funding to Dwolla in November 2010. Veridian also serves as the back-end automated clearing house provider for Dwolla.)
Nelsestuen said he was skeptical of any claims that vendors made about easy integration that could be accomplished in minutes or hours.
Still, one integration will often speed the way for others. "What you tend to see is a lot of 'build once and use many times,' " Russell said.
"Our typical implementation is about three months, and it is not that complicated," said Peter Glyman, president and co-founder of Geezeo Inc., a personal financial management platform provider in Tolland, Conn. That's because much of the routine work, such as accessing PFM with a single sign-on and retrieving data from the core, banks have already accomplished through previous product upgrades to their standard online banking offerings. What takes time, Glyman said, is customizing the offering for the financial institutions.
That rings true for Veridian. Engstrom said it also took nearly a year for it to integrate its "me to me" payments from CashEdge, as well as its Open Now Fund Now accounts. But it expects whichever P-to-P payment platform it chooses to take only four months to integrate. "It makes it less a barrier to entry, extending a current interface, and not creating a new one," Engstrom said.
