Current Version: 1.4, released April 2003

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1 Strategic Planning, M. Knox Research Note 13 August 2003 Interactive Financial exchange Standard Extends Its Reach The IFX standard has made significant progress in the areas of business banking and automated teller machine/point-ofservice. Web services are next, but much work remains to achieve broad industry adoption. Core Topics Financial Services: Financial Services Architectures and Emerging Technologies; Internet Platforms and Web Services: Web Services Key Issues 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? Which standards and specifications will have the greatest impact on the Web services ecosystem through 2008? Strategic Planning Assumption IFX will be used by at least 50 percent of U.S.-based banks by year-end 2007 (0.7 probability). Although adoption and awareness of the Interactive Financial exchange (IFX) standard is still low among financial services providers (FSPs), the standards body, IFX Forum, has shown progress on several fronts since we last wrote about the standard (see "IFX Struggles to Present a Differentiating Value Proposition"). Instead of concentrating on the retail personal finance manager (PFM) and electronic bill presentment and payment (EBPP) markets where Open Financial Exchange (OFX) has dominance, IFX has continued to concentrate on business banking functionality, loan processing and, most recently, automated teller machine (ATM) functionality. Here, we review IFX's progress and assess critical requirements for IFX's long-term viability and adoption in the context of five "litmus tests" for the viability of Extensible Markup Language (XML) standards (see "Five 'Litmus Tests' for Emerging XML Standards"). Background The Standard: IFX Purpose: To provide a standard for the exchange of financial information between banks and their customers, with a particular emphasis on corporate customers. Current areas of IFX coverage include EBPP, corporate and retail banking and payments, and ATMs/point-of-service (POS) touchpoints. Sponsoring Organization: The IFX Forum ( Current Version: 1.4, released April 2003 Next Version and Estimated Release Date: 1.5, expected December 2003 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 Litmus Test 1: Standard Sponsorship Current Status: Fair but Expanding There are approximately 30 IFX Forum members, including FSPs and their vendors, some with international operations. New members during the past year include Bestning Technologies, Concord EFS, Diebold, the Financial Services Technology Consortium (FSTC), Fujitsu and PeopleSoft. Although the number of members is still limited, many are prominent FSPs, such as Bank of America and Wells Fargo, or dominant vendors such as Microsoft. A complete listing is available on the IFX Forum Web site ( Still lacking membership, however, are FSP customers, in particular large corporations with vested interests in standards that enable them to interact consistently across multiple financial relationships. This challenge is being addressed to some degree by IFX's recent discussions and potential collaboration with the Treasury Workstation Integration Standards Team (TWIST), which represents the interests of corporations (see "TWIST: Opportunity for a True Corporate Treasury Standard"). Coordinating with a corporate-lead standards association may be the best route to obtain corporate representation, because it would not require that these corporations sign up with yet another association. Also lacking membership are smaller FSPs and many smaller vendors for whom the membership fees may be prohibitive. The lack of a published plan for future standards development also makes it difficult for these enterprises to identify or promote areas of opportunity. Continuing low membership inhibits the inclusion of a broad range of input into the standards effort. And, because the forum is nonprofit, it is dependent on member fees and donated work efforts for its continued existence. The current economy's tight budgets and overtaxed member IT resources hinder membership and volunteer efforts to allow rapid expansion of the standard. Critical Requirements: Continue to actively pursue corporate participation and input into standards development, preferably through collaboration with other established industry associations (such as TWIST). Consider tiered membership to promote the inclusion of smaller enterprises. Litmus Test 2: Formalization and Funding Current Status: Continuing Strong The forum's bylaws allow working committees to be formed and retired based on member need and interest. Several working groups were formed during the past last year and a half, 13 August

3 including an ATM/POS group with vendors covering the majority of the United States as well as the international ATM market (some of the key members are ACI Worldwide, Fujitsu, Diebold and NCR). The group's work was largely captured by the 1.4 release. Also, a Web services working group was formed in March 2003, which includes representation from Microsoft, Sun Microsystems, Bank of America and Wells Fargo. Recommendations are expected from this committee in 3Q03. Consistency and persistence is provided by a permanent architecture group. This group reviews and approves any extension or modification to the standard by a two-thirds vote. One of its charges is maintaining consistency across extensions to the standard. Currently chaired by a representative from MasterCard International, the group includes the chairs of all working groups among its membership. In addition, the forum's steering committee is responsible for ensuring that standards development plans meet industry not just individual member needs. As part of this responsibility, the steering committee needs to create and maintain a published master plan for standards that meet industry needs to overcome criticism that development is haphazard. Critical Requirements: Ensure standards vitality through the formation and dissolution of working groups based on industry needs. Maintain financial services members on the architecture committee to avoid vendor dominance. Litmus Test 3: Foundation Current Status: Fair and Improving IFX's foundation is based on early work by OFX and IBM Gold, which gave the forum a jump-start in its initial standards development. The value of this boost, however, has been realized with the primary continuing benefit of shared membership and the understanding that each standard organization has of each other organization's work. At the time that IFX developed its first standard, there were no well-recognized, cross-industry standards at the technical layer on which the forum could draw. As a result, it developed its own technical standards for transport protocols, routing and addressing, payload syntax, and reliability and nonrepudiation. Use of the IFX standards at the semantic/content level does not require the use of these transport layer specifications, a fact not well understood by many potential IFX users. This confusion will be addressed by the Implementation Guides. By abandoning its proprietary transport protocols and adopting relatively well-known cross-industry standards for functionality such as security, IFX can ease adoption. IFX must also incorporate standards such as Simple Object Access Protocol (SOAP) and Web Services 13 August

4 Note 1 Web Service Adoption Among FSPs Preliminary results of recent Gartner research among U.S.-based banks with deposits of more than $500 million and asset managers handling more than $1 billion in managed assets indicate an increasing adoption of Web services, with 32 percent stating they currently use Web services and an additional 15 percent planning to do so by year-end When analyzing these figures based on Gartner's definition of Web services as including the use of SOAP, WSDL or Universal Description, Discovery and Integration (see "Introducing Common Sense to Web Services"), and excluding those respondents who said they were not using any of these three standards or did not know if they are or were going to be used, 18 percent and 11 percent respectively are using or planning to use Web services. The truth is somewhere in between the reported use and the known use of SOAP, WSDL or UDDI. Description Language (WSDL) at the technical layer if it is to ride the boon of Web services (see Note 1). Examining the use of these standards is part of the mandate of the forum's recently formed Web Services working group. Critical Requirement: Adopt cross-industry standards at the technical layer to facilitate interoperability, enable the use of IFX in Web services initiatives and free resources to concentrate on the content layer of IFX. Litmus Test 4: Criticality and Universality Current Status: Moderate and Increasing The potential universe of IFX users has grown because the scope of the IFX standard has been extended beyond EBPP, corporate and retail banking and payments, and loan processing to include: Business banking. The extension of foreign exchange messages to include more information regarding the foreign exchange deal request and confirmation process; introduction of a message suite to support corporate positive pay services; and functionality to support a "push" model for objects such as payment status, and balance and transaction reporting. ATM/POS. A broad range of functionality, including cash and check deposits, bill payment through check or cash, new security messages and message authentication for application-level security. Several ATM vendors have been involved in this extension, and are working to incorporate the standards in their products and services. As with most standards efforts sponsored by nonprofit organizations, IFX development is dependent on the specific needs of members, which can be limiting. As a result, areas of IFX coverage are uneven. A comprehensive plan detailing future standards development within a holistic framework of bank standards needs is required. This plan would foster participation because potential new members question "what's in it for them" if their needs are outside of current work, and would foster the creation of working groups by helping members and potential members with common interests find each other. A master plan also would help maintain consistency and identify areas of synergy across extensions to the standard, assisting the steering committee and architecture group with their assigned tasks of guaranteeing reuse and consistency. It is worthy to note that the work of these groups in this area has resulted in, for example, the recent ATM development effort leveraging previous work in the base and payment services, resulting in the enhancement of much of the content in the payment services. 13 August

5 Seeking to boost adoption and compatibility with other standards, the forum is actively reaching out to other standards bodies, including X12, TWIST and the Society for Worldwide Interbank Financial Telecommunications (SWIFT). The membership of the FSTC, which has formally stated it will support IFX payloads in its cash management Web services initiative (see gives another boost to IFX adoption. To overcome objections that the IFX standard is too difficult to implement, the forum has issued a major directive to all working groups to develop implementation guides, providing a recipe approach to understanding and implementing the specification. The guides, scheduled for release in September 2003, will teach users to implement just those parts of the standard that relate to their particular need, without having to include all message sets or the transport-level protocols. The IFX standard, however, is still challenged with low adoption. According to IFX, as of fall 2002, 70 percent (approximately 20 organizations) of its members were implementing the IFX specification. Low adoption is also borne out by recent Gartner research. Preliminary results of a July 2003 survey of U.S.-based banks with deposits of more than $500 million indicate: Only 16 percent of banks currently using XML (45 percent of respondents) currently use IFX Only 32 percent of banks using or planning to use XML (69 percent of respondents) anticipate using IFX by year-end 2005 Even more telling, only 41 percent of the respondents (who were selected for the survey based on their knowledge of their firms' enterprise technology architecture) from banks using or planning to use XML responded that they had any familiarity with IFX. Low planned adoption is offset, to some degree, by vendor incorporation of IFX. These vendors are seeking to facilitate integration among their product components, enabling new product capabilities and meeting customer demand for openness and control. IFX use will also receive a boost if its use in Web services is enabled. Critical Requirements: Continue strengthening outreach efforts to educate financial institutions, their vendors and their customers about the benefits of using IFX. Work with other standards bodies to achieve synergies and avoid redundancies. Develop and publish a road map for future areas of standards development. 13 August

6 Litmus Test 5: Globality Current Status: Low IFX is being used to a very small extent outside of the United States. International members include the Bankers Association of China and Wincor Nixdorf (Germany). Several U.S.-based members also have international offices. Interest outside of the United States, however, appears to exist because the forum reports that several non-u.s.-based enterprises have downloaded the specification. However, these enterprises may be using the specification primarily as a reference model for custom work that may be incompatible with the underlying standard. Critical Requirements: Extend membership to cover more geographies to ensure the standard develops in accordance with international needs. Begin active outreach to international firms downloading the specification to determine how it is being used and the types of extensions that may be created. By capturing this work now, future issues with compatibility and appropriateness may be short-circuited. Overall Prognosis: Growing Viability Acronym Key ATM automated teller machine EBPP electronic bill presentment and payment FSP financial services provider FSTC Financial Services Technology Consortium IFX Interactive Financial exchange OFX Open Financial Exchange PFM personal finance manager POS point-of-service SOAP Simple Object Access Protocol TWIST Treasury Workstation Integration Standards Team UDDI Universal Description, Discovery and Integration WSDL Web Services Description Language XML Extensible Markup Language Based on these evaluations, Gartner projects that IFX will be used by at least 50 percent of U.S.-based banks by year-end 2007 (0.7 probability). This use will be direct through in-house development, or indirect through the use of a product or service that incorporates the standard, or through the use of another standard that incorporates the work of IFX. Significant milestones to obtaining this level of adoption will be the incorporation of the IFX standard into vendor products and services and into bank Web services implementations; the publication of a plan for future standards development; and work with other standards associations that culminate in the use of portions of the IFX standard in the work of other associations, or the development of shared standards with other associations. Bottom Line: U.S.-based banks and their vendors should examine the Interactive Financial exchange standard and incorporate it into their development work when the standard aligns closely with their requirements. International and non-u.s.- based banks, their vendors and industry associations should seek to coordinate with the IFX standard to promote compatibility across regions to meet global banking requirements. The IFX Forum, however, must make substantial efforts to create a moreholistic standards solution in terms of comprehensive coverage of banking requirements, cross-industry standards coordination and incorporation at the content and technical levels. 13 August