SOA Plateau of Profitability

There's always been crazy SOA hype, but there's tons of good real world cases where its helped, Fundtech is a small software provider to the financial services world, they have some interesting SOA stories:

As an example of Global PAYplus-SP's innovative use of SOA, it now becomes possible to integrate full payments functionality into the corporate customer's online experience, thereby enhancing self-service, streamlining workflows, and significantly increasing straight through processing (STP). In what Fundtech calls STP@Source(TM), clients are engaged in the validation and enrichment of payment transactions, resulting in fewer exceptions and lower cost. Clients are empowered to make routing and pricing decisions resulting in a faster and more responsive service.

Part of what I find interesting here is that you can imagine that many large financial operations are not particularly well integrated, so they literally outsource some part of their integration. "Hey build an SOA for us" So how this played out in the real world:

I want to spend a few minutes discussing our recently announced transaction with Bank of America/Merrill Lynch. This is a very important strategic transaction and potentially [inaudible] for FUNDtech. By the same token, it may mean a difference in our prior system sales. That’s why we saw aspect of technology between what we will be delivering to Bank of America and the potential market to aid FUNDtech.

Until service architecture came to the scene there was a clear distinction between back office systems like payment systems and formed office systems like cash management systems. Each of the systems provided response specific functionality and [inaudible] was connected to the various other systems in the bank through hard wire interface.

Back up relations were supported by a series of systems. This means that a bank that wanted to improve certain functionality aspects of the system would often find need to invest large amounts of money directly to functionality in multiple systems. In this era the situation is very different.

The creation of cycle services of functionalities, it can be shown by the banking system in the bank. So for example, if we look at fees the banks charge the customers for high venue wire, one can create a service that can be shared by each of the cash management and the payments systems of the bank.

So that means that for the customer that wants to transfer $1 million from his account in the U.S. to his vendors in the U.K. we’ll be able to do in real time using the cash management system that he or she uses through the Originet console, the fees of wiring the funds and associated fees and select [inaudible] their needs.

This can be a new service that the bank can offer its customers as part of its cash management system using this service. It is scaled by the cash management system as well as other back office systems in the bank. It was so expensive to provide the cash management system which complicated the back end functionality.

While our existing market for new system stay the same, the new significant market opportunity for payment services is being created for FUNDtech. It means that we can now source our services with enhanced wire systems in the bank without the need to replace them.

And we know, replacing systems is a painful and expensive process and until now we couldn’t really offer much to bank who wanted to improve their systems that they had without replacing them in the short term. This should now change in the larger banks like Bank of America transaction.

In addition to our leadership position, by providing SAW based solutions, we continue to make strategic solutions for banks who want to ensure that they are using the best and the most modern technology which will provide them the long term competitive advantage.

Bank of America which we typically saw the important functionality and performance of its cash management systems and back end systems without replacing them in the short term. This project will last into 2011 and we believe that we have an opportunity to continue to grow in the bank in the years to come.

Just like the financial world you can imagine that insurance is not particularly well integrated and here too is a niche company called eBix that's building SOA based integrations for the insurance industry.

What do both of these have in common besides real business use cases? They both are having record breaking revenues and raising guidance. Fundtech has margins over 55% and is predicting a record q4. eBix has margins around 80% and just completed a record breaking quarter. So while I have not worked with either of these products, it looks like SOA is working pretty well for integrating real businesses.