Sometimes innovation is in one's blood. As a founding vice president of ING Direct Bank of Canada in 1996, Joseph Szamel participated in the selection of the IT infrastructure for the start-up bank. The bank had selected the Sanchez Profile core processing system for the Unix operating system on an IBM AS/400. "The standard Sanchez Profile system was supported on VAX, and they had a Unix version, as well, which nobody in the world used yet," said Szamel. "We did take a chance and we came through with flying colors."
Now, as president of EuroDirekt National Savings, a branchless bank based in Budapest, Szamel has taken a similar leap with Sanchez software running on the Linux open-source operating system. "It was kind of a deja vu feeling," said Szamel. "We saw the Sanchez organization embrace Unix when the banking system hadn't really accepted Unix yet."
Leaning on Linux
After consulting with his bank's technology team, including members who had worked at Bell Labs on the development of Unix, Szamel was convinced of two things: first, that Linux was not that different from a technical standpoint; and second, that Sanchez was moving in the right direction by porting its systems onto the new operating system. "It looked like they had made a very solid decision following a thorough investigation," said Szamel.
Consequently, the bank selected the Sanchez Profile system running on the Red Hat variant of Linux. "We have found that there's a significant cost advantage that we can realize by going the Linux angle as opposed to anything else, including Unix or other mainframe or mid-range operating systems," said Szamel.
Bank competitors, including many western European and some American banks acquiring local players, aren't likely to follow the move to Linux in the near-term. "There are big financial services companies cultivating the Hungarian and the Central European banking market," said Szamel. "Most of these banks have fairly new IT infrastructures, so I don't think there will be a whole lot of them that are ready to make another switch."
By contrast, Szamel enjoyed the luxury of building from scratch. "In our case, we just had the freedom of choosing anything that suited us for the given business objectives we had defined for ourselves," said Szamel.
Indeed, the bank's objectives have grown as the result of recent investment in a new venture, First Mortgage National Savings Hungary. Also on a Linux platform using Sanchez software, First Mortgage will provide outsourced mortgage servicing to both EuroDirekt and to FHB, the Hungarian Land Credit and Mortgage Bank. "Residential mortgages are very low in terms of the population and as a percentage of GDP, and we think there's a lot of room for growth," said Szamel. "The direct banking capability we have developed is a very nice complement for the mortgage line of business."
While both mortgages and core banking products are available through the Sanchez software running on Linux, it's conceivable that EuroDirekt may eventually want to deploy ancillary software packages that do not operate on Linux. "If we were to use other systems-like treasury or general ledger and all those non-core banking systems-there could be an issue," said Szamel. "But treasury systems can really run on their own, and they don't have to be integrated with the bank account management system."
Better Development Capabilities
Still, the availability of banking applications on Linux should only increase over time, especially as it proves its worth in mission-critical financial applications. "It's a platform that we believe is ready for core processing," said Frank Sanchez, CEO of Sanchez Computer Associates (Malvern, Pa.). "We've scaled the Linux platform to the level that we think it could support 99 percent of all banks on a global basis."
Linux doesn't simply offer lower licensing fees. "Where we see the most radical benefit is around the acquisition of development resources," said Sanchez. "The cost really comes down to human resources-the hiring, maintenance, and the velocity of developing on any particular platform."
On top of the operating system, banking software itself could soon find its way into the open-source community, a move that would accelerate the adoption of Linux and the availability of qualified IT experts in financial services. "Elements of our core banking application could be open-sourced," said Sanchez, "particularly the messaging standards and the actual customer model."
"We'll still maintain some intellectual property-code, processes, the way that we implement a bank," Sanchez added. "But there will be elements of it that will be very shareable."
Behind the Silicon Curtain
EuroDirekt takes an approach to Internet banking that favors security over convenience. Instead of browser-based access, customers have to install proprietary software on each PC used to access the bank. The custom-developed software boasts 4,096-bit encryption, which has proven appeal to security-conscious customers. "We are able to convince our customers that it is probably the safest, most secure Internet banking system that you'll find anywhere in the world," said Szamel. "It is device-dependent, but you always pay for security with discomfort."