Although the financial community has been quick to embrace the Internet, two major handicaps are impeding fuller use of it - security and reliability. Most banks have moved beyond putting simple brochureware on their World Wide Web sites and are publishing their research as well. The next step in the process - about a year ago it was the source of many brave words about what could be achieved - is to use the medium for transactions.
This is where progress is beginning to hit a wall. Although the private-client groups of many banks already offer on-line share dealing and other transactional services, banks have been reticent about extending these to the corporate and institutional level. Internet security has been substantially improved in the last few months, but public perception that this is the case is still lacking. The news that the latest version of Microsoft's Internet Explorer web browser software contained a bug that could enable an outsider to break into its user's computer or network created the sort of headlines that tend to stick in clients' minds.
Near enough is not good enough, particularly for banks - security needs to be absolute. The Internet is also afflicted by a large number of users who regard security measures as a challenge to their ingenuity in getting round them, not a benefit. The hackers who managed to break into the CIA's web site and make embarrassing adjustments to the graphics were a striking example.
Since the Internet is a commonly held asset, its reliability (or otherwise) is also hard to attribute to any particular supplier of information or services. The quality and availability of its bandwidth are still extremely variable. The details of (for example) a forex transaction do not take up much of the available capacity, but they have to compete with applications that do. Who, for example, is liable for a vital trade that is squeezed out by the youth of America hogging bandwidth to play Star Wars?
Morgan Stanley has been publishing equity and fixed-income research for clients on its web site for some time. "However, we see it as a much bigger opportunity than just that," says Nick Turner, vice-president of information technology in Morgan Stanley's New York office. "We've created a firm-wide vehicle, called Client Link, which enables us to deliver an integrated range of services (both product- and application-based) to our clients on a customized basis. Though we've been rolling this out on a selective basis over the last year or so, we'll be expanding it quite dramatically later this year. A key point is that clients can specify exactly what they receive, so the whole process is client-centric, rather than Morgan Stanley-centric."
Morgan Stanley's customized service goes well beyond providing straightforward data and research. A range of tools, from portfolio accounting to more sophisticated risk and basket portfolio analyses, will be released in the next few months. Although the bank has offered clients these types of application for some time, they have previously only been available to run on specific platforms, such as Unix. By migrating those legacy applications into a common browser-type front end and making them platform independent, the bank will be doing more than just make them readily accessible. Clients will be able to run the applications of their choice remotely while these remain resident on a Morgan Stanley server. As any processing is done remotely from the client's machine, the amount of data being transferred across the Internet is kept to a minimum.
Smaller applications, and others that do not warrant remote processing, can be downloaded from the Morgan Stanley web site and run locally on the client's own hardware. The Client Link interface gives the bank the flexibility to decide which route to take on a case-by-case basis. The general policy is that eventually all proprietary applications will be ported over to be available via the Client Link interface, which (apart from personal contact) will be the principal channel of information and communication between Morgan Stanley and its clients. As smaller applications that clients are likely to run locally on their own machines also tend to be more widely distributed, Client Link also makes the task of providing software upgrades to clients considerably less onerous. Rather than mailing out hundreds of diskettes, upgrades can either be e-mailed or downloaded from the web site.
The development of the Client Link software has enabled the bank to address the Internet security issue by building stepped authorization levels into the base architecture. "Depending on the sensitivity of the information that clients are accessing, they will need to go through certain steps," says Turner. "These range from passwords for the more mundane items to security tokens that generate one-time passwords for the most critical."
Business in real time
At Bankers Trust, while security is a key issue for the global institutional services (GIS) group, there are other principal reasons why it does not make pricing models available on its web site.
"We have a very complex set of client/server tools that our clients use to do such things as manage their defined benefits accounts and to look at global cash and custody information", says Eric Staffin, product manager for information delivery in the GIS group. While Internet development tool kits are almost robust enough to allow for the real-time interactivity that our clients need to manage their accounts, a good number of these clients lack the bandwidth and/or level of Internet access required to conduct business properly in (or near) real time. When a client needs to reclaim a $10 million Fed trade three seconds before a deadline, the last thing they want to worry about is whether they can connect to us through their Internet service provider - they don't have these concerns today."
The limited client appetite for the Internet is another factor that is driving Bankers Trust's approach. At client advisory board meetings, clients have indicated that this is not a place where they are ready to do business - yet. "While we need to be ready to offer Internet-based services when they are, we can't afford to step back from what we have already achieved for our global clients; online, real-time, 24x7 information delivery," says Staffin.