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 ASPs Are Getting Vertical, Offering
“Downmarket” Solutions
By Lauren Bielski
September 2002 - ABA Banking Online Journal - Those seeking to upgrade
on a tight tech budget take note: a new breed of outsourcer just might offer
lower-cost options to bootstrapping alternatives.
Known as Application Service Providers (ASPs), these vendors host
applications remotely at data centers for their clients. Like traditional
outsourcers, they take on the nitty-gritty of managing technology operations
each day, though on different terms and at lower cost, proponents say.
This new class of vendors is less than five years old and before now
offered the likes of e-mail, procurement, or accounting and human resource
services. However, more recently, ASPs have begun to specialize vertically
and take on more difficult tasks.
“We’re seeing many new ASPs that are vertical rather than generic,” says
Amy Mizores, an analyst with International Data Corp. Research, Framingham,
Mass. “Medical, insurance, and legal industries probably have the most in
the way of tailored offerings, but financial services isn’t that far
behind.” A report that IDC published back in 1999 forecast a $2 billion
spending spree on ASPs by 2003. Driven by market opportunity, the growth of
the internet, the standardization of data delivery, and the ability of Cisco
and other network vendors to develop reliable, highspeed links to the Net,
ASPs, many believe, are poised to take off.
Providers delivering on an ASP basis are entering online banking, bill
payment, customer relationship management and decision support, loan
processing, and credit scoring. They’ve also begun to offer services for
derivatives markets and other “specialties” as a way to combat technology
development costs that are increasing by 20% per annum on average, notes
John Weisel, the New York City-based leader of financial services strategies
for Accenture (formerly Andersen Consulting). Accenture itself has spun off
a few ASPs in different industries. One called Alnova runs core processing
remotely for banks, with markets based in Latin America and Europe so far.
Weisel admits that adoption rates for the banking industry here have been
slower then initially expected. He admits, too, that use of ASPs may never
fly in organizations with a hands-on operating philosophy. Still, he
predicts that more vertical market providers will enter the market and that
demand will increase over the next year.
Definition hard to come by
In a market so new to banking, a barrage of lingo and loose definitions
is tending to obscure who ASPs are and what, at least in theory, they can
deliver. “There is a certain buzz around ASPs, although I think a lot of
last year’s hype has deflated,” says Chuck Moreland, president and CEO of
Crossrun, San Jose, an ASP run on Microsoft technology that has a West Coast
banking client, and also provides infrastructure and support services to
other ASPs.
While the banking industry may see a blurring of distinctions and
inflated claims—with every outsourcer claiming to be an ASP—the term isn’t
necessarily synonymous with outsourcing. ASPs share some traits with one
forerunner, however, and that is, the “shareware” wave of the 1970s.
Shareware schemes involved disparately located users essentially renting a
piece of mainframe computing power to run their customized applications. In
those days, the links between the bank (typically the bank’s dumb terminals)
and outsourcer were forged by expensive dedicated private networks and were
used mostly by large companies or universities.
Fast forward to today’s eclectic environment, where options abound. Like
traditional outsourcers, ASP providers generally own the hardware and run
well-fortified data centers, or partner with internet service providers
(ISPs) to operate their center.
But ASPs differ from either the old-fangled shareware or the service
bureaus that followed them in a few important ways. First, ASPs are focused
on delivering web-based, thin-client applications. These are centrally
managed and upgraded at the data center, then “pushed” out to client
browsers over the internet. (Contrast this with traditional outsourcing
implementations, where software gets installed on each user’s desktop within
the bank, adding to time-to-market and cost.)
Next, ASP providers are, as the name suggests, application-centered and
focus on delivering applications with best-in-class features.
“I think the applications coming from vertical ASPs will be superior,
because they will be developed from in-depth knowledge about a best-practice
process,” says Mike Riley, vice-president Mercer Management Consulting, New
York. “The apps won’t be developed from a pure technology perspective—you
know, having 30 guys [on staff] with 30 years of experience in mapping new
applications to COBOL.”
To get a better feel for Riley’s argument, consider e-mail. Some of the
packaged e-mail software that’s been on the market for years may be the
easiest for a bank’s IT department to install, but once you get it rolled
out, the e-mail package might have lots of limitations for end-users,
delivering less productivity, and adding to total cost of ownership.
In theory, an ASP provider would deliver an e-mail application that could
do more. It could, for instance, be scripted to automatically categorize
incoming e-mails under various subject headings or could be enhanced to have
more access security built in. The ASP would deliver and manage that e-mail.
Moreover, the ASP would spread the development costs over many different
banking customers.
What else separates ASPs from standard outsource vendors? ASPs, say
proponents, are delivered with the minimum amount of disruption to the
client. “A true ASP won’t be invasive—with a lot of involved onsite
installations and re-engineering—and the application provided will be easily
scalable,” says Read Ziegler, chief marketing officer at Derivion, a bill
payment and presentment ASP vendor based in Atlanta. Ziegler believes that
ASPs are the single, easiest way to get new applications in the pipeline.
Because many banks already have solid client-server infrastructure in place,
hooking up to an ASP to run some new application is largely a question of
establishing good communication links to the wide area network or internet.
Generally, applications are run by simple data feeds and don’t effect the
other operations of the bank, explains Joe Jennings, chief operating officer
with Dorado, an ASP in the mortgage processing business based in San Mateo,
Calif. Dorodo has more than 150 big banks using its mortgage processing
services on an ASP basis. Many launch the service without Dorado linking up
to legacy databases and simply start running without historical data,
gathering up customer information as they go.
To outsource or not to outsource
To experienced outsourcers long operative in banking, however, the
potential benefits of ASPs are greatly exaggerated. Jerry P. Klinger,
vice-president financial service information, NCR, Dayton, Ohio, thinks the
delivery method makes sense for delivery of specific point solutions that
perform some narrow function.
But among the financial service companies NCR partners with, this sort of
one-off approach to computing isn’t what’s in demand. “For our clients,
anyway, we’re seeing interest in tightly integrated applications—core
processing, check and item processing, branch automation, network
operations—that would be tough for banks to outsource on an ASP basis,” says
Klinger. NCR refers to this as “strategic outsourcing,” and says it is
becoming popular among banks and other financial institutions that are
trying to get command of customer data for marketing purposes. They are,
says Klinger, trying to integrate applications in order to streamline data
gathering, as well as drive efficiencies in operation.
“These kinds of [multiple application] outsourcing arrangements require
complex integration and lots of ‘middleware’ code writing,” Klinger
explains. “I don’t necessarily see ASPs as a way to sidestep tough
integration issues, except for launching the simplest of applications.”
Still, Klinger, as do others, acknowledges that outsourcing options reside
on a long continuum. ASPs offering so-called point solutions are appropriate
for some bank requirements. When asked whether ASPs were tough enough to
handle complex bank work such as core processing, Dorado’s Jennings replied
that his operation’s Sun Solaris platform—and Java code—was both
standardized and robust enough to handle more complex applications. He
argues that his platform can easily integrate with banks’ platform (e.g.,
legacy systems), should that sort of deployment be required. (In fact,
Dorado’s clients have Sun Solaris technology that links to the ASP’s Sun
technology.)
But Accenture’s Weisel agrees that ASPs for the more complex services
can’t short-circuit integration processes. “We get ten calls a week from
ASPs looking to partner with us to integrate the operations of their
prospective clients to their data centers,” he admits. This layering of ASP
providers isn’t unusual, and indeed, many banks that choose to get involved
with any given ASP might find themselves dealing with a virtual organization
made up of many partners.
All of which is besides the point. Because, as Weisel sees it,
cost-savings, which is the traditional selling point of outsourcers of yore,
isn’t really the ultimate driver for using ASPs. Top line growth is. “I
think the real theme here is that many financial services companies are
trying to find better ways to compete by shedding the day-to-day handling of
all non-essential functions.”
Where traditionally, outsourcers were handed messy, labor-intensive
responsibilities within the bank that couldn’t be handled effectively
in-house, new ASPs (albeit with a different technological model) are
stepping in to offer specific “domain expertise” surrounding an application
and a new, cheaper delivery method. Alyssa Dver, vice-president of marketing
with Sedona, Minneapolis, an ASP that delivers customer relationship
management services, admits that her prospective clients are intrigued but
confused by the emerging ASP market. “Already, there’s a lot of variation in
the marketplace regarding how many partners back up an ASP or what other
services are bundled in to an agreement,” explains Dver. As an example of
this, she says that Sedona offers training support to extract the most from
the analytics software it provides on an ASP basis. Clients, she says, also
tend to worry about data being taken and managed offsite, until they are
shown the levels of security in Sedona’s arsenal.
Indeed, no single method of ASP delivery is hard and fast. Dan Shannon,
vice-president of marketing for Metavante, based in Milwaukee, says the
giant outsourcer has migrated many of its application “to leverage the
internet.”
With services that include presentment, online banking, customer
relationship management, and wealth management, Shannon says Metavante
(formerly M&I Data Services) has been working to realign its strategy and
has become a business service provider (BSP). This, he says, adds the
value-plus dimension of business strategy planning on top of application
delivery to solve a business problem.
Could slash costs
But however they are bundled, ASPs are here to stay, say the true
believers. “I think ASPs have the potential to be a dire threat to both
traditional outsourcers and traditional software and hardware vendors,” says
Mercer’s Riley. Although admittedly biased by his tenure on the board of an
ASP active in the insurance industry, Riley says that ASPs can offer
applications quicker and easier, with a pricing model that makes it much
easier for clients to determine return on investment.
Contrast the pay-as-you-go methods of the typical ASP with the steep
up-front capital outlay required by traditional outsource vendors, and it’s
easy to see why the newest outsourcers on the block are hailed by some as a
great alternative to either outsourcers or traditional software providers.
Even analysts that disagree that ASPs are automatically cheaper, admit
that ASP market is so new and fluid that refinements to the pricing model
are starting to occur, too.
Along with other ASP vendors who spoke to ABABJ, Mike Winter, president
with VIFI, Indianapolis, an ASP provider of online banking services
including billpay and cash management, says his primary market is community
banks with one- and two-people IT departments. Since online banking is
fairly complex technology with specific programming skills and expertise:
“These are banks that wouldn’t be able to get this kind of technology any
other way,” says Winter. He explains that VIFI has tried to build upon the
one-to-many approach of the traditional ASP by offering more options for
customization. The cost of delivering cash management services, for example,
is low enough that banks can afford to offer the service to their smallest
business customers. “For the first time, you’ll see ten-man businesses or
restaurants having access to this kind of web-based technology.” Crossrun’s
Moreland agrees that the model probably doesn’t make sense for big
institutions that can afford to either build-in house or make standard
outsourcing arrangments. But for small companies: “It can give them access
to the very best, so they can compete with bigger firms.”
“With ASPs, the IT headaches become somebody else’s problem,” summarizes
Brett Christensen, chief sales officer with Appro Systems, Baton Rouge, La.
Appro provides lending and credit scoring software, having scrapped it’s
standard software licensing distribution in the last few years in favor of
an ASP delivery model that charge monthly fees. Christensen believes that
Appro and other ASPs have a strong appeal and that could be summarized in
“leave the driving to us.” BJ
Some ASP guidelines:
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What experience does the ASP have in banking? Ask about
its age, size, and ask for customer references.
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How does the ASP handle security: firewalls, encryption,
personnel selection, training, and technology audits?
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Who is hosting the data, and how will it be backed up?
Number and location of data centers.
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Does the ASP guarantee network performance as well as
application performance? How are problems handled? How will performance
reporting be handled? How are software upgrades performed?
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Pay attention to contract terms. Can you bring
applications back in-house or transfer to another ASP if needed? How will
data be transferred should an application be brought back in-house?
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