Corporations are sometimes locked into doing things a certain way even if no one is happy with the results. That’s why Allevo, a small Bucharest-based software developer, decided to offer banks a get-out-of-jail card.
“A payment is a payment,” says Corina Mihalache, (pictured on Informilo’s home page) director of business analysis at Allevo. “It’s processed in the same way. Banks use different applications but it’s all done the same way. We think that financial institutions should not compete at the back-office level. They should compete at the level of customer offerings.”
So, Allevo decided to change its business model. The company will no longer sell it back-end program for banks, which includes core banking and office applications as well as connecting back offices to SWIFT and other market networks; it will instead make its products open source and offer them to financial institutions for free.
Maintaining and updating the back-end software was holding Allevo back from creating next-generation banking software, she says. “We’re like prisoners with our customers,” says Mihalache. “They are in our prison because they are using our application; they’re dependent on us. And we’re in their prison because we have to maintain the application for them. It’s not a very nice view of the future. We had to find some way get rid of that and go further.”
Using an open-source model,“we will lose a large part of our income that we receive from licensing, but we hope to gain income from the services that we will provide to the larger community of application adopters and also to bring our development resources to more creative projects,” she says.
In May, the company held an event to introduce the idea to some of its banking and corporate customers. It braced for the banks to be perplexed by the idea of sharing updates and improvements, says Mihalache, a scheduled speaker at Sibos, the global banking conference, which will take place October 29-November 1 in Osaka, Japan. But she says banks were surprisingly enthusiastic and now are trying to work together like the Linux community. “It means they don’t have to reinvent the wheel and can see how another bank already solved a problem,” she says. “They can share ideas.”
Welcome to Business 3.0, a world where large corporations – including banks — are doing what would have been unthinkable only a short time ago: adopting the Linux culture and accepting that crowd-sourcing can make them better at what they do, opening their APIs and learning how to best leverage big data. Open source, big data and hyperconnectivity will all be topics at Sibos during sessions organized by Innotribe, the innovation arm of SWIFT.
Michel Bauwens, founder of the P2P Foundation, which studies the impact of peer-to-peer technology on society and business, is scheduled to talk to banks about the benefits that can be reaped from crowd-sourcing innovation. Peer-to-peer communications is changing the way businesses communicate with customers and the way products get built, he says. “What it means is the basic logic of a company marketing to isolated consumers is no longer valid. You are now inevitably dealing with communities so this does not just mean that people can talk back to you; they can also talk to each other. But most importantly they can do things together. A lot of things that used to be done by the government or corporations can now be done by communities.”
The WikiSpeed open-source car, which boasts a fuel efficiency of 100 miles per gallon — four or five times better than U.S. automakers — is a case in point. The car is modular so people around the world can improve parts of the design and the car itself can be replicated with a series of interconnected 3D printers. “There are just a few of these cars driving but the important thing is it’s a proof of concept that communities can do this fairly quickly,” says Bauwens. “This was done in three months, design and everything.”
In Melbourne, Australia, a hacker community plans to launch a peer-to-peer satellite next year. The satellite is being built using open-source Arduino motherboards and research institutions have helped fund the project by pre-paying to send up payloads.
Like banks, other big companies are starting to embrace the Linux approach to innovation. When IBM adopted the Linux open-source operating system for its in-house systems, it found its management procedures could not keep up with the more than 2,000-strong community of Linux developers, Bauwens says. So IBM started adapting to the Linux community’s rules. Soon, IBM started using the community’s techniques in other areas, introducing “idea jams” and experimenting with other collaborative practices.
“It’s by no means easy, but it can also be a competitive advantage to do so,” Bauwens says. “Procter & Gamble now sources 50% of its new products through open innovation. That certainly tells you that it’s possible.”
Banks are starting to see the benefits of more collaboration with the outside: ING, Credit Agricole and AXA have all recently launched initiatives to invite external developers to help create new services that support their customers’ needs.
Start-ups can also help big traditional players improve their own performance. For example, Kaggle, a social network, allows organizations to farm out challenges to a community of professional and amateur mathematicians, programmers, researchers and scientists to improve their algorithms. In exchange, Kaggle offers rewards ranging from kudos to millions of dollars. One of its recent clients was an insurance company that was offering $3 million to whomever could help improve the algorithms for claims in the next year, based on its past 20-year history.
Leveraging Big Data
But computers can now uncover more data, patterns and complexities than humans can grasp, so software tools are increasingly need to help augment the human ability to perceive what’s going on.
Public data and computing power combined with creativity are setting off a tectonic shift in the information landscape, says Sean Gourley, co-founder of Quid, whose software captures diverse sources of data and structures for decision makers.
“In years gone by, it was the data that you had yourself and the information you had yourself that was the most valuable,” says Gourley, one of the speakers invited by Innotribe. “But it’s shifting to a world now where there’s more data and more complete data from open sources, unclassified news reports or blogs, social media landscapes, even down to sensors and people’s phones, and you can start to be able to piece this together. If you can do it right it’s a more complete data set than any one source.”
A tech company, for example, can triangulate what its competitor’s next move might be from the patterns and contradictions emerging from patent filings, acquisitions, partnerships, and executives’ public statements, Gourley says. “You start to see the pieces come together.”
The banking industry is just starting to wake up to the opportunities that big data offers.
“The irony of financial services is at the root of it: the data is the business,” says Victor Dossey, who worked in banking for two decades before becoming Microsoft ‘s banking technology strategist five years ago. “We have some buildings and we have some people, some history, but it’s really the processing of the data and the leverage of that data that is a core piece of the business. It seems as an industry we’re only coming alive and starting to realize that and make more use of it.”
Citibank, for example, has taken its data, cleansed it to protect privacy, and delivered it back to its corporate customers to help them understand new trends and opportunities and how others are reacting, he says. “What banks are finding is since they have this data there are ways they can provide this out to the world for value,” says Dossey. Creating such services will help generate new revenue streams and, at the same time, promises to help banks reboot their own business.