July 19, 2004

Desktop Linux making strides in financial services sector

Author: Gene J. Koprowski

When Ireland's leading bank, Allied Irish Bank (AIB), last month disclosed that it was disposing of the Windows PCs that its tellers used on their desktops in favor of Linux-based terminals, experts said it demonstrated that an IT insurgency is emerging in the financial services sector. Linux is finally proving itself on the desktop in the financial industry, where cost-conscious executives want powerful performance at an affordable price.From Wall Street titans like Credit Suisse First Boston and Lehman Brothers, to regional banks like Koelner Bank eG and AIB, a number of leading financial services companies have embraced Linux during the last few months in the United States, Europe, and South America.

"That particular application [AIB] really confirms some of the things we're seeing with early adoption on the desktop," said Paula Hunter, director of business development at Open Source Development Labs (OSDL), and the former executive director of United Linux.

AIB, based in Dublin, signed a deal with Sun Microsystems to move the desktop computers of its 7,500 branches to the Linux-based Java Desktop System (JDS), Release 2.

Working with a local partner, Horizon Open Systems, Sun will bring the systems online in Ireland and the United Kingdom by the end of next year, according to Sun. The software will power terminals being installed as part of the bank's New Branch Banking Platform, which will be the tellers' interface with all banking applications.

The Irish banks serve many rural communities, and the small businesses there have a need for speed in customer services just like larger firms. "It is imperative that financial institutions assist farmers to grow and develop," said Michael Dowling, head of agricultural strategy at AIB.

The Linux-based desktop systems are helping AIB accomplish that in a number of ways, said Hunter. "For fixed-function applications, like the work that tellers do, Linux is a great way to reduce overall costs of deployment," said Hunter. "The bank can standardize on Intel servers with Linux. That enables them to control the environment. The user does not need a lot of flexibility. They have only one or two applications that they use during the workday. So IT shops at banks like AIB are looking at Linux as an alternative."

Hunter said, "You could do this with pre-existing technologies [e.g., Windows]. But from a cost standpoint, Linux offers a compelling story. This allows for the deployment of low-end boxes in a data center or in a customer service situation. The market is ready for this."

Washington D.C.-based security vendor Fortress Systems, Ltd., which sells Linux systems to financial institutions and banks, agrees. Cost consciousness is a motivating factor -- perhaps even more so at the smaller financial firms than at the larger ones.

"Credit unions don't have big budgets. They have to do it right. We've heard the same story at smaller financial institutions in the U.S. -- like credit unions working with a number of installs for Linux lately," said Steve Swaney, CEO of Fortress Systems. "Santa Fe Federal is extremely pleased with the results, as is another credit union we've worked with in Ohio."

According to International Data Corp., Linux is poised to become the fastest-growing desktop operating system during the next five years. Windows appears to have peaked with about 98 percent of the desktop market, IDC said.

The cost of keeping the Linux-based systems free of viruses and other malicious code is less than the price of doing so for Microsoft PCs, said Swaney, and that's another factor that security-conscious banks are eyeing. "The security of open source is simply better than the commercial solutions," Swaney said. "Linux is more comprehensive and works better with virus scanners than commercial solutions. We're running three virus scanners, and paying for one."

Swaney also said that he disputes the assertion that open source systems are more prone to security problems than Windows because hackers have access to the code. "If anything, they are safer overall, because all the code is peer-reviewed, so to speak. The collaborative finds problems before the hackers even know they exist."

OSDL's Hunter said that the first phase of Linux deployment on the desktop at financial institutions would probably remain, for the future, fixed function applications, but that will evolve quickly. "Next will come traditional office workers, tied to a business application. Then there will be mobile professionals with multiple devices, seeking connectivity options. There's going to be a lot of synchronization going on."

Hunter said that many banks are "loathe to disclose their links to Linux. They don't want the publicity."

But, though some banks and financial institutions have embraced Linux and its low-cost approach for desktops, many are still writing their own proprietary programs to run on the OS in house, a frustrating factor for many Linux evangelists who say that existing anti-virus software and other applications for Linux could serve the same purpose.

"Morgan Stanley is writing their own virus scanning applications from scratch," said Swaney. "Goldman has a contract with Brightmail, and they took their APIs and wrote their own stuff anyway. They have big budgets at those places."

Sometimes, the budgets at these firms bigger than their capacity for common sense, Swaney said.

Gene Koprowski is writing a book about technology business innovation for Berrett-Koehler Publishing, due next spring.

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