System Architecture for Cross Border Payment - A ...

Proceedings of the 36th Hawaii International Conference on System Sciences - 2003

System Architecture for Cross Border Payment A Case Study for the Financial Services Industry Nadia Ayad and Alexander Verbraeck Department of Systems Engineering Faculty of Technology, Policy and Management Delft University of Technology Jaffalaan 5, NL-2600 GA, Delft, The Netherlands Tel. + 31 15 278 7189, Fax. +31 15 278 3429, E-mail: {nadiaa, a.verbraeck}@tbm.tudelft.nl

Abstract The financial services industry is changing rapidly as a result of advances in information technology (IT), telecommunications and the Internet. Technological innovations and increasing customer demand have led to the emergence of new services and new organizational forms for financial services firms. Willingly or unwillingly, banks are being forced to move toward worldwide operation. This enables them to offer services and credit facilities on a global scale, tailored to customers regardless of where they are based. However, variations among national markets present obstacles as well as opportunities to companies attempting to “go global.” This paper describes specific problems and solutions for the globalization of banking services, and a case study carried out on payment services for an international bank to develop a new system architecture for cross border payment. The proposed architecture aims to keep a part of the processes local, but transfers the core of the transaction operations to a centralized system with clear services and clear interfaces. The bi-directional translation of formats makes standardized processing possible, while output for the specific contexts can be provided in the original formats. An important property of the architecture is that the rich context has been integrated into the handling of transactions.

1. Introduction The banking industry, like nearly every other industry, has become increasingly global over the past decade. As businesses of all sorts discover the need to address a global

market, this globalization is reflected in the banking services required by some of the banks’ customers. Both academic and business literature predicts a revolution in management thinking and practice as more and more industries are transformed into global enterprises. Doktor (1991) indicates that the world has begun to become a global village. Hamilton (1986) states that the “village” will be a global marketplace for ideas, money, and services that knows no national boundaries. Recent insights have shown that although enterprises that operate on a world-wide scale have indeed become commonplace, much needs still to be done to align and integrate organizations internationally. Banks play an important role here in handling the international financial transactions, but banks are also international organizations themselves that experience the same types of problems that other organizations face in the international marketplace. The term “globalization” is used to describe a number of related phenomena such as cultural convergence, international marketing, global products and production, and the increasing interdependence of the world's economies. Stonehouse et al. (2000) describe globalization as, to a large extent, a business philosophy or way of thinking which emphasizes the similarities among national markets rather than the differences. According to Levitt (1983), technological, social, political and economic developments have, in recent decades, driven the world toward a “global village” or “converging commonality”, characterized by standardized products and services, and global strategies built upon economies of greater scale and scope. Levitt further suggests that the focus of a global strategy ought to be the standardization of products and marketing, But further investigation shows that uniformity and global standardization is hard to achieve due to the many context variables to consider. Yip (1992) argues that

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the benefits of global products (or services) can be achieved by standardizing the core product or large parts of it, while customizing the peripheral or other parts of the products. Late customization or postponement (Van Hoek, 2001) is a result. Postponement is the ability to delay product differentiation or customization until close to the time when the product is sold. However, it is important for any company wishing to address a global market to recognize that constraints such as laws, language and culture, accounting practices, tax codes, and banking regulations vary from one country to another. In a global context, the external factors need to be considered. For example, national differences in factors such as IT literacy, IT related regulations and culture could potentially affect organizational decisions regarding IT in general. A credit risk management process is an example of a process which is based first on gathering information from different national sources and secondly on interpretation using national experts. These variations make it difficult to operate such a process solely from a global system. Therefore, it is important to understand these variations and how to deal with them in order to offer services globally. This brings us to the general problem statement of this research: “How does one deal with the national context and other differences between countries to facilitate service provision on a global scale?” When we look more deeply into this question, the implications of globalization of services for information technology (IT) and for organizational structure seem very challenging. In this case study, we focus on the financial service industry, which is a particularly relevant industry for two reasons: first, the financial service industry assists its customers in conducting international business, and second, financial institutions are international themselves. IT has already facilitated the globalization of financial services. For example, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network has revolutionized the process of communication among banks. Still, the challenges for financial services to compete globally and operate successfully in an international marketplace are daunting: serving the needs of a diverse customer base while respecting the differences among national markets in legislation, rules, local policies, language and culture is a complex task. The inherent risks in taking on these challenges cannot be ignored, nor is it possible to eliminate them completely; rather, they must be addressed with the goal of facilitating operations on a global scale. Competitiveness among major banks now depends less upon regional expertise and more on global governance, management availability and improving customer satisfaction. Two of the central problems for global financial services are the dispersal of client account information

across several national networks and the different procedures for performing transactions in each country. Increased centralization of information and procedures would result in improved bank-customer relations, providing better and standardized services for the customer and improved information access for the bank’s management. The ability to operate globally and efficiently depends on an appropriate balance of globalization and localization of process and activities. This balance requires the support of an adequate system architecture. The architecture defines the necessary distribution of processes between the national and global organizations, so that all relevant information is available at the appropriate time and place. This study examines the consequences of organizational characteristics, the national context and the current international payment architectures for the design of a new system architecture (Figure 1). This paper will first identify the obstacles to increased globalization. These obstacles are mainly related to the national context, which consists of a combination of rules, taxes, regulations, culture, data structures, languages and national expertise. Secondly, we examine ways of overcoming these obstacles in the globalization of international payment. The system architecture will provide services for information exchange between different countries through national networks and national (a single central) clearing systems. It also defines the responsibilities of the bank organization in providing support to the client when necessary. The proposed solutions focus on payment services between the Netherlands and Belgium and are only a first step toward the development of an optimal solution applicable to all countries.

Requirements

National Context

Current System Architecture

Study

New System Architecture

Organization Characteristics

Figure 1. Scope of the Study

Section 2 includes a description of some of the central problems in international banking, such as national differences and the lack of a global overview of clients’ accounts. In this case, we focus on international payment

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processing, with a description of the problems related to the global payment transaction. Potential solutions are then analyzed and recommendations made for the design of an optimal, but extremely flexible, system for global payment. The research method is briefly described (Section 3). Subsequently, the inductive case is described in detail. This paper concludes with the discussion of the impact of the differences in national context on the design of a system architecture for cross border payments. Finally, directions for future research are discussed, along with conclusions on the design of such architecture.

2. Statement of the problem Currently, banks operating within national boundaries and national banks are autonomous, not least because of their knowledge of local and national markets, products and opportunities. This special knowledge pertains to regulations, rules, tax codes, language, culture and other specific national, regional and local factors. Knowledge of specific markets is valuable; however, the idiosyncrasies of banking practices in different countries create barriers in the marketplace and limit business transactions—i.e., mismatching priorities due to cultural differences and national market needs. Because of their differing priorities arising from differences in national legislation, organization level, information structure, customers’ requirements, work ethics and time zones, banks are hampered in their acquisition of needed information. Not only do these differences frustrate attempts to obtain a global overview of the bank’s business, the customer is often frustrated as well. This contravenes the principle that the customer’s demands and wishes must be paramount in maintaining successful business relations. The problem is a significant one, given the background of increasing global competition in the banking sector. To a certain extent, greater centralization of bank procedures and information could resolve some of the difficulties associated with differences between national markets. However, any bank wishing to extend its business activities globally must analyze the specific constraints of each national market. These constraints include the following: The differences between national banks in rules, regulations, culture and language. Local expertise is indispensable in cross-border transactions. Not only are local professionals more intimately versed in the local laws and practice and thereby able to add local knowledge to the business process, but they may also provide local contacts and relationships to complete the tasks. In the credit approval process, for example, local experts are better able to assess potential pitfalls that are particular to a local culture.

The decentralization of account information and information structure. Although the discussion in this paper is based largely on the entity localization method, it would be imprudent to ignore the potential impact of differences in accounting processes between countries. Although harmonization efforts continue, these differences still exist and are presented as an obstacle in the effective reorganization of many international business operations. Accounting areas where there are varying degrees of differences between countries include pension costs, foreign currency and taxation-related accounting. Even minor differences such as the number of digits in an account number from one country to the next can be a source of difficulties. The differences mentioned above make it difficult to operate fully from a supranational organization. Such an organization could be defined as a super-system, which operates outside national regulation. This means that the national banks must form a new organization that allows both customers and the banks to operate in association with a supranational organization (super-system), in which collaboration of national banks can play a role as needed. A cross-border umbrella (super-system) should ideally coordinate the individual characteristics of the national sources while fostering local expertise in specific markets. Centralization of all services is neither feasible nor cost-effective. There needs to be an appropriate balance between globalization and localization of services, with a careful consideration of the potential costs and benefits of globalization as it relates to each service. For instance, credit approval is not a service which can be centralized, due to the need for local expertise and knowledge.

3. Research method Today, economic benefits are being realized from advances in IT that foster new product development, reduce paper handling, and will soon provide a complete picture of customers’ accounts and their relationships. Improved connectivity is also being seen between financial sector participants, through such developments as the financial information exchange (FIX) standard, which was established in 1992 to enable rich computer-to-computer communication between institutional investor, brokerage firms and securities exchanges. Similar developments are occurring on the Internet in the arenas of electronic bill payment, person-to-person payments and multilateral funds in treasury management. According to Kauffman and Weber (2002), implementing and evaluating instances in this rich stream of advances in financial technology is the goal of a growing body of research in banking investments.

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The objective of this research is to design a system architecture to facilitate cross-border payment transactions, which can merge the individual characteristics of the national sources. Therefore a “proof of concept” as a practical example for the Dutch and Belgium cross border payment structure was selected for study. Little attention has been paid in the literature to a systematic description of geographically distributed business models, although many organizations use some form of a distributed business model in practice. Furthermore, the literature does not provide clear insights into whether, and how, to deal with the differences among national markets in order to facilitate global transactions. Therefore, the research is primarily based on inductive cases at the banks and offers useful insights about related issues to develop a rich understanding of a complex and contemporary phenomenon within its natural setting (Yin, 1994). Dutch and Belgian banks were selected, and multiple methods (survey, interviews) were utilized for data collection. Presentations and workshops were organized for input verification and validation of the interview results and also the proposed solution. The case study analysis was first largely based on detailed, openended interviews. Interview subjects were questioned in depth on topics pertaining to many aspects of the financial industry. Among other questions, they were asked what outcomes they foresee from the regulation of banking services, what services they consider appropriate to offer on a global scale and how they expect customers’ requirements to change. Thereafter, an investigation of the current payment processing and an analysis of all functions was carried out in both countries, with comparison of the different business requirements related to the type of service, type of clients and the national context. The responses were summarized in a report immediately following each interview, which was then sent back to the interviewee for verification, additional input and correction of any possible misinterpretation or misunderstanding. Furthermore, an analysis of the current architecture was made in order to localize issues and list of functions related to the national context and explain how to deal with them. The main issues identified related to the lack of global governance and management in the financial industry compared with the strong structure which exists nationally. An objective discussed during the interviews with managers was how synergy and consolidation profit can be created. In terms of the standard architecture for cross border payments, synergy implies sharing services in the framework of a standardized payments transaction. The following case serves as a basis for theoretical propositions and future research.

4. Case Study: International Bank Industry The method used to conduct international payments has remained unchanged for several years. International payment is still complex, partly paper based, labor intensive, and using legacy systems. The greatest problem affecting international payment is the high cost of financing for the maintenance of several operating processes systems (OPS) within different national banks. All national bank OPSs are independent in their own functioning. Administering their own clients, developing their own products, and carrying out their own cross border payments in their own idiosyncratic way may be considered advantageous by some banks, but such a situation has its drawbacks as well. Many problems result from the differentiation and decentralization of each national banking system. The fact that each bank has to develop its own versions and maintain its own systems when new standards or functionality are needed leads to problems such as high development costs, problems changing over from old to new versions, and possible service interruptions for clients. Adapting the national legacy system (OPS) in each country with a new IT standard (e.g. new swift message mt103), or new distribution channels requires large investments. Moreover each national bank requires its own staff to perform the same tasks (e.g. maintain the system). The objective in this case study is to allow all national banks to expand their services to their customers in any foreign country in the same way, while generating lower costs and greater benefits through a system architecture able to deal with any given context. This brings us to the consideration of a new system designed specifically to facilitate crossborder payment transactions, which can coordinate the individual characteristics of the national sources. The design of this system focuses on centralization of the main generic processes and decentralization of specific processes related to the national context. Attention has also been paid to means of communication between these processes, so that all relevant information is available in the proper place and at the proper time. The results of the study will offer guiding principles in the choices to be made relative to concentration and centralization of tasks and activities for the more generic situation, and decentralization of tasks for a specific one. This study requires a detailed analysis of the similarities and differences between Belgium and the Netherlands in terms of their national banks. The analysis was accomplished in two steps. First, an in-depth investigation of both national payment processes systems (OPS), including an analysis of the following factors and functions:

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Cross Border Payments Various Data Structures Security Privacy

IT Assessment

Scalability Integration Requirements Figure 2. Process and IT Challenges

Differences between countries with regard to rules, culture and language Decentralization of account and transaction information Differences in information structure (e.g. format and language) Evaluation of credit risk Attention was also paid to the constraints and challenges (Figure 2). Second, an analysis is made of all repercussions resulting from the investigation in cross border transactions. Differences in concerns and business requirements call for the design of a new and adequate system architecture. This system can be considered as a potential solution. The discussion of this system consists of two parts. The first part of the solution is related to information technology, and the second part is related to human resources management. The system centralizes the generic process of payments on the global level and processes the country-specific functions locally. This system should facilitate the retrieval of information relevant to a given transaction, and avoid redundant procedures and operating processes system (OPS) in different countries, assisting governance and management of information.

4.1. IT-related Solutions In this section, problems arising from decentralization of account and transaction information within international banks (i.e. a Dutch bank in Belgium and a Dutch bank in the Netherlands); the differences in information structure (e.g. format and language); and differences between countries in rules, culture and language, and evaluation of credit risk will be solved by developing a model to design a global system for global transactions related to IT and human resource management aspects. The proposed approach consists of process centralization in conjunction with database distribution and

some local processing such as reporting to the customer and central bank. The approach in evolving the overdistributed banking system into a more efficient one is a hybrid one that mixes processing centralization with distributed databases, by taking advantage of the already existing structures and reusing the already existing processes to their best potential, thus leading to a costeffective payment operation taking into account each country’s local requirements. In this approach, maintaining the databases in a distributed fashion allows one to keep in place the existing hardware installations and database structures, with data physically located at several sites, exactly as it is at the time being. The main advantages reside in avoiding contention with optimal data availability, as well as maintaining accuracy, privacy, and an efficient response time. On the other hand, processing centralization ensures total control over components and favors the enforcement of standards and security as well as homogeneous processing and data formatting. A considered risk is that a breakdown at the central point propagates to local points; therefore, it is necessary to keep a minimal local infrastructure to run the central processing locally for a short period of time while fixes are applied at the central point. A backup center for central processes, databases and interfaces should be available. This can be realized by duplicating the central systems in another location, installing a backup network, and keeping transaction logs to update the backup system in case of a severe system failure.

4.2. Strategy implementation One of the advantages of this strategy is that its implementation can be completed in a step-by-step manner, without disturbing the entire organization. Costs are also reduced in this way. The key word in this approach is reuse.

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Proceedings of the 36th Hawaii International Conference on System Sciences - 2003

Clients Specific Input

Generic Process

Pre-processing

Investigation

Specific output

Clients Databases

Conversion

Interfaces

Results

Figure 3: approach to implementation Processes in, for example, country A can be used as a starting point for the implementation. The most generic process among those available on the banking market should be chosen for this purpose. The idea is to divide the process into two types of sub-processes: generic ones and national ones, and detail each one of them. The generic sub-processes are the ones that can be applied independent of the location of the data, i.e. every single task that is processed in the same way in all the targeted countries. The specific (national) processes are those tasks that are context-dependant and belong to a particular country (with specific formatting, taxation rules, accounting rules, language, etc.). The relationship between these processes is shown in Figure 3. The new process will consist of three main parts: the specific input, the generic module, and the specific output. Each module is detailed below. The processing follows the described sequence.

The Generic Module (Input: client account country of origin, output: client’s request generic results) The generic module proceeds in two steps: first data conversion, then data processing. Data conversion is a mandatory task in this context; it ensures data is converted into a generic format before it is processed by the generic module.

The Specific Input Module (Input: client request, Output: client account country of origin, and Pre-check OK) The main function in this module is an identification function. Its role is to recognize the country from which the client request is issued, based on a country-specific data format or identifier. This module is also responsible for the pre-check and security information. It has to be fully explicit and country-specific, knowing that a client request that comes

Pre-requisite: the conversion table A conversion read-only table, that will reside on Site C (central), has to be permanently put in place. This table contains the data-matching information. It requires a full data analysis to find out for every item of information what its equivalents are in all the targeted banking systems. The conversion table will provide for each elementary item of information a corresponding generic equivalent format. It is designed for multiple countries correspondences and can be applied to as many countries as desired, see Table 1.

from Belgium for a French account will not have gone through the same pre-checking as a request from an Asian client going through Turkey. The pre-checks process consists of testing information delivered from the clients before the decision process which determines whether the transaction can be executed or not, and thus to improve the performing of the generic system. The data source information will be passed as an entry parameter to the Generic module.

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Table 1. Format of the data conversion table Country A

DATA CONVERSION TABLE Country B

Generic

Data 1 A, fmtA

Data1B, fmtB

………

Generic data 1, generic format

Data 2 A, fmtA

Data2B, fmtB

………

Generic data 2, generic format

…………

………..

………

……..

Data i A, fmtA

Data i B, fmtB

………

Generic data i, generic format

Data n A, fmtA

Data n B, fmtB

………

Generic data n, generic format

As soon as the data is converted into a generic format, it is processed exactly as if it were residing in Country A or B. There should be no (important) differences in the output of the process, as only those tasks have been selected that can be handled outside the country where they originated. The data conversion is needed because, in spite of the possibility of central processing, the formatting of the data that is transferred to the central location is still country-specific. It should be mentioned that the generic module has to keep the data source information throughout its processing and provide it as an input to the Specific Output Module.

mentioned issues are briefly discussed in this section, and they can be evaluated through visualization and simulation models. This approach is flexible enough to accommodate any homogenization that could take place in the future (e.g., if taxation rules are homogenized, the taxation task would then be moved from the output specific module to the generic module). This is a low cost way of adapting to a changing business environment. The links with the different countries’ back offices must remain after the actual distributed processing systems are replaced with the centralized system.

The Specific Output Module (Input: client account country of origin and client’s request generic results, output: properly formatted result) The specific output module proceeds in two steps: data conversion first, then reconstitution of the results. The data conversion step consists of reverting the generic formatted data to a country-specific format using the conversion table. The remaining tasks of the module are intended for the reconstitution of the results: applying the country-specific taxation rules and accounting procedures, and turning the generic formatted results into the appropriate country language and currency.

4.4. Issues to Consider

4.3. Human Resource Management-related Solutions In this section, many issues resulting from the new model of cross border transactions will be discussed. These issues are related to the demands of the national context; consequently, dealing with these issues requires new procedures. The issues depend on individual skills in banking services and local expertise with regard to decision making. Alternative solutions related to the above

Repair Process Repair is a process within the operation payment department. Its role is treating all transaction errors. If all the information is available in the system, this process is done automatically. Otherwise, when an error cannot be handled by the system, the process has to be handled manually under an individual’s responsibility. The repair process is necessary in two situations: Data correction of payment order input Straight through processing (STP) support when the processing of the transaction is interrupted. Investigation Process Investigation is a process within the payment operation. Its role is treating all kinds of customer demands such as reclamations, complaints, additional services, etc. This process is handled manually but with IT support (e.g., call center screens). These customer demands can be transmitted electronically via email, by phone or via paper documents. These demands are not always conveyed directly to the payment transactions investigation department. Thus,

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dealing with this process can be IT-related or individualrelated, depending on the type of demand. However, the investigation process doesn’t only depend on where the input of information is but also on which policy is required. Decision Making Process This process has to be made locally under the individual responsibility of an account manager or credit experts. There is usually a clear distinction between a payment authorization decision and a credit risk decision. The authorization is granted if the customer is within his risk parameters (i.e. by making this payment, he would not exceed his credit limit). If not, it is declined. No human expertise is required. Accomplishing a credit risk decision successfully, on the other hand, requires risk management skills and market expertise. Therefore, the decision making process is based on collecting all necessary and important information in order to formulate a credit arrangement with the customer (e.g., corporate client). When this information is collected it will be entered into a scoring system. This scoring system should help the human decision maker to take a risk decision more quickly. Dealing with this process is both IT-related and individualrelated. This process requires a real time exchange of information between the transaction system and the individual responsible.

4.5. Alternative Solutions Repair Process When an error is due to manual data entry, the repair process should be performed where the manual entry was done. When a process interruption occurs during transaction processing, the repair process should occur at the central level with close cooperation of the local level whenever necessary. The form of this collaboration between global and local levels should be defined in order to accomplish this process successfully. In an extreme case, a repair process can be a rollback of the transaction into the state before it was sent to central processing. Investigation Process In order to deal with this process, one option is to start by classifying customers’ requests according to their importance. This classification can be based on the type of customer and the type of request. The success of this process depends on individual skills in finding the right information from the right source, and efficiency in routing the customer requests to the place where they can be handled (i.e., where the necessary language skills are

located). This process should be performed at the location where most of the information is available. Decision Making Process When the operation payment is centralized, the following requirements are indispensable in order to deal with decision making: Speed in execution of incoming payments Fast signal to local client services It should be clear to the units concerned whether the transaction is rejected or accepted. An extra option which be considered is the creation of an interface between the global transaction system and all account managers where they are. This will give them the possibility to check by themselves whether their client’s transaction has been completed in case of questions.

5. Discussion One of the first choices to make for the architecture for global payment concerns the level of centralization of the services. Given the nature of the system, with a large number of clients all over the world, a large number of local banks through which these clients operate, and a small number of international networks such as SWIFT through which the transactions can be handled, two extreme architectures can be envisaged. One extreme solution is to fully match the architecture with the nature of the clients and local banks. Their level of distribution is chosen as the guideline for the system, and as a consequence, the services are offered and handled locally. The result is a peer-to-peer network with local intelligence and local services that can be maximally matched to the wishes of the client (Fingar et al, 1996; Tagg & Freyberg, 1997). The interconnection between the clients is, however, more difficult. All peers have to be able to exchange their information with all other peers. With a bank transaction it is important to know the context of the receiver as well, because information for local taxes and for requests from local governments (e.g. anti-fraud measures), might have to be sent as well, depending on the country (and in some cases state or zone) of the beneficiary and the county of its bank, in case the bank is located in a different country than the beneficiary. As a result, the local intelligence needed in each node of the peer-to-peer architecture would be huge, or a lot of information has to be sent between the banks. To avoid that, new services can be offered in the peer-to-peer network to specify or transform the data as needed for a specific situation. We then get a network with specific services, as offered, for instance, by the Jini framework (Oaks & Wong, 2000), although Jini itself does not offer the security and thoroughness needed by banking applications. At the moment when services are split up

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over many different nodes, and data communication on a financial transaction is exchanged between many nodes in the network, the problem of security and privacy becomes pressing, and it will be hard to convince banks that an architecture that involves local processing at dozens of nodes before the transaction is ready to offer to SWIFT, for example, is safe and secure. The advantages of this extreme architecture are that services can be closely tailored to the local context, and that the network is not vulnerable to the failure of one component. On the other hand, the architecture is quite difficult to implement due to the duplication of processes in many locations, the system is difficult to make secure, and testing and maintenance of a heavily distributed architecture is also difficult. The other extreme solution is to aim for a fully centralized system in a client-server setting. Maintenance and testing can be done in the centralized location, and when local rules change, the central system can implement the changes immediately for all worldwide clients. Security can be more easily guaranteed, because all critical transactions take place in one central system. From a cost perspective, the solution looks better because investments are done once in a central system. The drawback is, of course, that it is impossible to get all laws, rules, regulations, and other parameters specific to a particular cultural and country into one large system, and to maintain it. Local rules are best known at a local location. Therefore, this research aims at a combination of a local and global architecture, that allows both local processing for context specific parts of the transaction, and central processing for the bulk of the operations and the connection to world-wide organizations such as SWIFT. An architecture designed along these lines combines the advantages of both the extreme architectures described above, while, ideally, avoiding most of the problems of the extremes. One of the main challenges is to determine what to do locally, and what to centralize, and how to do this in a flexible way so as to allow for moving operations towards the central part of the system or towards the country specific parts when preferences or changes in the context demand. The methodology has been tested by applying it to the transaction processes of a large international bank. As an example, the financial transaction processes for The Netherlands and Belgium have been studied. Although the countries are extremely close, both belong to the European Union, and share the same language, the differences between banking processes and rules are vast. Partly this is a result of differences in local laws and accounting practices, partly it stems from takeovers of local banks in each country. The information systems used in each country are vastly different, although some modules have been centrally developed and deployed in both countries. It turned out that the methodology was a very good help in

defining and designing the central and local functionality, and in convincing management that a hybrid solution was best, with local and central processing according to the architecture sketched in this paper. The results of this project is that we now have a tested methodology for determining the local context and choosing which aspects of the context to keep locally, and which aspects to take to the centralized system with a possible translation by its input processing subsystem. Once this template has been tested by a bank for one country, it can easily be applied for other countries. As most international banks offer some standard applications for their local banks that can be partly parameterized for the local situation, some of the variables that change between local contexts are already known by the main office of the bank. After a number of countries have been researched, and these countries have been selected because the bank knows that they differ widely in the effect of the local context, the list of types of parameters is probably nearly complete. The only activities that remain for the bank when connecting a new local bank or a bank in a new country to the central infrastructure, are the determination of the values of the context parameters, and the changes in the local procedures and locally used systems to interface the local systems to the new central architecture. Probably the change in operational procedures is the toughest hurdle to jump for the local organization. Therefore, one of the criteria in determining which context dependent actions to keep locally for local processing is the effect the changes will have on the local procedures. When a shift of an activity towards the central system leads to tremendous changes in local operations, this shift should probably be avoided or delayed till a later date. Because of the flexible set of parameters in the system, this can easily been done. When the operations have been changed, the new information can be offered to the central system, where only the parameters for flexible input processing need to be changed to accommodate the information that results after leaving more processing to the central system.

6. Conclusions Standard architectures for global transaction systems tend to migrate to either a fully centralized system, which can be accessed worldwide through application services and Web services, or to a peer-to-peer network that is closely tailored to the local context. Neither of these two architectures is very well suited to international transactions in banking. The local context of the sender, the receiver, the sending bank and the receiving bank are too specific to allow for fully centralized solutions, and the type of service is too sensitive in terms of security and privacy to allow for peer-to-peer solutions.

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Therefore, the result of this research is a proposed solution that keeps part of the processes local, but transfers the core of the transaction operations to a centralized system with clear services and clear interfaces. The bidirectional translation of formats makes standardized processing possible, while output for the specific contexts can be provided in the original country-specific formats. One of the unique properties of the architecture is that the rich context has suddenly become part of the transaction. Instead of being statically coded into the applications, the context variables have been turned into part of the business transaction. By using the translation tables described in this paper, the amount of information that has to be sent over the network can be kept manageable. Because of the availability of this local information in the central processing application, the translation of formats and content through lookup tables and simple rules can take place easily, and because these rules are parameters for the core system, they can also be maintained without changes in the central application’s code. An expert validation session at the bank for which the case was carried out showed that the concept was viable, and that an architecture like this could be implemented in a global bank. The most difficult challenge for the bank after accepting this architecture will be to migrate their current central systems to allow for the core processing that was identified in this paper, and to migrate the country-specific systems at the local banks. An advantage is that the local migration can be done one country at a time. The architecture presented in this paper is probably applicable for other services in banks, and for global services offered by other types of organization where the local context plays an important role in the tailoring of the service. Examples are other financial institutions and insurance companies.

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0-7695-1874-5/03 $17.00 (C) 2003 IEEE

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