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Event Processing Example - Turbulent Markets
Can Real-Time Profit and Loss tame the turbulent markets? ask Bob Giffords (independent analyst) and Mark Palmer (Streambase).
The simple answer is No. Turbulence is a complex systems phenomenon. (Complex event processing is not primarily about complex systems, although some of the advocates of complex event processing might benefit from knowing a bit more about complex systems.)
If we want to know how turbulence can be tamed, we need to understand the root causes of turbulence, in terms of the non-linear effects of feedback loops. This is properly a job for market regulators. For example, central banks may try to reduce volatility in the money supply, and have sophisticated economic models to support their analysis. But the recent history of market regulation is a sorry one. Some analysts have argued that regulations such as Basel2 actually amplify volatility and turbulence in the system, because they force individual banks to execute transactions in response to market movements in order to maintain key ratios.
So it would be interesting to see an application of complex event processing in regulating a complex system. But this is not what the white paper is about. Perhaps wisely, it doesn't actually talk about taming the markets, merely about riding (=profiting from) the markets.
If some players have better tools, including CEP systems, this may give them an advantage in a competitive turbulent market. But this raises three important questions at the ecosystem level,
1. How does the use of these tools affect the market itself? Does the level of turbulence increase or decrease?
2. If the players with the best tools are those that profit the most from turbulence, then they possibly have an interest in promoting increased turbulence, even if this is damaging to everyone else.
3. What would happen to the ecosystem if these tools become commonplace? Would the advantages of these tools be reduced if everyone else had them?
The simple answer is No. Turbulence is a complex systems phenomenon. (Complex event processing is not primarily about complex systems, although some of the advocates of complex event processing might benefit from knowing a bit more about complex systems.)
If we want to know how turbulence can be tamed, we need to understand the root causes of turbulence, in terms of the non-linear effects of feedback loops. This is properly a job for market regulators. For example, central banks may try to reduce volatility in the money supply, and have sophisticated economic models to support their analysis. But the recent history of market regulation is a sorry one. Some analysts have argued that regulations such as Basel2 actually amplify volatility and turbulence in the system, because they force individual banks to execute transactions in response to market movements in order to maintain key ratios.
So it would be interesting to see an application of complex event processing in regulating a complex system. But this is not what the white paper is about. Perhaps wisely, it doesn't actually talk about taming the markets, merely about riding (=profiting from) the markets.
If some players have better tools, including CEP systems, this may give them an advantage in a competitive turbulent market. But this raises three important questions at the ecosystem level,
1. How does the use of these tools affect the market itself? Does the level of turbulence increase or decrease?
2. If the players with the best tools are those that profit the most from turbulence, then they possibly have an interest in promoting increased turbulence, even if this is damaging to everyone else.
3. What would happen to the ecosystem if these tools become commonplace? Would the advantages of these tools be reduced if everyone else had them?
Event Processing Example - Turbulent Markets
Can Real-Time Profit and Loss tame the turbulent markets? ask Bob Giffords (independent analyst) and Mark Palmer (Streambase).
The simple answer is No. Turbulence is a complex systems phenomenon. (Complex event processing is not primarily about complex systems, although some of the advocates of complex event processing might benefit from knowing a bit more about complex systems.)
If we want to know how turbulence can be tamed, we need to understand the root causes of turbulence, in terms of the non-linear effects of feedback loops. This is properly a job for market regulators. For example, central banks may try to reduce volatility in the money supply, and have sophisticated economic models to support their analysis. But the recent history of market regulation is a sorry one. Some analysts have argued that regulations such as Basel2 actually amplify volatility and turbulence in the system, because they force individual banks to execute transactions in response to market movements in order to maintain key ratios.
So it would be interesting to see an application of complex event processing in regulating a complex system. But this is not what the white paper is about. Perhaps wisely, it doesn't actually talk about taming the markets, merely about riding (=profiting from) the markets.
If some players have better tools, including CEP systems, this may give them an advantage in a competitive turbulent market. But this raises three important questions at the ecosystem level,
1. How does the use of these tools affect the market itself? Does the level of turbulence increase or decrease?
2. If the players with the best tools are those that profit the most from turbulence, then they possibly have an interest in promoting increased turbulence, even if this is damaging to everyone else.
3. What would happen to the ecosystem if these tools become commonplace? Would the advantages of these tools be reduced if everyone else had them?
The simple answer is No. Turbulence is a complex systems phenomenon. (Complex event processing is not primarily about complex systems, although some of the advocates of complex event processing might benefit from knowing a bit more about complex systems.)
If we want to know how turbulence can be tamed, we need to understand the root causes of turbulence, in terms of the non-linear effects of feedback loops. This is properly a job for market regulators. For example, central banks may try to reduce volatility in the money supply, and have sophisticated economic models to support their analysis. But the recent history of market regulation is a sorry one. Some analysts have argued that regulations such as Basel2 actually amplify volatility and turbulence in the system, because they force individual banks to execute transactions in response to market movements in order to maintain key ratios.
So it would be interesting to see an application of complex event processing in regulating a complex system. But this is not what the white paper is about. Perhaps wisely, it doesn't actually talk about taming the markets, merely about riding (=profiting from) the markets.
If some players have better tools, including CEP systems, this may give them an advantage in a competitive turbulent market. But this raises three important questions at the ecosystem level,
1. How does the use of these tools affect the market itself? Does the level of turbulence increase or decrease?
2. If the players with the best tools are those that profit the most from turbulence, then they possibly have an interest in promoting increased turbulence, even if this is damaging to everyone else.
3. What would happen to the ecosystem if these tools become commonplace? Would the advantages of these tools be reduced if everyone else had them?
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Payment Mechanism
A number of security bloggers have picked up Tim Bass's recent post on the innovative payment mechanism now available in Thailand. Tim calls it The Magical ATM Card and SMS Message.
The mechanism appears to be an instantiation of a Fraud Free Payment for Internet Purchases, which is the subject of several international patent applications on behalf of an inventor based in Beijing.
For further explanation of how the Thai system works, see these Book and Pay instructions from Thai airline NokAir.
This is obviously an interesting development for e-commerce security. From an SOA perspective, it is also interesting as an example of decoupling the payment mechanism through a series of stand-alone payment services, which can be invoked by the Thai airline's ticketing system, thanks to an innovative payment platform provided by the Thai bank in collaboration with the Thai mobile phone company. Meanwhile, the ATM becomes a general-purpose multi-function kiosk, thus possibly restoring (at least for a short while) its potential to provide some kind of competitive advantage.
I wonder how long it is going to take for banks in other countries to sit up and pay attention?
The mechanism appears to be an instantiation of a Fraud Free Payment for Internet Purchases, which is the subject of several international patent applications on behalf of an inventor based in Beijing.
For further explanation of how the Thai system works, see these Book and Pay instructions from Thai airline NokAir.
This is obviously an interesting development for e-commerce security. From an SOA perspective, it is also interesting as an example of decoupling the payment mechanism through a series of stand-alone payment services, which can be invoked by the Thai airline's ticketing system, thanks to an innovative payment platform provided by the Thai bank in collaboration with the Thai mobile phone company. Meanwhile, the ATM becomes a general-purpose multi-function kiosk, thus possibly restoring (at least for a short while) its potential to provide some kind of competitive advantage.
I wonder how long it is going to take for banks in other countries to sit up and pay attention?
IBM Flatters Finance Sector
According to an IBM Survey (June 2008)
Governments typically have much more ambitious visions, especially in terms of customer service and inclusivity, and defence organizations have much more sophisticated concepts, while the finance sector merely spends a lot of money and has probably completed a larger number of worthy but dull SOA projects.
So this suggests some doubts about the robustness of IBM's maturity model. SOA maturity is about vision, not just about ability to execute, and certainly not spending power.
The survey also indicated a fairly high awareness and interest in SOA. But this was a survey of people attending an SOA conference in 2008, so that finding is not altogether surprising. The IBM press release claims that SOA deployments are on the rise, and that SOA is growing in popularity, but it would be interesting to quantify and qualify these claims. Is IBM comparing the results of the survey with the results of previous surveys? Did they ask the same questions in 2007? We aren't told.
"The banking and insurance industries lead in the maturity of their SOA deployments."Frankly I think this is only plausible if you take a very narrow view of SOA maturity, based on a fairly limited SOA vision.
Governments typically have much more ambitious visions, especially in terms of customer service and inclusivity, and defence organizations have much more sophisticated concepts, while the finance sector merely spends a lot of money and has probably completed a larger number of worthy but dull SOA projects.
So this suggests some doubts about the robustness of IBM's maturity model. SOA maturity is about vision, not just about ability to execute, and certainly not spending power.
The survey also indicated a fairly high awareness and interest in SOA. But this was a survey of people attending an SOA conference in 2008, so that finding is not altogether surprising. The IBM press release claims that SOA deployments are on the rise, and that SOA is growing in popularity, but it would be interesting to quantify and qualify these claims. Is IBM comparing the results of the survey with the results of previous surveys? Did they ask the same questions in 2007? We aren't told.
Banking as a Platform 2
Last week in Banking as a Platform, I discussed how banks might use the platform concept (for example as discussed by Tom Steinthal in a post called Some Thoughts on Platforms in Financial Services) to support radical improvements in customer experience and service.
Tom has now replied. In a post called Platforms - Are They Coming, he mentions a banking product called PNC Virtual Wallet. [PNC Bank Takes on Mint & Quicken with PNC Virtual Wallet, NetBanker, July 14th 2008]
The NetBanker article mentions several companies offering financial management platforms that apparently sit on top of (and aggregate) online services from regular banks. These financial management platforms include Geezeo, Jwaala, Mint, Wesabe. I haven't studied these in detail, but from a quick review of the material on their respective websites they look fairly similar, and a lot more like real platforms (according to the criteria stated in Tom's earlier post) than PNC Virtual Wallet. Although PNC deserves some praise for innovating at all, I can't see anything very radical in the PNC innovation.
Among the comments to the NetBanker article, I note contributions from Aaron Patzer (CEO of Mint) and Andrew Taylor (CTO of Jwaala). This is not the first time these two have clashed in public: in September, Andrew put a post onto the Jwaala blog called Hi I'm Mint. Ugg., which prompted a robust reply from Aaron.
Behind the rivalry between Mint and Jwaala is a fundamentally important difference in platform strategy. Mint appears to be selling to customers - "use our platform to get a better service over and above your existing bank accounts and other financial service providers". Whereas Jwaala appears to be selling to banks - "use our platform to provide better services to your customers". (Back in 2005, I noted a similar dilemma for software billing specialist LaCayla - whether to market its services upwards or downwards. There are some complex questions of platform strategy here, as I indicated in my post on two-sided markets over on the Asymmetric Design blog. There are also questions of trust.)
I really hope that innovations like these are successful, but there is a lot of work to do. Big banks like PNC may offer a watered-down and "safe" version of the innovation, but they might possibly have mixed feelings about the outcome. Meanwhile we can expect a lot of exciting stuff to be produced by small energetic companies with disputatious senior management; but it will be interesting to see how far they get with or without the active collaboration of any of the big banks.
Tom has now replied. In a post called Platforms - Are They Coming, he mentions a banking product called PNC Virtual Wallet. [PNC Bank Takes on Mint & Quicken with PNC Virtual Wallet, NetBanker, July 14th 2008]
The NetBanker article mentions several companies offering financial management platforms that apparently sit on top of (and aggregate) online services from regular banks. These financial management platforms include Geezeo, Jwaala, Mint, Wesabe. I haven't studied these in detail, but from a quick review of the material on their respective websites they look fairly similar, and a lot more like real platforms (according to the criteria stated in Tom's earlier post) than PNC Virtual Wallet. Although PNC deserves some praise for innovating at all, I can't see anything very radical in the PNC innovation.
Among the comments to the NetBanker article, I note contributions from Aaron Patzer (CEO of Mint) and Andrew Taylor (CTO of Jwaala). This is not the first time these two have clashed in public: in September, Andrew put a post onto the Jwaala blog called Hi I'm Mint. Ugg., which prompted a robust reply from Aaron.
Behind the rivalry between Mint and Jwaala is a fundamentally important difference in platform strategy. Mint appears to be selling to customers - "use our platform to get a better service over and above your existing bank accounts and other financial service providers". Whereas Jwaala appears to be selling to banks - "use our platform to provide better services to your customers". (Back in 2005, I noted a similar dilemma for software billing specialist LaCayla - whether to market its services upwards or downwards. There are some complex questions of platform strategy here, as I indicated in my post on two-sided markets over on the Asymmetric Design blog. There are also questions of trust.)
I really hope that innovations like these are successful, but there is a lot of work to do. Big banks like PNC may offer a watered-down and "safe" version of the innovation, but they might possibly have mixed feelings about the outcome. Meanwhile we can expect a lot of exciting stuff to be produced by small energetic companies with disputatious senior management; but it will be interesting to see how far they get with or without the active collaboration of any of the big banks.
Banking as a Platform
Searching for "Business as a Platform", I come across a post by Tom Steinthal, the Financial Services chief of nGenera, called Some Thoughts on Platforms in Financial Services.
Tom lists a few criteria of a good platform.
- extensibility, open
- utility beyond utility envisioned by the designers
- foundational (not sure what he means by that)
- simplicity, focus
- powerful, scaleable
- open
- incorporating, facilitating and/or leveraging collaboration
- accessible and/or leveraging the Internet (reachable via Web Services and/or SaaS?)
Tom suggests that financial services might learn something useful from platforms like Amazon. Sure they could, but will they? Are they? There are loads of services that I'd like my bank to provide me with, and I can see exactly how the platform concept would give an innovative bank a cost-effective and powerful way to provide me with services like these, but (sadly) I don't see much evidence that banks (at least in the UK) are interested in that kind of innovation.
I really like the idea of a bank providing services to its customers that are flexible and secure, allowing the customers (or their financial advisors) to compose these services into customized solutions. I also like the idea of financial advisors actually doing some real work, rather than simply earning commission by selling me some fancy investment plan. There may also be opportunities for social provision - voluntary agencies and community groups creating easy-to-use customized banking services for selected target groups.
But is that going to happen? Browsing further back in Tom's blog, I find a link to an article by Penny Crosman called The Future of SOA on Wall Street (Wall Street and Technology, Feb 2008). Banking platforms are mentioned, but only as a means to internal flexibility, reuse and interoperability, not yet as a mechanism for providing radical improvements to customer experience and service.
However, I live in hope.
Finance Industry View of Security 3
Hans Gilde (who works in investment banking) left a comment on my previous post noting some difficulties with the implementation of security tokens, especially by a single bank in isolation, and arguing that the banks aren't just being stubborn.
I don't want to focus the argument on a particular security mechanism, but on the overall approach to security displayed by the banks. And I agree that it isn't just about individual banks being stubborn; it is a collective failure of the retail banking system as a whole to respond properly to a complex and difficult set of requirements.
The NLP principle of Positive Intentions indicates that instead of labelling an organization as "stubborn" or “stupid” or “bureaucratic”, we should look for a way of framing the situation in which its behaviour makes sense. There are lots of reasons why an individual bank might be reluctant to take an innovative stance on the security of its customers. The customers might be suspicious, and reluctant to adopt an unfamiliar security mechanism. (And of course there is a positive intention there as well behind this kind of suspicion and reluctance.) If the bank tempted providence (or hackers) by boasting of its improved security, any subsequent breach would be doubly embarrassing for the bank. And, perhaps most important of all, security is not one of the areas in which innovation is thought likely to produce a quick increase in new business and profitability.
My disappointment is therefore directed, not at individual banks, but at the finance industry as a whole. The finance industry is one of the most enthusiastic adopters of SOA and related technologies, but these technologies are not being used to improve the quality of service (including security) experienced by retail banking customers.
So what's the answer? Hans agrees with Dan Glass (quoted in my previous post) that regulation is needed. But banking regulators have other things on their minds right now, and there is little appetite for so-called self-regulation. So until banking customers have a reasonable alternative, nothing's going to change.
I'm not rash enough to make any predictions here. But the Internet has shown itself capable of throwing up radical surprises for established industries. If I was running a bank, I'd be looking at a medium term strategy for converting the business into a flexible and secure platform. Before someone else does it.
I don't want to focus the argument on a particular security mechanism, but on the overall approach to security displayed by the banks. And I agree that it isn't just about individual banks being stubborn; it is a collective failure of the retail banking system as a whole to respond properly to a complex and difficult set of requirements.
The NLP principle of Positive Intentions indicates that instead of labelling an organization as "stubborn" or “stupid” or “bureaucratic”, we should look for a way of framing the situation in which its behaviour makes sense. There are lots of reasons why an individual bank might be reluctant to take an innovative stance on the security of its customers. The customers might be suspicious, and reluctant to adopt an unfamiliar security mechanism. (And of course there is a positive intention there as well behind this kind of suspicion and reluctance.) If the bank tempted providence (or hackers) by boasting of its improved security, any subsequent breach would be doubly embarrassing for the bank. And, perhaps most important of all, security is not one of the areas in which innovation is thought likely to produce a quick increase in new business and profitability.
My disappointment is therefore directed, not at individual banks, but at the finance industry as a whole. The finance industry is one of the most enthusiastic adopters of SOA and related technologies, but these technologies are not being used to improve the quality of service (including security) experienced by retail banking customers.
So what's the answer? Hans agrees with Dan Glass (quoted in my previous post) that regulation is needed. But banking regulators have other things on their minds right now, and there is little appetite for so-called self-regulation. So until banking customers have a reasonable alternative, nothing's going to change.
I'm not rash enough to make any predictions here. But the Internet has shown itself capable of throwing up radical surprises for established industries. If I was running a bank, I'd be looking at a medium term strategy for converting the business into a flexible and secure platform. Before someone else does it.
Finance Industry View of Security 2
I have blogged before on the Finance Industry View of Security. Although there have been some minor improvements in the past few years, the overall situation is probably getting worse. I attribute this not to the increasing cleverness and organization of the attackers but to what I regard as a systemic failure by the banks to respond appropriately. The banks appear to be more concerned to protect themselves than to protect their customers, and as a result they fail to do either.
A recent posting by Steven J. Murdoch on the Light Blue Touchpaper blog (written by security experts at Cambridge University) points out that New Banking Code shifts more liability to customers. In the Support Economy, service providers dump cost and risk onto their customers simply because they can. They then produce fallacious arguments in terms of "moral hazard".
But if banks don't care about our online security, there are other organizations than do. You can now get good online security from World of Warcraft (press release June 2008). Dave Maynor comments "Isn't it kind of funny when an online game has better security than most banks?" (via Adam Shostack). Christian Frichot thinks there are No Excuses.
But Dan Glass reckons you won't be seeing these security tokens in the mail from your bank any time soon. He argues that the banks simply aren't going to bother with this until they are forced by governments. He's probably right; I'm not holding my breath.
I think a more likely scenario is that people start switching their funds to more secure providers. Maybe PayPal will get their act together, or Blizzard will open a bank. Or the entire world switches to using Linden dollars. Why not?
A recent posting by Steven J. Murdoch on the Light Blue Touchpaper blog (written by security experts at Cambridge University) points out that New Banking Code shifts more liability to customers. In the Support Economy, service providers dump cost and risk onto their customers simply because they can. They then produce fallacious arguments in terms of "moral hazard".
But if banks don't care about our online security, there are other organizations than do. You can now get good online security from World of Warcraft (press release June 2008). Dave Maynor comments "Isn't it kind of funny when an online game has better security than most banks?" (via Adam Shostack). Christian Frichot thinks there are No Excuses.
But Dan Glass reckons you won't be seeing these security tokens in the mail from your bank any time soon. He argues that the banks simply aren't going to bother with this until they are forced by governments. He's probably right; I'm not holding my breath.
I think a more likely scenario is that people start switching their funds to more secure providers. Maybe PayPal will get their act together, or Blizzard will open a bank. Or the entire world switches to using Linden dollars. Why not?
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