Update on Special Interest Group (SIG) on Financial Services

and Transition to SIG on Interdependence of Security and the Extended

Enterprise (I-SEE)

Stuart Madnick (smadnick@mit.edu)Michael Siegel (msiegel@mit.edu)

MIT Sloan School of ManagementCenter For eBusiness

May 17, 2005

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Research on Financial Services• Sponsors (at varying times):

– BSCH Bank (Spain), Citibank, Merrill Lynch, PricewaterhouseCoopers, Suruga Bank (Japan)

• Principal Investigators:– Professor Stuart Madnick and Dr. Michael Siegel

• Research Staff– 4 Phd Students (Sloan)– 6 - 10 Masters Students (Sloan, Technology and Policy, Computer Science)– Undergraduates, visitors, and other faculty

• Visiting Scientists– Mr Hiroshi Fujii & Mr. Tetsuya Yuge (Suruga)

• Work in business strategy, application development and technology research

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Strategy Research

• Aggregation• Financial Account Aggregation• Methodology for Assessing the ROI for Online Applications• Opportunities for Financial Services with Small and Medium

Size Enterprises (SMEs)• Global Opportunities in Financial Services• Data Quality Issues for Financial Services Organizations• Web Services and eBusiness Strategies• Data Standards at Financial Services Institutions• Wealth Management and Account Aggregation

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Applications Research

• Support of Research Analysts in Financial Firm• Providing Universal Access to Investment Securities• Corporate House holding

Technologies Research

• Web Wrapping Technologies• Context Mediation/Semantic Web Technologies

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Highlights on some Researchin Financial Services

• Aggregation– Definition– Technology Challenges– Financial Account Aggregation– Analyzing ROI for New Online Applications

• Case Study: Financial Account Aggregation

• Personalization– Wealth Management

• Globalization– Global Shopping– Legal, Cultural, and Policy Issues

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What is an Aggregator?

• Transparently collects information-- with or without prior source arrangement-- resolves contextual differences

• Performs analysis-- not merely gathers information

• Represents user-- acts as agent for user

Aggregator

WebSources

Data SourcesUser (or user program)

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Concept of a Financial Account Aggregator (FAA)Concept of a Financial Account Aggregator (FAA)-- ““theorytheory””

CitigroupCitigroupCredit Cards

UserUser

AggregatorAggregator

Credit Cards

FidelityFidelityBrokerageBrokerage

FleetFleetBankingBanking

MerrillMerrillBrokerageBrokerage

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Financial Account Aggregator – “reality”AggregateeAggregatee

AggregateeAggregatee

AggregatorAggregator

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Next stage:Wealth Management and Aggregation

PortfolioManager #1

PortfolioManager #2

PortfolioManager #3

…

Aggregated Reporting, Planning

and AnalysisSavings and Credit Accounts

Other accounts

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Global ShoppingDo not try this on your own!

Logistics and Shipping

Insurance

New York

Chairs (IT - NL)

Table (FR– NL)China (GR- NL)

BostonLamps

Couch(As-NL)

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Challenges to Global Aggregation

Screen Scraping

Direct Data Feed

Data Collection

Sematic Integration

Security

Technical

Data Reuse

Privacy

Liability

Jurisdiction

Legal

Internet Penetration

Trust

Online Shopping

E-Banking Adoption

Cultural

Challenges

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Role Of ContextRole Of Context

CONTEXT VARIATIONS:CONTEXT VARIATIONS:- GEOGRAPHIC ( US vs. UK )GEOGRAPHIC ( US vs. UK )-- FUNCTIONAL (CASH MGMT vs. LOANS )FUNCTIONAL (CASH MGMT vs. LOANS )-- ORGANIZATIONAL (CITIBANK vs. CHASE )ORGANIZATIONAL (CITIBANK vs. CHASE )

Context Context

Context

Data:DatabasesWeb dataE-mail

?$ £

¥

02-01-03 01-02-03

03-02-01

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The 1805 OvertureThe 1805 OvertureIn 1805, the Austrian and Russian Emperors In 1805, the Austrian and Russian Emperors

agreed to join forces against Napoleon. The Russians agreed to join forces against Napoleon. The Russians said their forces would be in the field in Bavaria by said their forces would be in the field in Bavaria by Oct. 20Oct. 20..

The Austrian staff planned based on that date in The Austrian staff planned based on that date in the the Gregorian calendarGregorian calendar. Russia, however, used the . Russia, however, used the ancient ancient Julian calendarJulian calendar, which lagged 10 days behind., which lagged 10 days behind.

The difference allowed Napoleon to surround The difference allowed Napoleon to surround Austrian General Mack's army at Austrian General Mack's army at UlmUlm on Oct. 21, well on Oct. 21, well before the Russian forces arrived.before the Russian forces arrived.Source: David Chandler, The Campaigns of Napoleon, New York: MacMillan 1966, pg. 390.

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Legal, Cultural, and Policy IssuesRegarding Aggregation

• Protection of investment in data vs re-use– EU Database Directive– 4 proposed bills in US (none passed – so far)– Our research on Economic Principles for Data Ownership

• Protection of consumer privacy– EU Data Directive– GLBA most relevant to account aggregation– and many other related laws

• Liability, consumer protection, jurisdiction

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Conclusions

• Aggregation takes on many forms– Be prepared to profit from use in different ways– Be aware that you may be aggregated– Context issues are critical

• Personalization of financial services is a competitive advantage

• Globalization will impact all sizes of organizations

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For Further Information and ContactsRegarding the SIG on Financial Services

• MIT Research:• http://context2.mit.edu and http://context2.mit.edu/aggregation• http://web.mit.edu/tdqm

• MIT Technology Licensed Software:• http://web.mit.edu/smadnick/www/patents.html

• Center for eBusiness at MIT• http://ebusines.mit.edu• David Verrill at dverrill@mit.edu

• Email Contact: • Stuart Madnick at smadnick@mit.edu• Michael Siegel at msiegel@mit.edu

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Transition to Special Interest Group (SIG) on Interdependence of Security and the Extended Enterprise (I-SEE)

• Former name of session:– Extended Enterprise Risk Management

• Prof Stuart Madnick (smadnick@mit.edu)– Introduction

• Dr Michael Siegel– Aggregating Information & Data

• Prof Nazli Choucri– Modeling State “Stability”

• Prof Yossi Sheffi– Resilient Supply Chain

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Motivation• Business is Global and Interdependent ->

“Extended Enterprise”• Disruptions can have Dramatic Impact

– Ohio power plant fails -> ½ USA loses power

• Terrorism Introduces New Disruptions• Not Just an Issue for Government and Military

– Most of USA infrastructure private sector– Business, Government, Academia have much to learn from each other

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Preliminary Research Plan (The Four M’s)

• Monitor– Develop case studies and gather data

• Measure– Need to develop better ways to measure

• E.g., “How secure is your organization?”

• Model– Ability to predict/anticipate

• Mitigate– Ways to reduce risk and/or seize up-side opportunities

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Session on SIG on Interdependence of Security and the Extended Enterprise (I-SEE)

at 1:00-2:15

• Prof Stuart Madnick (smadnick@mit.edu)– Introduction

• Dr Michael Siegel– Aggregating Information & Data

• Prof Nazli Choucri– Modeling State “Stability”

• Prof Yossi Sheffi– Resilient Supply Chain