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Gates: MS banks' friend, not foe

Microsoft's new series of initiatives for banks includes a framework that allows software components to connect to mainframes, WebTV systems, and other computers.

    Microsoft (MSFT), seeking to enter an industry deeply suspicious of its motives, today unveiled a series of initiatives for banks, including a framework that allows software components to connect to mainframes, WebTV systems, and other computers.

    Analysts say Microsoft's aggressive moves into providing some financial services itself have scared bankers--but not enough to keep the financial services industry from spending $1 billion a year on Microsoft software.

    Chairman Bill Gates announced Windows Distributed interNet Applications for Financial Services (DNA-FS) in a speech through satellite today at a retail banking conference in New Orleans. DNA is the overarching name for existing and future Windows technologies, such as COM and ActiveX, which have been reworked to be more Web-aware.

    Microsoft is attempting to extend DNA to vertical markets through specially tailored versions aimed at industries such as banking, insurance, and health care. The goal is to garner additional converts to its operating systems, development tools, and applications.

    Today's news follows yesterday's announcement that Microsoft's toolkit for building banking applications, formerly code-named "Marble," is now shipping.

    In another banking initiative, Microsoft and partner First Data Corporation (FDC) announced today that their MSFDC joint venture has signed up Wells Fargo Bank, Key Bank, and major billers for a pilot test to present bills online so consumers can pay them over the Internet.

    The MSFDC venture has spooked bankers, who see bill presentment as an attractive market they want for themselves. MSFDC has tried to convince bankers that it will assist them, not compete.

    Mike Dusche, Microsoft's worldwide financial services industry manager, insists reports of tension between Microsoft and banks are "greatly exaggerated."

    "We count on the banking industry for a large portion of our revenue," Dusche said, pointing to a Forrester Research estimate that Microsoft earns $1 billion a year in bank sales. "We are very sensitive to their concerns."

    Microsoft's announcements this week show it's putting a lot of emphasis on technology development for the financial services industry, Forrester Research analyst Cliff Condon, an ex-banker, agrees.

    "Microsoft is not looking to become a bank, it's not looking to become a brokerage firm, but it's trying to sell everything they can to every bank or every brokerage," Condon added. "They're trying to sell a bunch of NT and be a service provider on the back end [in bill presentment through MSFDC]."

    Condon says Microsoft's MSFDC irritated bankers in part because Microsoft acted like a competitive software company in an arena where financial institutions expect providers to be "subservient."

    "Microsoft continues to stub its toe [on] the way this industry plays," he added. He pointed to IBM's joint venture with Integrion Financial Network as an example of the right approach.

    IBM is the sole technology player in Integrion, a joint venture with Visa International and 17 North American banks that together control 70 percent of all consumer checking accounts. The 19 companies own equal stakes in Integrion.

    By contrast, Microsoft partnered with a nonbank, credit card processor First Data, to try to grab a piece of the bill presentment business in MSFDC. Condon noted that banks aren't chummy with First Data either because it has grabbed big market share in an arena banks once dominated.

    "IBM is playing the game a lot smarter than Microsoft is," Condon said.

    Microsoft is trying to mend fences, Dusche said. Gates has been meeting with CEOs of major banks, including BankAmerica's David Coulter, to address their concerns and Microsoft's strategy, Dusche said.

    Gates told bankers today that the DNA-FS framework will allow them to link customers on the Internet with their existing back-end computing systems.

    "It allows legacy systems to stay in place but gathers information into a customer point of view," Gates said. "Pulling that together and presenting it in a rich way will require an architecture."

    Gates touted Microsoft's banking framework as a "digital nervous system" that will link disparate computing systems within banks to each other and to a plethora of other digital media--phones, handheld devices, Internet TVs, and so on.

    "It lets all servers work together, not just Windows servers but also Unix servers," Gates told bankers today.

    Dusche said Microsoft's digital nervous system approach helps banks adapt to unexpected changes in consumer behavior. "It also helps banks build a rich infrastructure to move customers to new behaviors," Dusche said. "It helps react to unplanned events and execute on planned events."