You'd be hard-pressed to find a floor trader on Wall Street who isn't packing a BlackBerry or some other handheld wireless device. But on the whole, the financial services industry has trailed other industries in wireless adoption.
In a 2004 survey of nearly 900 North American companies by Forrester Research, only 39 percent of the financial services firms polled said they had adopted mobile business applications. In comparison, the average adoption rate across all industries was 47 percent.
As one financial services executive notes, the big concern is still security. The sensitive nature of financial transactions, combined with the lack of protection offered by today's standard encryption methods, continues to hold back use of wireless networks and devices by financial services companies, says Larry Tabb, founder of The Tabb Group.
Research firm IDC does not expect widespread adoption of wireless in the banking industry anytime soon. "We don't see a pressing need for having wireless LANs within the bank. Physical IP networks are just fine," says Sophie Louvel, an analyst at IDC's Financial Insights unit.
But the possibility of attracting high-value customers with wireless trading applications, as well as the introduction of more-robust encryption standards, have begun to soften resistance in the financial services industry, says Tabb.
An October 2004 IDC survey showed that Research In Motion's devices have found a niche in the industry. Forty percent of financial services respondents said they are using or plan to use such devices, four times the overall usage rate in the North American market. The New York Stock Exchange, for example, announced last December that it had purchased 3,000 Java-based wireless handheld devices from IBM for its floor traders.
Reaping early rewards
Fidelity Investments is one of the few financial services companies that embraced wireless technology early on. In 1998, Fidelity began offering retail brokerage trades via Wi-Fi. Today, the Boston-based firm's wireless offering, Fidelity Anywhere, has more than 350,000 subscribers to applications that span 14 business units, including 401(k) services, insurance, portfolio advisory services and even its transportation business, Boston Coach. The services are available from any wireless device, including cell phones.
"One thing we're very pleased with is that wireless services do attract a very good customer," says Joe Ferra, chief wireless officer at Fidelity. "Fidelity was very wise in the early stages to offer content to even noncustomers. That's set us up very nicely for these customers who get stock quotes and news feeds. Now when they want to do a transaction, we're top of mind."
Ferra sees wireless in financial services as an evolutionary process in which customers first become comfortable viewing account balances on wireless devices and then move on to performing transactions. Fidelity's current effort is around personalizing the services given to each customer.
But Ferra points out a major issue for financial services companies that are deploying Wi-Fi: Tailoring graphical images and information to fit on the typical 1-by-1 in. or 1-by-2 in. screens of handheld devices is difficult.
Tabb agrees. "Let's face it, there are not a whole lot of Web sites developed for those small screens," he says. "Getting to a Web site that is one or two clicks on a PC may take 15 clicks on a handheld."
Less paper, more speed
Tabb says progress is being made in another sector of the financial services industry: insurance. Leading adopters of Wi-Fi technology, insurance companies have used the technology mainly to allow workers in the field to access forms and customer information online in order to process claims more quickly. The returns on investment include less paper, less time spent manually processing claims and better customer retention.
While in the field, adjusters and claims representatives can instantly document a loss or accident and input the data into a handheld or a wireless link. In some cases, adjusters can cut claims checks on-site, Tabb says. "Those are workers who need instant access to information," he says.
Gene Fredriksen, vice president of information security at Raymond James Financial, sees wireless technology as a way for executives, brokers and operations personnel to have instant access to clients, news and market updates. The financial services firm hopes to improve customer service, increase productivity and streamline its corporate operations by deploying wireless networks at each of its 2,200 locations around the world.
Raymond James is currently deploying wireless networks in 120 primary offices in the U.S. Launched 18 months ago, the Wi-Fi project is expected to take another 24 months to complete and cost upwards of $1 million, Fredriksen says.
A major concern for Fredriksen throughout the project has been network bleed-over -- or data spilling outside of the network area.
"You need to properly engineer a network so you get good coverage without broadcasting the fact that you have wireless access to every neighbor within half a mile," he says. "I don't want to underestimate the amount of appropriate engineering, both for access points and for the facility."
The focus on encryption and authentication has gone hand in hand with the risk of network bleed-over. Fredriksen says he looked at standard encryption methods, but "every time a wireless vendor came up with security, it was rapidly cracked." He's now using military-grade AES encryption.
Still lacking is local caching of access credentials, "so should the connection to the primary authentication server be lost, those remote users could continue to have access," Fredriksen says.
Despite the success early adopters have had with Wi-Fi offerings, security is still a constant concern. Fidelity is currently layering elliptic curve cryptology technology on top of standard network encryption algorithms, such as Secure Sockets Layer.
"We are thinking of doing other things to beef up security -- second-level authentication, where users get little tokens and type that in within a specified period of time to gain access," Ferra said. "We treat security as paramount."
Most popular applications: Accessing insurance client information and forms, monitoring news and stock feeds, and accessing e-mail and instant messaging systems.
Top challenges: The need for security that addresses network bleed-over and includes means of encrypting data and authenticating users. Financial services companies tend to layer multiple encryption and authentication technologies on top of one another, adding complexity.