E-Trade bought Telebank, and the move was seen in the marketplace as an early attempt to offer brokerage and banking services on one site. With the subsequent crash, however, enthusiasm among investors for such online integration quickly faded. Caplan persisted, however, and his bet seems to have paid off. Banking helped E-Trade return to profitability. The company now boasts 748,950 bank accounts — seven times the number of accounts it acquired from Telebank.

As a bank, E-Trade is still relatively small. (Wells Fargo, in contrast, has 7.9 million active online consumer customers, who account for 59 percent of its consumer checking accounts.) But Caplan and Framke attribute E-Trade's success in a competitive marketplace to the company's use of open-source technology (for example, Linux on Intel servers, serving Webpages with Apache and its supplement, Tomcat) and its early adoption of a services-based approach to software development. When E-Trade built its technology infrastructure, says Framke, service-oriented architecture was a "promising building block" for providing transaction processing. It suited E-Trade's business model — which emphasized convenience for customers — because it allows the company, by reusing software services, to provide the same experience to account holders whether they are checking a balance or applying for a loan.

"There was something compelling between what we wanted to provide our customers and this emerging technology," Framke says.

Total Integration

At the core of E-Trade's technology strategy is a simple idea: that it should be easy and appealing for customers to open accounts with E-Trade, and once they do, it should be easy for them to manage these accounts without having to log in to multiple systems.

"It shouldn't matter where you are or what kinds of accounts or products you have," says Caplan. "You want the [online] experience to be the same. That kind of service requires integrated systems." This is a goal that many banks are striving for right now, but E-Trade is well on its way to achieving it. For example, the company provides customers with a single sign-on for accessing all their accounts during a banking session. In early 2005, E-Trade launched E-Trade Complete, a tool that allows customers to get a single view of their cash and investments on one screen. Conceptually, it's similar to an online dashboard, and it's possible because E-Trade uses Web services to knit together customer data from multiple back-office systems enabling the systems that support checking accounts and investment accounts to use the same customer information.

Building on the E-Trade Complete function, the company introduced the Intelligent Cash Optimizer later in 2005, followed by similar tools to help customers find loans and fine-tune their investment strategies. All of these tools reflect E-Trade's focus on integrating services to create a smoother customer experience. For example, the company repurposed a feature that allowed customers to transfer money in and out of cash or checking accounts in order to enable QuickTransfer, which allows transfers in and out of any other account, too. "The key is to bring together everything to allow customers to navigate between different types of products and see for themselves if they want to save more money or make more interest on their cash," Framke says.

Traditional banks, on the other hand, "are bogged down by legacy systems", observes Framke, who has also worked for investment banks Morgan Stanley and Deutsche Bank. The older banks have separate systems for processing loans, managing cash and purchasing investments, and online customers often have to toggle between applications in order to conduct transactions. Experts agree that the type of application and data integration that allows customers access to different products from a single interface will help other banks develop their online offerings. Most large banks are working on this problem, but integrating multiple applications and merging customer information into one database is not an easy task. "Getting the holistic view of a customer's assets, liabilities and balances is not easy when you have silos," says Peter Nikonovich, managing director at BearingPoint.

Banish Bureaucracy

Most banks got started with a single purpose. They were either retail banks, commercial banks, mortgage companies or credit card providers. Then, as the economy evolved and the banks grew, they added new lines of business. Each line of business, or unit, would build its own systems, thus banking became an industry in which most large firms were a collection of separate silos. Add to that history the recent wave of bank mergers, and most large financial firms are working not only with a complicated set of systems and databases that don't talk to each other, but with business units that don't collaborate.