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Application Service Providers

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Question: 
I've heard the term ASP quite a bit recently, but I'm not sure I understand the concept. Could you give me a quick description or explanation?
Answer: 

ASP stands for Application Service Provider. This is a formof outsourcing with a couple of key differences. First, the only connectionyou need to your service provider is through the Internet. Second, the onlysoftware you need on your desktop computers is a current version of eitherpopular web browser.

The service bureau provides access to the software, complete real-time orbatch processing (depending on the needs of the application), and maintainsthe most current version of the software at all times. The customereliminates costly dedicated telephone lines to the servicer. The per user costof computing goes down, because less powerful desktops are required, nolocal server is needed, and no updating of software needs to be done locally.Today, a number of companies serving different industries are making thistechnology available. To date, no major bank processors have offered theASP model. Significant issues still need to be addressed before banks arecompletely comfortable with this type of outsourcing.

Key concerns include security, and the operational reputation of the servicebureau provider. As to security, the first step is to ensure that the bank’sInternet connection - a dedicated, high-speed link of at least 128k, isproperly controlled with a firewall at the bank’s site. Then, ask questions toensure that the service bureau maintains a highly secure site, one that isconstantly patrolled for intrusion. Part of this process is a review of selectedaudit and examination reports, including the reports of regulatory agencieswho may review bank data processing sites, as well as a SAS 70 Level IIreview conducted by an outside audit firm. As with any critical application,proper password controls, managing both access levels and need to know jobdescription levels, must be put in place and carefully controlled. Reports ofunauthorized access should be reviewed on a daily basis, and investigated toresolution.

While it is likely that existing outsourcers will be key players in offeringASP technology, determining the financial and operational stability of anypotential provider is important. Regulators and outside auditors will demandthat the bank show evidence of a risk assessment regarding any new suchrelationship. Talk to the management of the company, ask to see financials,compare them with the industry, and talk to existing customers about theirexperience. Taking the time to do your homework will pay big dividends ifit helps you to pick the best provider for you.

As with any system selection engagement, identifying your goals and yourparticular needs for the application in question is very important. Use this tobuild a document that represents the consensus of those who will beinvolved in selecting and using the new system. Then, use this document tohelp you identify the most suitable vendor.

While full scale banking applications on ASP are perhaps a ways off, there are interesting developments taking place in this area. In the meantime, agood starting point may be to accommodate remote branches via ASP, whileprocessing the main bank over traditional data lines. Doing so cantremendously reduce the start up costs of a new facility, especially one thatis far away from the main bank or servicer location. Instead of expensivedata lines, the new facility need only have inexpensive PCs, and an Internetconnection.

First published on BankersOnline.com 1/15/01
Copyright, 2001. D. Trent Fleming.

First published on 01/15/2001

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