E*TRADE meets web 2.0

FST speaks with Greg Framke, Chief Technology Officer at E*TRADE, about what wikis and mashups and all that funny web 2.0 language has to do with E*TRADE. By Leslie Knudson
Having joined E*TRADE in early 2000 – just before the internet bubble burst and Wall Street hit its knees – Framke came on board just in time to see E*TRADE process a record number of transactions and revenue trades in April 2000. Under CEO Mitch Caplan, Framke was part of those recent rebuilding years that have once again set the company on an unprecedented platform, as it has once again climbed back to be one of the most successful and innovative online trading and financial services companies today.

The last few years have been more than good to the online broker – with a growing customer base of 3.4 million and a healthy share price of $22.47 – thanks to a solid management team centered on the value proposition to drive the business forward but, more importantly, some smart bets on technology early on.

The company has continued with that theme – keeping technology at the forefront and heart of operations at E*TRADE – which means business decisions are tied with IT and Framke has a comfortable seat at the decision-making table. “Because our storefront is ETrade.com, technology at a company like ours has a little bit different role,” Framke acknowledges. “In particular, the CIO at E*TRADE has a different role than at other firms, in that the CIO has a seat at the table. So I'm involved in the board meetings and every strategic decision that's made just because technology is so wrapped up in what the company is trying to do.”

Along with technology, security also shares the stage as a key proponent of the business. While most of the financial industry has been through the ups and downs of security, Framke feels that the online financial services industry is still at the beginning of the process, and has much to learn, particularly in how to find the right balance between convenience and security. “If you think about the credit card industry, it went through all kinds of very public security and fraud issues so it’s had a long time to deal with credit card fraud. In the online space, we're kind of at the beginning of that process.”

Having the majority of online financial companies still in the learning phases has paved the way for E*TRADE to step in as a leader in the space. “Our brand and our value proposition is around being innovative, using technology and being ahead of what's happening in the industry,” Framke says. “That goes for security as well. We have led the industry when it came to multi-factor authentication, and when it came to things in the securities and brokerage industry, like the complete protection guarantee. We do that because we want the industry to definitely move along with us because it's a shared thing. Security issues hurt the industry as a whole.”

E*TRADE has consistently been at the forefront of customer security, as the first to offer the digital security token, and more recently the E*TRADE Complete Protection Guarantee, which offers customers indemnity from losses incurred by identify theft. The security token, which came out in 2005, still serves as one of the safest forms of multi-factor authentication today. To date, the company hasn’t had any security issues related to anyone who has a token.

Its cutting edge security offerings continue to prove that security is at the forefront of its relationship with customers – and according to Framke, is part of E*TRADE’s basic agreement with customers. “We kind of have a handshake agreement that we'll be innovative, have their interests in mind at all times, provide value to them and they'll do business with us. Security is no different for us than coming out with a great new product. So far, we've been very pleased with that handshake. And I think our customers have responded to our being aggressive in the security field.”

The delicate balancing act

Most importantly, Frmake is mindful of the fact that convenience and security need to go hand in hand, something that’s a very big topic at E*TRADE, and an area where most firms fall short.

“Being able to balance convenience and security in a very effective way is industry leading because it does take a lot of work,” Framke notes. “A lot of firms are struggling to find that balance. There are companies that are erring on the side of being secure, but at the cost of convenience for customers. Firms have to be as aggressive as they can be, and then really spend the time making that trade-off between convenience and safety. That's the real art.”

E*TRADE has taken significant strides to obtain this delicate balance. For example, the token is currently offered on a voluntary basis so customers can choose to opt into the program as not everyone may want to carry around a hardware token. Meanwhile, regardless if customers use the token or not, technologies are working in the background to add additional security.

So far, E*TRADE has been pleased with its ability to find very few issues amid millions of authentications and intervene effectively. “The rate of authentications that are issued is very small,” Framke says. “It is a little like a needle in a haystack. Where a lot of the work is for us right now is in making sure that we are not having a high rate of what you could call false positive, because you don't want to inconvenience thousands of customers to find just a few issues.”

It’s an art that is constantly being refined, but positive customer responsiveness to its security measures and strong adoption of things like the token show that the company is on the right track. “As customers become more aware of what they can do to help protect themselves, they are seeing things like the token as being a very good trade-off,” Framke admits. “We continue to get feedback that people who get tokens are more willing to bring more assets to our company because they feel that there's a certain level of security there that they're not getting at other firms. So that's very gratifying as well.”

Application composites and mashup

Aside from its precise balancing act of security and convenience that has pleased customers, E*TRADE is now tapping into the power and potential of web 2.0 to be even more competitive in the online trading and financial services arena. It has an SOA based platform, the majority of its applications on Java, and the website has been developed on open source software. This structure has allowed it to to take full advantage of web 2.0 approaches such as application composites, rich internet streaming media, Ajax and other technologies. E*TRADE is already deploying streaming media in certain areas of their website and plan to introduce a number of sophisticated streaming media type applications on the website later this year.

Delving further into the web 2.0 scene, E*TRADE is also taking a look at incorporating application composites and mashups into the business. Application composites are essentially meshing together two different applications to create something new, a strategy that E*TRADE is already familiar with, having deployed application composites in their website already.

It’s a concept that E*TRADE tries to utilize as much as possible – already making use of internal applications that are application composites such as the one used by their sales and service teams that’s a front end composite between internal applications and vendor applications – and in addition, their complete integrated product offering – the Complete Investment Account – is essentially an application composite.

To E*TRADE the composite idea represents productivity. “If standard development has a productivity value of one, when you are able to reuse services and build integrated applications on top of a common set of services, give that a productivity level of ten,” Frame explains. “When you start doing things like composites, that's really a productivity level of 100. It's that powerful because you're basically putting two things together and getting something very new and unique, which would take a lot of time and effort to do from the ground up.”

Mashups are another similar concept capturing E*TRADE’s attention. “I'm very intrigued with mash-ups,” Framke admits. “The reason that we will and have started looking at ways of basically deconstructing ETrade.com, is because if you think about what a mash-up is, it's basically taking ETrade.com and breaking it up into modules that customers can use any way they want to. I am of the group of people who think that destination websites one day might go the way of the dinosaur. More and more people are going to want to interact with the web the way they want to.”

Framke wants to extend the options to customers to use the web in whatever way they are comfortable with using the web, whether it’s via sites like MySpace or Yahoo. “If you are one of our customers and you don't want to be bothered with going to ETrade.com and going through that process, maybe you just want to lift out a couple of modules of our website and plug them into something else,” Framke says. “We're already looking at – I call it deconstruction – because basically we've built this highly integrated, highly effective website and tools, and now we have to figure out a way to keep that intact and be an adaptive financial services company.”

The current task is to look at how to deconstruct the company’s own elements and deliver it to customers in a preferred manner. Framke estimates the first means to do this will be through the form of E*TRADE widgets, which will be coming out this year. For example it has recently launched Market Trader, a mash-up like Java application for active traders that enables different windows to essentially be torn off and viewed separately. True mash-up techniques are slated for release later in the year.

Ultimately, the motive around the offering the ability to deconstruct, looks to leverage the customers behind E*TRADE and their knowledge to produce some interesting results. “If I can deconstruct elements of ETrade.com, people are going to find really interesting things to do with it,” Framke says. “I'd like to harness the power of 100 million people – we have a lot of very sophisticated, smart customers who I know will do something very interesting with these widgets and mash-ups – and I want to be there for them when they do.”

Evolving E*TRADE

Starting as a simple online trading business, E*TRADE has since grown into a powerful, multi-faceted online trading and financial services company, offering a variety of different services, ranging from cash services to risk services to mortgages.

Framke credits the firm’s technology for its ability to provide all of those services in an integrated manner. “When E*TRADE technology built ETrade.com on that common set of services, that was the key,” Framke admits. “For us to be able to plug in a financial services product and deliver it in a very compelling way is not that difficult because there were some really good technology bets made over the past ten years. E*TRADE in '96 was just a trading company while today it is a financial services supermarket.”

The early technology bets have carried over into continually enabling E*TRADE to get products to market quickly while still being the low cost provider – and keep it in a position to make smart and flexible moves well into the future. “It's not magic, but it's just some good bets on technology that helps us expand the envelope,” Framke says. “It's hard to prepare for what you don't know is coming down the future. But we've gotten good at plugging into flexible technologies that have some staying power.”

Looking ahead to the future, E*TRADE will be busy putting its visions around web 2.0 in motion, having recently announced a global trading product that is the embodiment of its intentions for incorporating web 2.0 concepts into its services and offerings. Currently the product is in beta but will be made generally available for customers at the end of the second quarter or at the start of the third.

While the product melds multiple platforms and offers extensive capabilities, the work required to get it to market wasn’t extremely difficult, as E*TRADE was able to use their services without having to build a new platform or build out a new infrastructure. “We’ve taken the platform, ETrade.com, the trading platform, the cash platform, and the investing platform – and we have extended it to six direct foreign markets and five different currencies,” Framke explains. “We’ve done that through the website and made the platform multi-currency. We used our existing institutional infrastructure.”

Only in the beginning phases, today beta customers can log onto ETrade.com, transfer money through their global account and have it exchanged for them, and trade directly on up to six foreign exchanges in local currency. Because E*TRADE is running on its platform that’s mostly open source, it wasn’t an expensive endeavor and they’re enabling people to trade on the six foreign markets for $19.99 a trade.

Framke has big hopes for the product and for tapping into a growing market. “This actually has the earmarks of what happened in '96 to ‘98 when online brokerages disintermediated the bulge bracket firms on just plain US equity trading,” Framke notes. “This has the same makings of a disintermediation. US investors' appetites for investing overseas have grown, and if you look at the statistics around foreign investments, it's only the beginning. We’re hoping to tap in to a long-term wave of direct foreign equity holdings.”

Framke feels they are already a leg up on the competition. “If you look at ADRs, for example, only about half of the listed companies on the six foreign markets that we've given our customers access to are available as ADRs. We think that as customers get more comfortable with that kind of investment, they're going to do it a lot. Because of the way we're doing it in such an online and non-manual way, we're pretty significantly ahead of our competition on this one.”

In fact, it’s only the beginning for E*TRADE, as the plan is to add other markets over time and use the platform to enable customers to trade locally. The offering attests to E*TRADE’s meaningful first encounters with technology and how those decisions continue to position E*TRADE as a top innovative technology leader. “We have Euronext as one of our destinations,” Framke adds. “That means somebody in France or Belgium could use the US ETrade.com platform to trade locally. It's not just for US investors trading overseas. It can be for local investors trading locally. We're pretty excited about this opportunity. It was doable because of all the things that I've talked about around the technology.”

BIO

Greg Framke oversees the management of all global technology development and infrastructure at E*TRADE FINANCIAL. As Chief Information Officer and Managing Director, Mr. Framke is charged with implementing and managing technology to maximize efficiency throughout the business, as well as leveraging technology to provide innovative financial services products for customers. In 2006, Mr. Framke was recognized as one of InfoWorld’s 25 Most Influential CTOs, as a ComputerWorld Honors Program Laureate, and as one of CIO’s Top 100 for Innovation.

Mr. Framke’s career spans 20 years in both the financial services and technology industries with experience in sales, marketing and technology. Prior to joining E*TRADE FINANCIAL in 2000, Mr. Framke was Director and Global Equity Technology Chief Operating Officer for Deutsche Bank Securities. From 1994 to 1999, he was a Principal with Morgan Stanley & Co for equity technology in New York and London. Before moving to Wall Street, Mr. Framke worked in marketing and sales management positions at IBM, earning numerous awards and commendations.

Mr. Framke holds a BA in International Finance, graduating with honors from The George Washington University.