In its latest report - 'The Networked Financial Institution: Connections for a Successful Business Strategy' - the Massachusets-based research house says that Web services have the potential to alter the competitive landscape within which financial services firms operate. But in order for this vision of business transformation to be fully realised, there must be a greater drive toward standardisation - as well as additional development of critical protocols to ensure that they can support complex financial transactions via public networks in an open environment.

The report notes that spending on Web services by financial services institutions is currently minor when compared to overall technology spending. TowerGroup estimates that by 2005, Web services will still represent only $8 billion of the $350 billion spent by financial services institutions worldwide on IT.

Interest in, and spending on, Web services will continue to grow - but TowerGroup projects that the vision of the "networked financial services institution" will not be realised until the end of this decade, at the earliest.

"It's clear that considerable effort is still needed to build toward standards on which multiple vendors can agree," says Jim Eckenrode, TowerGroup group director, consumer banking, and lead author of the report. "By independently developing extensions to existing standards like XML, application framework vendors end up creating closed architectures - the very phenomenon that Web services seek to prevent. Until common standards arrive, institutions will continue to rely on tried and true development and integration approaches."

Recent research from the Yankee Group and Microsoft show financial institutions to be the leading adopters of Web services technology. However most are implementing internally and only on a piecemeal basis.