A Short White Paper by Muir Software, Inc.

• Description of the Problem
• What Is OFX?
• The OFX Language
• The OFX Framework
• Why OFX?
• The Customer of the FI
• The Financial Institution
• Appendix

Description of the Problem
Open Financial Exchange (OFX) is a specification designed to enable the exchange of financial data and instructions between customers and their Financial Institutions (FIs) whether the FI is a bank, credit union, brokerage, mutual fund company, credit card company, among other types of institutions. It allows customers to connect directly to their FIs via the internet.

The following document will describe the OFX specification and framework, how and why it is being used and who is using it. This will also describe the power this new technology brings to the customer and the business opportunity for the FIs providing this access to their customers.

What Is OFX?
Open Financial Exchange, or OFX, is a unified specification created by CheckFree, Intuit and Microsoft early in 1997. This work was accomplished while collaborating with several industry leaders in the banking and brokerage industry, such as Chase Manhattan Bank, Wells Fargo, Citibank, Charles Schwab, and Fidelity Investments.
The purpose of OFX is to enable a customer or small business to manage his finances electronically, to connect directly to his institutions, via a computer, and issue instructions to that institution as well as download his particular financial data.
The OFX specification includes two main components to accomplish this purpose: the OFX language and the OFX framework to support the communication of this language.

The OFX Language
The OFX language is very similar to any other language except that OFX has a very specific set of subjects that can be talked about and a strictly defined set of words that can be used when conversing. The subjects are banking and financial brokerage and the words are those found when describing the specific functions available to the customer.
The following is a list of the subjects covered as of today. The banking functions are given first, followed by the brokerage functions:

• Bank Account Information and statement report
• Credit Card Information and statement report
• Stop Check request and status information
• Intrabank Funds Transfer request, modification and cancellation. Also Recurring Intrabank Funds Transfer, i.e. scheduled transfer requests and transfers for a future date
• Interbank Funds Transfer request, modification and cancellation for both US and International usage. Also Recurring Interbank Funds Transfer
• Wire Funds transfer request and cancellation
• Notifications for Returned Checks and Deposits
• Bill Payment on specific request or recurring basis
• Bill Presentment, i.e. an electronic delivery of a bill from a vendor to its customer
• Brokerage Transaction report listing all activity on a given account
• Brokerage Position report listing all holdings in a given account
• Brokerage Balance report listing all balances in each typical brokerage category such as cash account balance, margin balance, short account balance, buying power, etc·
• Open Trading Orders report listing those trades that have not yet executed

The broad range of functions provided encompasses the typical customer's banking and brokerage needs. One major function not yet provided is online trading. This is currently being developed and should be available within the next year.

The OFX Framework
To accomplish these functions listed above, three entities are required.

1. The customer (of the FI) with a computer and access to the internet
2. OFX software (either desktop or on the internet) to enable the customer (of the FI) to manage his finances from his personal computer. (The software at this side of the communication will be referred to as the OFX Desktop software.)
3. The FI (the customer's bank, brokerage firm, ·) that accepts OFX requests from the customer and transmits OFX responses. (The software at this side of the communication will be referred to as the OFX Server software because it services requests).

The following diagram illustrates the major system components. The customer, through the OFX Desktop software, initiates a request to the FI via his internet service provide. The request is received at the FI and passed onto the OFX Server software. The request is serviced (i.e. the financial actions are initiated and/or statement data is gathered through interactions with the FI's backend system) and the response is sent back to the customer via the internet connection. The OFX Desktop software will then present this information back to its user (the customer) in ways that help him manage his finances.

The OFX Desktop software packages available today (item 2 from the list of entities above) are Intuit's Quicken '98, Microsoft's Money and Microsoft's MS Investor. Quicken '98 and Money are both computer desktop tools, i.e. they are software packages that the customer buys and installs onto his personal computer. MS Investor is provided on the web at msn.investor.com.
The OFX Server is the software that the FI must install to enable online access to its customers. The FI does not need to concern itself with the customer end of the system, how the customer will use this information or the analysis tools provided. The OFX Desktop Software is responsible for the interface to the customer. The FI only needs to concern itself with being able to respond to OFX requests.

Why OFX?
To answer this important question, two different perspectives need to be considered:

1. The customer of the FI (the OFX Desktop user) -- why does he want to use OFX?
2. The FI -- why does the FI want to provide OFX to its customer?

The Customer of the FI:
Listed in the previous section were the online banking and brokerage functions available to the OFX Desktop user (e.g. statement downloads, wire-transfers, open trading reports, etc·). The list given addresses all of the customer's needs today. However, many items in this list are not new to online financial management. What is it that OFX offers that was not available before?
To illustrate the maximum advantages for the customer, an investor with complex needs will be described. This investor's frustration will underscore the two main driving forces behind this OFX movement. Those forces are listed subsequent to this illustration to re-iterate the points.

This investor has many investment accounts scattered amongst many different FIs. He has a sizeable Keogh account from his former employer and a money purchase and profit sharing plan set up for himself from his own company. His wife has investment accounts in Hong Kong as well as an IRA that he manages for her. He has trust funds set up for each of his children, a couple of IRAs of his own and two bank accounts that he transfers funds in and out of throughout the month, some on a regular basis, some just occasionally. All these financial assets are scattered across several financial institutions. For each account, he receives a financial statement at the end of the month. The volume of information contained in these statements demands that he expend large amounts of time trying to sort out the information and building a clear picture in his head as to his family's overall financial situation. He started to manage a bit of his finances online but this solution required that he type his holdings into a software portfolio management tool and maintain the numbers himself. To make matters a bit worse, he was always forgetting a check here and there which often threw his calculations off enough that he began to mistrust his numbers. Some of his financial institutions have online access but each uses a different tool shattering any chance of combining of his downloaded information to get an overall analysis of all of his holdings. In addition, each institution has its own software package that must be installed and mastered by the investor.

There are many problems being illustrated in this story. OFX is designed to solve each of these. The most important of which are the following:

• The investor needs to manage all of his accounts from all of his FIs in one tool. The OFX Desktop tools are designed to work with all FIs who provide OFX access to their customers. This is the most compelling reason for a customer to use an OFX Desktop tool. He can manage all of his finances from one tool, run analysis functions on all of his combined portfolio and build an overall picture of his financial status in one place.
• The investor needs to include international accounts easily and economically. He can include international accounts since the internet is being used as the communication mechanism and the internet knows no borders.
• The available OFX Desktop tools cost approximately $50 for the customer. This is a minor expenditure for most investors given the amount of convenience that these tools provide.

For these critical reasons, the desire for OFX originates in the wishes of the customer.

The Financial Institution
This customer desire, along with other reasons listed below, creates a business opportunity for an FI providing OFX access. This opportunity is the main subject of this document. Therefore, this section offers more detail than previous sections so that the reader will understand the opportunity, the components needed and their importance.
The desire for OFX also originates in the FI for several reasons.

• Most FIs will want to provide OFX access so that it can attract new customers who want to use an OFX Desktop tool (either because these tools are the best personal financial management tools or because of the reasons listed in the previous section.) Alternatively, FIs will want to offer OFX access to retain those customers who would otherwise leave because they want this OFX capability. Furthermore, with reference to the brokerage functionality, the industry has witnessed a large flux of customers moving from FIs who do not provide online trading to those FIs that do. When OFX becomes capable of supporting online trading, the industry will probably see another large migration of customers towards those FIs that support OFX.
• The FI can provide the customer access to its banking and brokerage functions much more easily using today's internet technology than those methods used in the past. By leveraging off of the strengths of the internet, the FI gains:
  • A communication mechanism allowing customer mobility and international access. The internet allows worldwide conversation.
  • There are several web servers for a company to choose from to provide this access. These tools are fairly solid and straightforward to employ making the job that much easier for the FI to handle.
  • Using the open OFX specification enables FIs to communicate with multiple customer interfaces. This internet enabled platform independence decouples the OFX Desktop software from the OFX Server software. This means that the FI can choose whatever computer it needs to provide the OFX Server software and do this independent of any concern as to what computer platform the customer is using. The FI can use a Sun, Hewlett-Packard, Tandem, a PC, etc·if it chooses. The customer can choose any platform he wants. These two decisions are completely independent of one another.
  • Security -- OFX provides for several levels (from strong to very strong) of security options for the FI. The FI chooses how secure it wants its communication to be on behalf of its clients. The main security goals of OFX are the following:
    • Privacy: Only the intended recipient can read a message. RSA Public Key Encryption will be used to ensure privacy.
    • Authentication: The recipient of a message can verify the identity of the sender. Passwords and Account Information allow the FI to authenticate a client, and certificates allow a client to authenticate a server.
    • Integrity: A message cannot be altered after it is created. A cryptographic hash is often used to assist integrity verification.
  • By encouraging online banking to its customers, the FI is able to do its business in a more cost effective way as compared to traditional methods (i.e. several tellers, lots of long lines of impatient customers, branch buildings everywhere, etc· Also, the banking will be available 24 hours a day, 7 days a week.
  • The OFX Specification has industry leader support. It originated through the work of many major companies recognizing the need for the technology. Intuit Inc., Microsoft Corp. and CheckFree Corp. originated much of the work thus far while collaborating with several companies involved in the OFX Steering Committee. Bank of America, Chase Manhattan Bank, Citibank, First Technology Credit Union, KeyBank, Wells Fargo and Woodforest National Bank comprise the Banking Steering Committee while Fidelity Investments, Charles Schwab and Dean Witter form the foundation of the Brokerage Steering Committee.
  • The OFX specification is publicly available for implementation by any financial institution or vendor, and is being used by CheckFree, Intuit and Microsoft as the primary mechanism for supporting financial data exchange in their products and services.
  • OFX uses SGML (Standardized General Markup Language) to define the format of the financial information being exchanged between the OFX Desktop tool and the OFX Server. A detailed discussion about SGML (see Appendix) is beyond the scope of this document but a few key strengths are as follows:
    • SGML is a platform-neutral standard meaning that any software providing an SGML document need not concern itself with the computer architecture of the recepient.
    • SGML is an international standard, ISO 8879, for document representation.
    • Bootstrapped by the popularity of HTML and the web, there has been recent momentum to begin expanding the web's capabilities through the use of SGML. All major web browser vendors are now supporting SGML on the web (Netscape, IE4.0, etc·). As this movement increases, the use of SGML will explode, i.e. OFX is employing the right technology at the right time.

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Appendix
Further Information about OFX
To see more information about OFX and who is involved, refer to the WWW address: http://www.ofx.net.