Navigating Change: Components and Microservices Give Banks Flexibility for the Future

“The only certainty is that nothing is certain,” wrote Pliny the Elder about two millennia ago. Few would challenge this sentiment, particularly these days – in fact this perspective may be more relevant now than ever.

In the business of banking there’s a continuous flow of new regulations, advances in technology, and shifting customer expectations – Banks need to find ways to “insulate” from the challenges and turbulence of constant change, while also capitalizing on the opportunities that change brings. This blog discusses how leveraging components and microservices can enable a modern, future-proofed core which does just that.

We live in a digital age, where tech giants such as Google and Amazon have redefined customer service. Banks seek to transform too, though many have pursued digital transformation in a rather piece-meal fashion. For example, launching digital capabilities via attractive apps and convenient chatbots. While it’s a start, too often the fancy front-ends are essentially window-dressing, masking an outmoded core which is fundamentally unsuited to real-time, 24/7 digital open banking.

For some banks, the core processing platform is “the elephant in the room” – a serious challenge that the organization knows about, but few are eager to discuss. Starting a conversation about core system replacement may at first feel uncomfortable and daunting – after all, there are plenty of examples of unsuccessful outcomes – initiatives that were delayed, scaled back or abandoned with considerable consequences; full-blown “rip and replace” projects that went awry with missed target dates, soaring costs, and functional shortcomings that were not anticipated. These become “cautionary tales” in industry news headlines. Compounding this is the reality that, as the pace of change continues to accelerate, a new core in and of itself is no guarantee against an uncertain future.

Fortunately, help is at hand. Thanks to a confluence of advances in technology, including open application programming interfaces (open APIs) and microservices, as well as new approaches such as platform banking, banks can commence a low-risk, high-reward modernization journey. Furthermore, this journey can be navigated at each bank’s own pace, and enables the FI to successfully manage change well into the future.

What does this type of banking modernization look like? It begins with a redefined and “future-proofed” core.

Redefining the Core

The core is the beating heart of the bank, containing critical records of customer accounts and transactions. It’s the processing engine that does the “heavy lifting” to keep these records up to date. Historically, core platforms enabled banks to benefit from scale by managing a vast number of customers, accounts and transactions on a single system. But, in a 24/7 digital banking environment, the core must also support a growing number of customer types, channels and devices – all in real time. And it must be open to integrate with the bank’s ecosystem, fintechs and third parties. This requires a new approach, one that allows banks to strategically move away from monolithic legacy cores that are ill-suited to meeting today’s requirements (let alone tomorrow’s).

Components and Microservices

Microservices offer a lifeline to banks seeking to free themselves from the constraints of a monolithic processing core. By migrating to a microservices architecture, the bank can divide its transformation into manageable parts by separating its core into individual components. These individual components can be developed in parallel by different teams, each with its own continuous deployment stream. They can also be deployed and scaled independently, then combined as a structured application. In this way, new functionality can be added and integrated into the live environment without disrupting business as usual. By adopting an Agile fintech approach based on continuous delivery, the new core can be designed, built, and deployed in stages, each driven by a strong use case/business case.

Building Next Generation Applications and More

With components and microservices, services can be loosely combined or fully integrated using APIs. But that’s only the beginning of the transformation. With a component approach, a bank is also empowered to review its deployment options. For example, it can consider whether to deploy in the cloud, on premise, or a hybrid – whichever approach best meets its business, operational, and financial objectives.

With a modern and digitally-enabled componentized architecture, a bank can further benefit from artificial intelligence (AI), machine learning (ML), event streaming, and big data. Dynamic APIs allow new features and functions to be “plugged in” at a granular level, and intelligent rules and processes can provide unique customer experiences, without requiring new infrastructure or major investment.

It’s a brave new world – Transforming to component-based and digitally-enabled infrastructure facilitates agility and infinite flexibility for the bank; it provides a cornerstone and essential foundation for navigating the future and supporting continuous modernization capabilities.