Microservices – redefining core banking

In today’s digital age, tech giants like Google, Netflix and Amazon have redefined customer relationships – that is how people interact with a company. Banks seek to transform their relationships as well, though many have approached digital transformation in a rather superficial fashion, often by launching sleek looking apps with chatbots. While a start, too often fancy front ends are mere window-dressing, masking an outmoded core fundamentally unsuited for round-the-clock digital banking.

This is partly because starting a conversation about core system replacement may feel uncomfortable and daunting. There are plenty of examples of unsuccessful outcomes, initiatives scaled back or abandoned with considerable consequences and full-blown “rip and replace” projects that went awry with soaring costs, and fundamental shortcomings.

Let’s go back in time for a moment. Core platforms enabled banks to benefit from scale by managing a vast number of customers, accounts and transactions all on a single system.

But banking in 2020 looks vastly different from 30 years ago – the core must support a growing number of customer types, channels and devices, and it must be open to integrating with third-party providers for a more robust offering. This requires a new approach, one that allows banks to strategically move away from monolithic legacy cores unsuited to today’s requirements.

We can learn what’s possible from Big Tech. Apple, Tesla and Netflix redefine what’s possible with technology, while companies such as Amazon and Google take customer service to a whole new level. These are digital-first pioneers, disruptors and master innovators largely unencumbered by legacy technology.

When building their infrastructure, they have essentially started with a blank slate, which has proven to be a huge competitive advantage. They embrace technology to define, deliver and enhance the full spectrum of experiences on offer.

Banks can do this as well. While they can’t completely start from ‘scratch’, there is a chance to embrace change and opportunity. Enter the microservice, a small service focusing on just one or a handful of tasks. For banks looking to be more flexible, they can be incredibly useful in enabling digital transformation.

Divide and conquer 

Microservices can offer a lifeline to banks seeking to free themselves from the constraints of a monolithic processing core. Through 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 and/or business case.

Another key element is the cloud. As banking technology continues to transition away from the back office towards the front, the need for computer power will steadily increase.

The cloud is already mainstream in financial services as it offers the potential for the unlimited scale, elasticity and availability needed to implement continuous development. What is more, by migrating to the cloud, banks will no longer need to manage their own physical data centres, something few will miss.

This is particularly true now when physical access to data centres and storage locations is challenging because of the lockdown. The pandemic has put additional pressure on banks as they are now also more vulnerable to cyber attacks. Over the past few months, those banks who had already invested in the cloud have shown better resilience, largely because they addressed and mitigated these risks before their business operations were adversely affected.

Dynamic application programming interfaces (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.

And finally, modern componentised architecture can benefit far more easily from artificial intelligence (AI), machine learning (ML), event streaming and big data.

In the business of banking, there’s a continuous flow of new regulations, advances in technology, and shifting customer expectations. Leveraging components and microservices can enable a modern, future-proofed core that can ‘insulate’ banks from the challenges and turbulence of constant change, while taking full advantage of the opportunities change can present.

Core transformation is the essential foundation for navigating the future and supporting continuous modernisation capabilities. But rather than investing everything in all-or-nothing core projects, banks need to think in a more modular capacity.

Banks should start on their journey towards change today, one microservice at a time. 

By Andrew Beatty, Head of Global Next Generation Banking at FIS