The retail banking industry is experiencing a flow of new regulations, new technologies, and changing consumer expectations. There is a need to find a way to manage all the challenges of permanent change while capitalizing on the opportunities brought by this new trend. How can banks leverage components and a microservice strategy to modernize their core banking and adapt it to digital and open banking?💡
In the digital era, tech giants have revolutionized and redefined customer service. Banks seek to transform too, though many have pursued digital transformation in an instead piecemeal fashion. While it’s a start, too often, the fancy front-ends are essentially window-dressing, masking an outmoded core that is fundamentally unsuited to real-time, digital and open banking.
Yet, Core Banking platform initiatives suffer from the “elephant in the room” – a huge 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. For instance, initiatives that were delayed, scaled back, or abandoned with considerable consequences; full-blown “rip and replace” projects that went awry with missed target releases, soaring costs, and functional shortcomings that weren't anticipated. These become “cautionary tales” in industry news headlines. Compounding this is the reality that, as the pace of change continues to accelerate, a legacy Core Banking in and of itself is no guarantee against an uncertain future.
Despite the difficulties encountered by banks in the past, today, there are new opportunities that will allow them to get help at hand: cutting-edge technologies, Open Banking with "open apisation" and microservices, Banking-as-a-Services, and next-generation Core Banking System... Banks will be able then to start a real modernization project and successfully manage long-run changes. There is a requirement to begin by redefining Core Banking so that it becomes scalable.
Redefining the Core 👨💻
The Core Banking System is the heart or foundation of your bank. It contains the records of customer accounts and all operations (global history). It is simply the engine of your bank and it must keep these records up to date on a daily basis. Built as a single system, these Core Banking System had the scalability needed to manage a large number of accounts and operations. Unfortunately, Digital Banking is challenging legacy Core Banking that was not built for the digital era, where it has to support different kinds of customers, using different types of channels or devices and in real-time. Then came the regulations, Open Banking or the Open API that requires Core Banking to be open to integrate new players of the ecosystem (Banks, FinTechs, or other technological third parties). So, banks must consider a new approach to move away from monolithic Core Banking to cater to today's needs.
Components and microservices 👨🔧
Open Banking has significant precepts: openness, real-time, innovation, open apisation, and IT architecture evolutions, which will create new opportunities for retail banking players. Components and microservices will enable banks to trigger their digital transformation. Microservices offer a lifeline to banks seeking to free themselves from the constraints of legacy Core Banking and monolithic systems. By evolving their legacy IT to a microservice architecture, banks will divide their core and IT systems into individual, adaptable, and independent components. These individual components will be designed, developed, tested, delivered, and updated independently, simultaneously by different teams, each with its continuous deployment workflow and development cycle. Once deployed and scaled up, the components can be combined into a structured application. It is how new features will be added and integrated without breaking service continuity.
While adopting an Agile approach based on continuous deployment, the new core is designed, built, and deployed in steps allowing each component to be driven independently. Based on a customer-centric approach, the design of new features will be related to the customer expectations.
The emergence of new generation applications
While adopting a component and microservice strategy, features can work independently or be integrated using APIs. At this time, we are only at the beginning of a real revolution within banks because it will be possible to redefine deployment options. Indeed, you can deploy services on-premise and in the cloud (private, public, or hybrid) depending on the approach that fits your financial, operational, and business goals. ☁️
With a modular and digital architecture, any digital bank can easily integrate the latest technologies such as artificial intelligence, machine learning, big data, or predictive analytics. The APIs technology will ease to "plug and play" new features and services according to the level of use, rules, and defined processes. It will enable more responsive and intuitive customer experiences without the need for new infrastructure or financial investment.
This new world of openness facilitates the agility and flexibility of a bank. The microservice and component concepts will become the cornerstone of a digital bank to ensure a progressive and continuous modernization.
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Innovation. FinTech. Digital Banking. Neobanks. Open Banking. Core Banking System. Cloud.
News • January 26, 2021
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