Elephants can Dance!

Here is some good news and bad news, but the bad news first: Retail Banking is being challenged by other market players who are not Banks but payment or transaction services in some form. The good news is bankers can give challengers a run for their money, align with right-fit 3rd parties and laugh all the way to the Bank. For this, the approach has to change from macro to micro, from bundled offerings to Lego-like elements, and from looking back at a glorious past to foreseeing a bright future.

How to go micro, why not stay with macro? For the answer, let’s first understand the terms Monolith and Microservices.

It would be ideal to explain the terminology in a Banking context. Instead, let’s take a break and book a ride by using the app in our phone. While we desire to travel from place A to B, the problem is thousands of passengers are booking a cab at the same time, and hundreds may be targeting just a few drivers in the vicinity, and it’s part of the aggregator’s role to ensure those who seek a ride are allotted a cab at the earliest, reach their destination safely, make payment, and the system communicates the availability of a cab to the next passenger.

How does the ridesharing service achieve all the above? By switching from its earlier Monolithic approach where the driver and passenger were connected directly (which was a deterrent to scalability in terms of passenger numbers and number of cities served) to a more effective Micro Services Architecture (MSA).

The upgraded system relies on connecting the passenger and driver through an API Gateway (ah, now we have the attention of Bankers, System Integrators and Fintech Consultants).

From the Gateway, all internal points, such as passenger management, trip management and driver management are connected. Which means, if fuel prices rise significantly in the country, and tariff has to revised, the change can be implemented just on the billing Microservice. In short, the interdependency is removed, multiple codebases have been introduced, and to make a change, the aggregator has to address only the relevant technology stack.

Not just cab services, MSA has been adopted by diverse e-commerce businesses and platforms such as Amazon, Netflix and eBay. While MSA has multiple advantages, the worst-case scenario is where it works best: If one service among the microservices does not respond, the rest of the application still functions, hence failure, if any, does not affect other services.

Microservices is now a sine qua non for neo banks. As for legacy banks which have adopted digital banking and are eager to stay ahead in the race, the time has come to switch from Monolithic to Microservices Architecture. With physical banking on the decline, record number of customers demanding services on the cloud, and seamless service becoming the norm rather than the exception, switching to Microservices based Architecture is a must for forward-looking Banks.

To illustrate the importance of MSA even more, let’s take Open Banking and Platform Banking.

In Open Banking, the Bank, upon a customer’s request and consent, shares data with third parties via APIs. Platform Banking is a digital marketplace, owned and operated by the Bank or a third party and provides banking and non-banking services with the customer’s consent.

It is well known and accepted that Open and Platform Banking are here to stay, and will enrich the ecosystem. The industry also acknowledges that Banks at the core, are financial services providers, and therefore cannot be expected to spend time, energy or effort, to delve into, develop and excel in emerging technologies. This understanding, first evident at the dawn of the new millennium, has gained greater clarity in the tech-driven banking system of the present, where collaboration is the key and customer satisfaction is the greater goal. It is in this scenario Microservices thrives as a solution and is welcomed as a changemaker.

Let’s understand Microservices and their benefit from a functional viewpoint. In the Monolithic format, all features of a bank are linked to the single component. Whereas, in a bank that chooses the MSA route, every function is segregated by the service that is provided to the end customer – Balance Enquiry or Request for Statement becomes an Enquiry Service, Fund Transfer is classified and separated as Transaction Service, and likewise other Business Services such as Biller Service and Card Service have their own utility.

When a bank switches from Monolithic to Microservices Architecture, the decoupling of service functionality from the Core of the Bank enables the ‘opening up’ of an individual component (where one element of an Open API performs a microservice) to a 3rd party vendor instead of exposing the entire Core Banking system.

It must be remembered that while Core Banking as an application is common to all Banks, each Bank’s module may have its own protocol or variations based on the fintech enterprise that has developed the solution or based on business objectives of the Bank. When a Bank deploys a best-in-class MSA, the legacy protocols can be transferred to Open APIs.

Legacy banks working with Monolithic systems across front, middle and back offices will be able to meet customer expectations, reduce cost and delivery timescales and work towards a highest level of digitisation by deploying a Microservices layer in their architecture.

A key benefit of MSA is troubleshooting – a bug in a specific service can be identified and rectified without an impact on the core banking system in terms of decrease in service speed or downtime. Another advantage is intense activity in one service in collaboration with a 3rd party can be initiated for a specific duration. Example: If the Bank partners with a telco for airtime top-up offer, the huge volume of sales on a specific day can be efficiently managed by the micro service function.

Now that benefits have been outlined in detail, the question on the Banker’s mind may be, where does one start for Microservices? First and foremost, the change must happen within in terms of a desire to upgrade processes, technology and people. As for enabling Microservices, what should be the criteria for partner selection? Here’s a checklist:

A fintech provider at the forefront of bank digitisation is a good way to start. Next, the fintech must have the expertise to collate and align business units within the Bank with complementary 3rd parties by way of APIs. The chosen provider must have worked closely with Banks in various geographies and helped integrate their suite of software solutions into the core banking system. In the final analysis, the solution seeker must find a fintech enterprise of repute, with a proven track record in new-age banking technologies.

One good way to start the search: Talk to Modefin, a company which has worked with more than 65 banks to enhance their agility, flexibility and scalability, a fintech enterprise that firmly believes with the right platforms, solutions and APIs, even elephants can dance.