With the efforts to fix legacy systems, there is one common limitation – given that they are all inherently monolith, they can only be scaled vertically. This fundamentally inhibits the banks’ agility and ability to reduce cost. Banks need to move away from legacy core systems, which stifle competitiveness in a market driven by technology advancement.
The next generation of core banking systems must be built using a cloud-first approach in mind. Elastic scalability, mechanisms to ensure the integrity of data, and hyper flexible configurability must be baked in. These systems must be able to scale out to handle massive throughput, and scale in to run on a minimal footprint in periods of low activity. There must be zero data loss, real-time access to data and zero planned downtime. And critically: never shut the core.
Moving to the cloud
Cloud technology enables banks to manage their resources on demand, enhance the accessibility of customer data, while also offering the agility needed to process data in real time. Capacity is effectively limitless in the cloud. Banks that want to take full advantage of cloud infrastructure need to adopt cloud native principles – building a core that is written in the cloud and for the cloud.
Building cloud-native systems requires a microservices architecture approach, with which an application is split into autonomous chunks called microservices that communicate via APIs. Microservices are inherently more robust: if a problem arises in one, it is isolated and contained so the system can keep running.
Microservices scale individually. They sit on the cloud, and expand and contract individually according to demand. This eliminates wasted infrastructure. And, massive spikes in demand can be handled flawlessly. Cloud native software can be updated hundreds of times a day with no downtime. Changes are tested and deployed automatically.
Real-time access to data
Data, often characterized by volume, velocity and variety, is the new gold in today’s digital economy. Technically, banks can always pour money into its legacy systems to handle large data volumes. Facing velocity and variety in today’s digital age, banks struggle to offer customers hyper-personalized experiences and insights, as well as real-time balance and transaction details. Bank relationship managers often get exasperated as they lack the data needed to develop targeted recommendations for their clients and to identify prospective small business customers exhibiting switching behaviors.
Taking a page from many technology giants, using streaming supporting architecture to achieve real-time access to data is quickly gaining traction among banks. Core systems built with streaming APIs offer banks the ability to process data in real time using modern AI and analytics technologies, enabling them to respond to both customer and regulatory demands effectively and efficiently.
Gaining control of the product roadmap
The product roadmap for third generation core systems includes both enhancements for the technology platform, as well as buildout of the financial products. When a bank desires to add a new, unique product they have to rely on the third generation fintech to do that (and then the bank customizes using parameters).
With fourth generation systems, banks gain full ownership of their product roadmaps by separating the financial product layer from the platform layer within the core. They can update products and add new products without having to wait for changes to be made by a fintech, gaining tremendous flexibility and agility as they respond to fast evolving customer and regulatory demands. The more control the banks have with their products, the more power they possess in increasing customer satisfaction and controlling costs at the same time. Additionally, with the reliance on a fintech’s product roadmap removed, a bank no longer has to worry that their product differentiators will land in the hands of a competitor.