Coreless banking – technology evolution above and below the glass

Getting your Trinity Audio player ready...

Banking has come a long way in its technology journey with fully digital, branchless neobanks being some of the most striking examples of modern financial services. Recall that in the not-too-distant past, transactions would involve comparing signatures on pieces of paper and authorizing payments by hand. Banking has evolved rapidly in recent times, shifting from physical to virtual. And today, financial service providers continue to pursue digital ambitions, including coreless banking initiatives. But modernization involves dealing with legacy architecture too.

API gateways

The good news for banks – particularly organizations that have been investing in core banking systems for decades – is that operators don’t necessarily have to rip out everything in one go. Services fabric – which comprises an API gateway that covers a wide range of business scenarios, thanks to a long list of service domains and an even longer list of individual service operations – helps firms update the digital services provided to customers. And controllers can handle both newer and older infrastructure.

“On average, banks could still have 80 to 90% of their data on legacy systems,” Hans Tesselaar – Executive Director of the Banking Industry Architecture Network (BIAN) – told TechHQ. “And that can’t be changed overnight.” API orchestration approaches allow banks to make upgrades step-by-step, or service-by-service, and choose which elements of their operations to migrate first. Over time, the proportion of data residing on legacy systems will go down as more information is moved to cloud and hybrid-cloud arrangements and sits on more cost-effective technical infrastructure.

“Developers can use BIAN API’s and open banking APIs to make an abstraction layer between the old and the new,” said Tesselaar, explaining how financial services providers are managing to build digital banking products on a mixture of legacy systems and the latest infrastructure. And industry watchers such as Gartner have highlighted the important role that API’s have to play in banking modernization strategies.

One way of picturing the vast number of services that need to be integrated is to pick up a smartphone and hold it horizontally with the screen facing upwards. Above the glass you have the customer experience and ecosystems that support that activity. And below the glass you have the banking processes, operations and controls that need to be enabled and regulated. “Our APIs connect what happens above the glass with the actions that need to be performed below,” said Tesselaar.

Domain expertise

BIAN through its broad membership of banking institutions and partners brings expertise across a range of domains from corporate banking and trade finance to fraud detection and wealth management. And codifying all of the various banking processing into elemental steps allows each function to be managed through an API. For example, BIAN has hundreds of API’s in its catalog, which represent key activities within clearing, accounting services, loans and deposits, card usage, and other mainstream banking tasks.

In terms of the end game, one vision is so-called coreless banking, which RedHat – a BIAN partner – points out could accelerate the time to market for key customer journeys. The approach defines banking services as individual, modular business functions, which can be maintained independently rather than being tied to a core banking engine. Cloud native, these microservices are seen as being more scalable and easier to maintain for organizations.

Coreless banking is a natural step once financial services have been composed into unique operations. And frameworks provided by industry organizations such as BIAN pave the way for companies to reuse modular business functions and build services much more rapidly. In fact, common scenarios with agreed process definitions make it possible to automate various aspects of development, further accelerating the creation of digital banking experiences.

Technology is playing a huge role in the delivery of financial services, and based on this factor alone, fully digital banks clearly have an advantage. But it’s important not to lose sight of what makes one bank more appealing to customers than another. Key deciding factors are trust, the services on offer, and ease of use.

Customer appeal

Banks must appeal to customers whose needs change as those clients move through different stages in life. And while apps and smartphones may suit some users, the same services can leave others very confused and frustrated. Coreless banking could help to level the playing field and attract new developers of financial services, boosting the creation of digital solutions that are more appealing to customers.

In principle, there’s scope for tech giants to develop banking products. But they would need to be prepared to come under much more scrutiny than they are currently. Banking is a highly regulated industry, for good reason, and that could deter developers known for moving fast and breaking things. However, time will tell, and financial services are certainly no-longer the standalone entities that they used to be. Plus, the prospects for creating new digital products are rich thanks to initiatives such as coreless banking and readily available APIs to smooth the development process.