Two classic models tend to be competing with each other in different ways when it comes to the introduction and maintenance of core banking systems: monolith to microservice, robust versus agile and in-house versus vendor. However, the truth is that there is no “best” solution. Your condition depends on the optimal option, so let’s look at some of the determining factors.
Oaperg teams have advised each client to lean towards whatever solution suits them best in our 10 years of implementing core banking systems in different regions. And a partner with this kind of deep business expertise will make all the difference if you’re looking to turn your bank.
What Is the System of Core Banking?
The beating heart of a financial institution is the central banking structure. It includes all the services offered by a bank for its customers and all the business features required to carry out its business. This involves management of clients and prospects, processing of payment and security transactions, regulatory monitoring, risk assessment, role keeping, e-banking interface, and so on. Plus, it is also important to have key platform specifications such as robustness, availability, authentication and authorization and complete auditability.
The advantages of a Central Banking Monolith Strategy
In a single, completely integrated piece of software, monolith architectures cover all core banking services. Importantly, since, for instance, things like the payment application and the position-keeping application are part of the same IT solution, you don’t need to create interfaces between services. And, because the object model is consistent across all elements, there is no need to engage in complex mapping between the various fields.
Properly Supported and Supported
Choosing a single software to execute all the functions of the bank guarantees a privileged relationship with its supplier, improving their support. So, the whole network, particularly during an upgrade, is much more robust and resistant to single-point failure.
It also opens the door to software as a service (SaaS) solutions to incorporate a single software with a reasonably standard configuration. Indeed, with a small range of out-of-the-box extensions, SaaS banking software providers would almost certainly have a regular offering. Usually, SaaS enables substantial cost savings on maintenance and improvements, and can even allow complete back-office outsourcing, keeping the organization smooth and focused on key areas such as customer management.
What Does the Architecture of a Microservice Do Best?
A microservice application is comparatively easy to get to grips with in comparison to monolithic architectures. There’s safety in numbers, for example. If one feature fails, without having to modify the whole architecture, the team may add another service, which allows for faster delivery. Scaling is often simpler with small components to meet the needs of a specific element. And since the program can run independently when undergoing modifications, it is possible to introduce rapid and managed upgrades without having to delay or stop other components. Also, as the design of microservices is more versatile, the team can use whatever language or system is right for the job, enabling them to perform tasks such as setting up servers without interrupting communication between services.
In a sector known for its relative stagnation and resistance to change, microservice architectures offer much-needed agility. Fresh, targeted apps are being created every day by small teams. And selecting the right implementation of the architecture will ensure that changes in laws, best practices and consumer needs are easily responded to by the core banking system.
It is possible to rapidly combine every new fintech application with a novel business strategy, enabling synergistic creation and exploitation. Microservice architectures also facilitate the discovery of niche markets by making the integration of single-purpose applications that can be targeted towards specific domains fast, simple and inexpensive.
Cutting costs and risk avoidance
A decentralized architecture, but without intermediaries, offers all the same services as a centralized bank. Smart contracts and loans from P2P cut costs and guarantee protection without impacting service quality. The introduction of a wide variety of services often makes the possibility of the core banking system’s complete failure near-to-zero as the services are independent of each other.
That said, the ideal solution isn’t there. In various contexts, different architectures provide various benefits. For example, for back-office assignments, a monolithic approach would be a good option. Whereas, a microservices strategy will be good for customer-facing tools such as e-banking and mobile applications since it provides many options to consumers. Microservice apps are stripped down to their simple, independent components, so it is possible to fix several negative issues in isolation. This prevents the kind of IT outage experienced by TSB in the UK, where between April and June 2018, two million customers were locked out of their accounts; a meltdown that cost £ 330 million to the bank.
Which one to pick?
In a successful banking scheme, all methods can be compatible. It is possible to incorporate core banking data and back-office functions into a monolith structure. Data can then be exposed to various microservices that perform state-of-the-art tasks. One can do risk analysis and optimization of the portfolio, while the other takes care of e-banking.
Working with an implementation partner such as Oaperg IT Services that has extensive experience with the key core banking software: Avaloq, Temenos and IBIS3G, in addition to Murex and so on, is the best way to determine which solution is the best match for your situation.
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