Coreless banking and extending financial services to the edge

By Fiona McNeill, senior manager, product, Red Hat Financial Services

The financial services industry has gone through a radical shift this year. Like all industries, it shifted to digital. With this shift also comes an opportunity to explore new technologies and ways of operating - ones that are inherently more flexible to changing conditions. Aligned to ongoing cloud mandates as part of transformation agendas, elastic scalability - addresses the peaks and lows inherent to digital transaction volatility - is helping drive some banks away from monolithic systems to flexible cores, to get the responsiveness not encoded in heritage systems.

The notion of modernizing core systems is not new. The approach a firm decides to take to modernize their core considering current digital acceleration will vary depending on organizational strategy, available expertise, and executive support. One of the initial steps in a core modernization journey can be to replatform, and introduce the elastic scalability of cloud to modernize existing mainframes. This can help drive a number of efficiencies in operations, perhaps more relevant to this discussion, is new data insights that can become available with this approach, data needed to deliver meaningful customer experiences. Other banks, or even parts of the same bank, are taking a renewal approach, progressively replacing complex customizations with cloud-native integration and then upgrading core engines with more modern versions that vendors offer. Others still are considering reinventing core systems altogether, rebuilding banking services as independent, business building blocks. It's this latter one that is the focus of this article, as when taken to a natural conclusion, these functionally independent business services have the inherent property of becoming a coreless system - that can rapidly define and deliver financial services to the business, wherever that business may be.

Coreless banking

You've heard of the banking core, and serverless, but have you heard of coreless banking? Essentially, coreless banking can be defined as there being no "core". In coreless banking  there is no dependence on different silos of banking transaction engines. Every aspect of the services the bank provides is defined as a singular business function, that can be updated or changed independently from all other functions. Yes, microservices are a big part of this. This is in direct contrast to how monolithic systems typically function, where all software systems are integrated. That's part of the current challenge presented by digital - it can be hard to update just one aspect of these legacy systems because of the deep integration dependencies.

Introducing new digital experiences in an integrated, siloed and product oriented business can be difficult, costly and slow. That's where coreless banking comes in, with right-sized "building blocks" specific to business functions that are recombined to craft customer journeys. Coreless defines a business and technical architecture where banking services are not dependent on the main core system. Each part of the bank's system can be updated or reimplemented independently from all other systems, therefore accelerating the speed of transformation for any business area. We anticipate coreless banking to catch on in the coming year.

The power of coreless banking lies in the ability to combine, reuse and recombine these business function building blocks to quickly and easily define and deploy relevant customer experiences, and have the business nimbleness to do so at scale. What helps facilitate this nimbleness is consistent non-functional infrastructure, the common foundation upon which these composable business services are built. With independence granted by microservices based architecture, along with containerized integration and business automation tooling are designed with consistent security throughout, even when journeys are ported across multiple locations - cloud or the edge, banks are assured that they retain control of how, when and where they deploy their services.

Edge services

While the Internet of Things (IoT), the connection of physical things/objects to each other via the internet has been around for awhile now, it is just beginning to have a stake in the ground as a business use case in banks and financial services. Given the amount of business-critical and sensitive customer information banks deal with on a daily basis, it is not always easy or possible to have the latest consumer technology trends be applied to banks. However, notions of the edge are being considered more and more as part of banking operations, even if the IoT, that machine to machine interaction for banking services aren't yet, and we anticipate edge will only increase in relevance in financial firms over the coming year.

In part, what is attractive about the edge is considering it a means to help safeguard data, minimizing it's transport so that a transaction can be conducted closer to the source of the interaction - reducing the opportunity for nefarious interception. Aligned to the cloud transformation agenda, a more distributed IT network infrastructure that allows the data to be processed in closer proximity to where it is generated and stored also has the benefit of reducing latency of the transaction event itself. The key to making this more seamless is the right infrastructure to support it: an edge-optimized operating system that has the pre-integrated ability to deliver functionality on demand (containerized microservices), with the appropriate security and controls built-in. With 5G, the ability to extend to more compute to the edge only increases. Taking this back to IoT then, perhaps we can envision the type of customer consent embodied in PSD2, GDPR extending to consenting to an algorithm to operate on your behalf - to provide cost savings and financial guidance to customers from their devices. 

Coreless banking and extending services to the edge

According to a recent IDC study, more than 90% of banks are currently pursuing a platform strategy. Differentiation will be critical to not becoming a commodity and for banks to remain competitive. How will such differentiation come about? It could be in the unique service specialization of the firm, from their policies, their experience, their staff. In a digital world, such specialization translates to the speed of insights from data that can be applied in real-time and which is convenient to customers. More banks are continuing to become platforms that offer their services, while also combining services with entities outside of the financial industry to provide the sought after frictionless customer journeys. The new financial service platforms are places where consumers, fintechs, aggregators, banks, service providers and sensors - across all industries - interact with one other to deliver seamless, automated, and integrated customer experiences. We expecte financial organizations to play a fundamental and valuable role in the customer experience-based business, by providing their risk and fund management capabilities. This integrated experience involves different service providers that operate mainly on one or more public clouds. The business integration will happen most likely over the multi-hybrid cloud as the preferred commonplace for most of the players.

What might be next is putting the power of these composable banking service journeys directly into the hands of customers, where they are increasingly conducting their business. While it's possible to see this on a distant horizon, this notion of coreless banking at the edge is aligned to estimates of how banks and fintechs will operate together in the not too distant future, with notions of adding capabilities in the data center, marketplaces, on the device - and all locations in between - onboarding and offloading of service functionality at will (bank and fintech services combined). So while it is a journey, starting with decreasing dependence on monolithic core banking heritage systems, building out secure, reliable and composable business services is starting to take shape. Over the next year, we expect to see an uptake in the adoption of platform independent cloud microservices, and increasing focus on core modernization within banks who are combining services with other entities for more composable customer journeys. And over time, we envision these building blocks to move to the customer's platform, delivering self-directed financial services to their digital edge. 

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About the Author

Described as a pioneer and one of the most influential people by CRMPower, Fiona McNeill has worked alongside some of the largest global organizations, helping them derive tangible benefit from the strategic application of technology to real-world business scenarios.

During her 25 year professional tenure, she has led teams, product strategy, marketing, and consulted across a wide range of industries, while at SAS, IBM Global Services, and others. McNeill co-authored Heuristics in Analytics with Dr. Carlos Andre Pinheiro, has previously published both in academic and business journals, and has served on the board of the Cognitive Computing Consortium. She received her M.A. in Quantitative Behavioral Geography from McMaster University and graduated with a B.Sc. in Bio-Physical Systems, University of Toronto.