October 11, 2018 | Written by:
Categorized: Banking | Cloud | FinTech | Payments & Transactions
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In today’s banking landscape, there’s a growing trend by clients to move their applications to the cloud, including their core banking applications. This movement — core to cloud — is essential for banks seeking to modernize their legacy systems and become agile and flexible. This is especially true if they’re going to compete with new digital banks and platform companies that are unhindered by the legacy applications and infrastructure. Banks determined to compete must modernize their business applications with cloud to be more agile while reducing the cost.
Moving applications to the cloud will involve banks revamping their business models as well, causing them to reassess what products and services that they would provide natively and those that they would incorporate from external providers. Such open banking approach necessitates that the banks develop an open banking platform with externalized APIs. This is essential. Open banks can use and share customer data through APIs for a broader end-to-end customer experience and connect their banking apps both internally and externally to the ecosystem. Most banks know this industry trend toward open banking, but many are still trying to figure out the proper approach for moving core systems to the cloud.
Since the legacy core systems aren’t well-suited for doing such directly, one approach is for the banks to create a digital-agility layer based on microservices-based architecture. It’s this digital-agility layer that would connect to the internal core systems as well as provide external APIs to connect various fintech solutions and other financial institutions within an open banking platform approach. Banks moving core applications to the cloud need to follow certain guidelines and standards for the migration/transformation and overall banking ecosystem to work successfully. Some of these standards are getting established by regulatory bodies, such as the PSD2 regulation in Europe, which covers payment initiation and account access. More broadly, the Banking Industry Architecture Network (BIAN), a global consortium of banks, technology companies and academic institutions, is developing a standard whereby a bank can be modeled as a collection of capabilities, such as payments, risk management, deposits and lending, with a well-defined services interface. With the emergence of APIs as an accepted standard for internal and external integration of business and technical services, BIAN is developing a set of common APIs, eventually to cover all banking operations.
As banks move toward the new open banking paradigm, they will also need to decide what business capabilities to provide in-house, or simply get as Software-as-a-Service from the cloud. As more organizations consider this approach, both as providers of business services and as consumers, it will be increasingly important to have standardized APIs to avoid massive integration challenges. The BIAN banking services model helps banks implement proper cloud-adoption infrastructure. One of the many reasons for following business standards is to create open solutions — cloud-based outsourcing/insourcing — for plug-and-play capabilities between companies that will make it easier to integrate APIs. It’s important that all organizations understand and develop the proper cloud building blocks that can be assembled to make any bank cloud capable. Using the right construct as the shared industry blueprint will help all banks make significant advances toward open banking platforms and the benefits that await them and their customers. The BIAN model provides this blueprint.
Some clients are already starting to use the benefits of their core-to-cloud transformation. After gaining a cloud solution that allows them to digitally transform their existing IT infrastructure to a full set of cloud options — local, private and shared — they have then used their cloud capabilities to deliver deeper customer experiences by integrating existing data systems with cognitive and analytic APIs. Clients have been able to scale services for mobile-app demand with back-end infrastructure and app management capabilities built on an open platform. And clients have gained agility with the IBM Cloud™ Private, supported by enterprise cloud security solutions to meet their privacy, regulatory compliance, data sovereignty and reliability needs.
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