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FinServ App Modernization Essential to Counter New Players

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EDA and cloud-native architectures play essential roles in helping banks with their app modernization efforts, which are needed to blunt the impact of new market participants.

Banking is becoming more competitive as many core services are being eroded by FinTech companies. These companies typically offer easier access to account information, improved ways to make payments, and powerful mobile apps. But competing against these upstarts may be the least of the industry’s worries as non-traditional players like Walmart and Walgreens are starting to use essential core technologies to introduce their own banking services. The bottom line is that traditional banks must quickly undertake app modernization strategies to retain their customers and market share.

What’s standing in the way? Banks must find a way to bring the data and services on their legacy systems from the world of batch processing into today’s real-time domain. The integration challenges that must be overcome to provide desired services are enormous. Customers (especially younger customers) want instant access to their account information, easy-to-use mobile front-end apps, and omnichannel service (voice, web, mobile, and chat). The only way to satisfy such customer desires is to adopt modern application development technologies, including cloud-native infrastructures and event-driven architectures.

Such technologies allow traditional financial services organizations to integrate their legacy back-end system into modern applications. Data can more easily be accessed, and services hosted on those legacy systems can be exposed as microservices to other application elements.

Unfortunately, institutions that move slowly in their app modernization efforts will certainly face competition from their counterparts in the industry and FinTech challenges. But an even more daunting problem is that the same technologies are being used by non-traditional players to enter the banking and insurance field. They are making modernization all the more essential.

See also: EDA: Bringing Legacy Systems From Batch to Real-Time

Non-traditional players enter the market

If ever there were a wake-up call about the need for financial services organizations to modernize their applications, it came earlier this year. Walgreens and Walmart announced new banking initiatives. And they are not the only ones.

In many cases, these non-FinServ companies are partnering with FinTech and payment processing companies to offer banking services. Cloud-native and EDA play a role in letting the organizations bring applications to market that share data and deliver real-time information.

If businesses like these offer banking services, traditional banks could greatly suffer. Both have huge and repeat traffic every week. One study found that the average person goes to Walmart or its website 30 times a year. In many rural locations, these companies have more storefronts than banks. Nearly 80% of the U.S. population lives within 5 miles of a Walgreens.

The impact such undertakings might have on traditional banking is enormous. Analysts have noted that while FinTech firms like PayPal and Square have been nipping at their market share, the entry of Walmart or Walgreens into the banking space is a more potent threat.

How to respond: App modernization 

The financial services industry is under great pressure to improve the services they offer. They face increased competition from nimbler FinTechs and now from non-financial players like Walmart and Walgreens.

App modernization is essential to stay competitive and address the appeal of these other entities. As businesses strive to be more responsive and react in real time, they must incorporate events data and develop and deploy applications based on microservices and cloud-native architectures. When compared with alternative approaches such as batch processing, an event-driven approach seeks to capture an event and process immediately.

Banks, in particular, are under increased pressure to modernize operations due to higher customer expectations and market erosion from FinTech companies. EDA and a cloud-native architecture enable financial institutions to expose existing core banking functions so they can be used with new front-end applications (e.g., consumer smartphones) and used as part of new applications. Such functionality allows banks to extend real-time capabilities to a wide range of operations, increasing efficiencies and improving customer experience.

In the past, building an application that uses legacy applications or systems typically made use of middleware to integrate the existing system with a new application. The problem with such an approach was that the middleware could become a concoction of enterprise service buses (ESBs), object request brokers, and APIs over time. Anytime something needs to be updated or changed required extensive re-working and re-coding.

In contrast, modern approaches to app modernization are composed of independent business capabilities that work together. Elements of applications are services (microservices) that are loosely coupled, so changes can be made to one without making changes in others. Applications or processes run in software containers as isolated units, so they can be reused and do not have to be updated if other elements of an application change. And processes are managed by a central orchestration manager to improve resource usage and reduce maintenance costs.

An EDA complements the benefits of a core cloud-native architecture to provide support for events and streaming data. Such an infrastructure allows three types of modernization. Financial services organizations can extend, renew, or reinvent core services.

Moving to an EDA helps to decouple systems and bring agility to core business capabilities. First, it means different parts of the financial services organization can operate independently of one another, plugging new digital services into the real-time stream of events. That means that organizations can tap into the distributed nature of microservices architecture and benefit from the elasticity of the underlying cloud platform while improving things like processing speed across the systems that participate in the payment transaction. The increased processing speed can reduce processing exceptions with instant feedback when the payment is initiated, creating a competitive difference between organizations that have invested and those that have not.

At the heart of all these matters is a need for a cloud platform that can work with events and streaming data while integrating existing applications and systems into new processes and services. Increasingly, financial institutions are moving to cloud-native applications and event-driven architectures (EDAs) to address these issues. Such a cloud platform can position a financial institution to address today’s issues and meet future challenges. Below are some of the specific areas where an EDA can help.

Salvatore Salamone

About Salvatore Salamone

Salvatore Salamone is a physicist by training who has been writing about science and information technology for more than 30 years. During that time, he has been a senior or executive editor at many industry-leading publications including High Technology, Network World, Byte Magazine, Data Communications, LAN Times, InternetWeek, Bio-IT World, and Lightwave, The Journal of Fiber Optics. He also is the author of three business technology books.

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