November 18, 2013
Hans Tesselaar is the executive director of the Banking Industry Architecture Network (BIAN), a worldwide not-for-profit with over 30 tech and banking members, dedicated to creating a de-facto open standard for Service Oriented Architectures (SOA) in the banking industry. He is also a bobsguide blogger (aka contributing editor).
Five years on from the financial crisis of 2008, it would be easy to point to this economic disaster as the reason for the changing face of retail banking, but it is not the only cause. Technology and the drive to cut costs and increase interoperability via the adoption of flexible service orientated architectures (SOAs) is an even bigger driver in the retail banking sector, says Hans Tesselaar, executive director of the Banking Industry Architecture Network (BIAN), which seeks to encourage common standards among its tech members to engender easier SOA adoption.
The credit crunch and subsequent revelations about market irregularities certainly changed consumer and watchdog attitudes towards banks and the people that run them, but there are other non-regulatory factors that are impacting the bank market too. There is much else in society that has changed since 2008; most notably this includes an explosion of new technologies such as the proliferation of smartphones. Innovations such as these and the need to cut costs as regulatory and operational costs go up are all impacting retail banks at the moment.
A flexible, interoperable service orientated architecture (SOA) is one way to respond to the changing ‘new normal’ environment as it can accommodate new mobile bank products and services, scale up or down as required and potentially operate at a lesser costs, especially if it links in with other retail banks using common standards and protocols.
SOA: Your Flexible Friend
Consumer expectations of banking have also changed and service level expectations have risen. Brett King, founder of online bank, Moven, summed it up fittingly when he named his latest book ‘Bank 3.0: Why Banking Is No Longer Somewhere You Go But Something You Do’. Mobile banking, peer-to-peer (P2P) payments on the move, branch-less banking — and no longer reserved to the realm of boutique private banking either — all mean that consumers are increasingly demanding better services as standard.
For global big banking players, including the High Street and Main Street brands in the UK and US, which have long functioned as protectors of our finances, this change in consumer expectations poses a significant challenge — one that needs to be met otherwise newcomer challenge banks or tech firms may take business.
With many retail banks still relying on 1980s-style banking technology, some operational systems and IT infrastructures are simply are not cut out for the fast pace set by today’s IT world. Antiquated and creaking banking legacy systems are no match for new banking players, such as Moven or payment offerings from payment service providers (PSPs), which all come with ultra-modern, highly flexible IT systems and, obviously, no silo concerns.
The prevalence of siloed systems at traditional banks is one reason why SOAs are beginning to attract more attention from banking architects at long-established players — it could offer an escape route from aging technology and channel-based systems that don’t talk to each other.
SOA is an IT design pattern, referring to the use of frameworks and processes that are organised by business functions. In a SOA, application functionalities are both provided and consumed in sets of services. In banking, for example, this means that all payment functionalities can be found together, separate to the cards functionalities. Some describe this as separating out by IT building blocks. I prefer a pasta-based analogy: at present banking technology functionalities are intertwined and messy, like spaghetti, but by separating processes out by functions they can be easily separated, much like lasagne.
The benefits of a lasagne approach to banking technology lie in the ease with which IT functions can be upgraded or modified. When other banking functionalities are not impacted by any planned IT work, it immediately reduces the risk associated with making changes to banking IT, which is a perennial problem when seeking to overhaul old systems and can crash them. The ability to upgrade more easily also significantly reduces difficulties when integrating new ‘off-the-shelf’ software. At present integration costs can come in at triple the original software purchase cost. When systems are designed according to SOA, this cost is greatly reduced.
Reducing IT costs via SOAs is great news for those technologists facing stretched banking budgets everywhere. For instance, the analysts Celent recently predicted that global core banking spending will reach $10bn by 2017, but introducing an SOA isn’t just about cutting operational costs. The benefits of a SOA-based system can go further than simply pleasing the chief financial officer (CFO) as it can also increase flexibility and simplify the IT landscape so that its easier to upgrade software safely and improve the ‘time-to-market’ for new products. Given that banks are facing steep competition from the young guns of the banking world, this improved flexibility has far-reaching business benefits and can help to fight off the threat of disintermediation.
Of course, the big question that remains is around how to implement this banking nirvana of reduced IT costs and improved flexibility. While the adoption of SOA, and the resulting business benefits, is increasingly anticipated across the banking industry, there is still work to be done to make sure that this long dreamed of nirvana actually becomes a reality. For example, successful SOA adoption will depend on the agreement of industry-wide standards and semantics. Followers of my presentations on behalf of the Banking Industry Architecture Network (BIAN) will know that this is a not-for-profit organisation dedicated to bringing banks and software vendors together in order to establish these needed common shared standards.
SOA is not the magic cure for banking IT complexities, and implementation is not a simple solution. But it is a significant step in the right direction and I welcome this as a journey that retail banks and vendors are beginning to embark upon.