Closed, legacy systems and requirements around availability and security remain major obstacles to innovation in the financial services industry. But there’s now an appetite for change and a growing recognition of the benefits to be gained from a platform-based approach. This article explores the legacy challenges that still plague financial services, examines the case for a move to platform and looks at the opportunities for developers in fintech moving forward.
Would you be surprised to learn that most financial organizations are still using the same legacy core banking systems they were using in the 1980s? Developed using languages such as COBOL, these proprietary back-end systems were deployed to speed the efficiency of specific tasks, including bank transactions and financial trading.
As organizations added more applications over subsequent decades, they retained their core banking systems as the foundation on which everything else was built. This approach maximized ROI and achieved the best possible performance because mainframes were still faster than x86 servers.
Each application was selected for its “best of breed” capabilities that solved specific business challenges, increased operational efficiency and protected against downtime. However, the new applications introduced new file formats, new programming languages such as C++ and new operating systems including Unix, Windows and flavors of Linux. Banks now had even more silos and the need for even more technology experts to maintain them.
Large banks today can have thousands of applications, and some of them can have 10 million lines of code. Even a small change can cause stability issues and downtime. A bank can lose millions or even billions of dollars a day if just one application goes down. This makes testing extremely critical. But the complexity of legacy environments translates into slower development cycles. Not only do projects require experts that understand legacy technologies, but also it often takes significant time to stand up the complicated systems to match the complex production environments. If a new application makes it to production, it’s often too late to make a competitive difference.
What’s the Way Forward?
Consumers today expect modern apps and services and they’re not seeing them fast enough from their banks, lenders and investors. Financial organizations must find a way to meet their customers’ expectations for anytime, anywhere access to their data and services, while maintaining their legacy investments.
One way to accelerate development of modern customer-centric services with legacy systems is to use a cloud-based platform, based on open technologies, to facilitate communication between legacy systems and all new apps and services. This platform-based approach makes it possible to innovate and meet other requirements including security while retaining legacy as long as needed.
We’re starting to see a platform revolution in financial services. By the end of 2019, financial experts predict that 25 percent of retail banks will be working with startups to replace legacy and mobile systems.
An open-standards based platform that connects developers with global financial services companies is crucial in allowing collaboration and innovation on a global scale. So, instead of always having to develop dedicated solutions for individual silos, developers can first check and see if someone else has developed an app with an open API that solves all or part of their challenge.
What Are the Opportunities for Developers?
It’s an ideal time for developers to get involved in bringing new ideas and innovation to financial services. Banks are finally facing up to the threat posed by the tech giants and the need to digitally transform the services they offer.
Banks’ willingness to open up and adopt a platform-based approach is growing and they are also starting to recognize the value in being able to tap into all the IT creativity and innovation that’s happening in other industries. Importantly, developers will no longer require specialized knowledge about the proprietary APIs and technologies supporting their legacy systems.
Studies show that some of the best solution ideas come from people from analogous fields—fields that are different from each other but the same on some structural level. So, a developer who works on genomic data models may be able to help a hedge fund manager who needs to uncover patterns in data. Or a retail developer might offer new perspectives on how to manage transaction processing.
In the past, if a bank wanted to evolve their technology in some way, they needed to engage a fintech, and there was a lot of back and forth. The process was so complicated. It could take months and many times it wasn’t successful. Using a platform-based approach that provides connectivity to a standard set of pre-built and fully integrated open APIs can dramatically optimize the software development environment, allowing apps to be developed in a matter of days.
Giving developers the ability to interact with open APIs in a sandbox environment will allow them to experiment online in bringing data into their applications and to test the inputs and outputs in a safe environment. Using a low code development environment, they can create UX and business logic in a few clicks and test them in real time. Publishing those apps in a store helps developers to get visibility and solve the distribution problem. Finally, banks can purchase them and run them in the cloud through automated delivery, supported behind the scenes by CI/CD pipelines. Banks don’t need to worry about provisioning any additional hardware as the apps run in the cloud, and support hybrid scenarios as well, where the core system remains on-premises.
The platform ecosystem is the future of how apps will be developed, deployed and consumed. It enables such convenience for the user that it is inevitable. Being able to reuse tools that other people develop instead of reinventing the wheel in every project will also save a tremendous amount of time.
My advice for developers today? Seriously consider what value you can bring to financial services—banks and other providers need your support!