Author
November 21, 2022
Financial institutions are facing a uniquely challenging technological landscape. As their customers increasingly demand the personalized digital experiences they enjoy in other sectors, banks are left having to bridge the gaps between ease-of-access and security, speed and accuracy, competitive fees and vast, complex data systems.
Their core banking system architecture is too important to risk with a cavalier approach, but more flexibility is needed to stay competitive and adapt to emerging trends. As a large financial institution, how can you facilitate the right change when there is so little room for error?
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The Current State of Banking Technology
Aging data centers and legacy systems still underpin the core banking system architecture used in financial sectors. When saddled with legacy back-end technology in banking core systems, which encompasses the essential services such as accounts, online payments, personal loans and mortgages, a bank has a lot of work to do to update their tech stack. The fix is often not as simple as indiscriminately tearing out everything old and replacing it with the newest thing on the market.
Take, for example, COBOL, a programming language still commonly used by banks today. It was developed in 1959, making it several years older than the average CEO. Is this legacy banking system ready for retirement? Sources disagree whether it represents an evolutionary dead end, or still provides core business value. Mainframe and COBOL, when properly maintained, are still able to handle the daily transaction processing of an integrated banking system, and even 60+ years later IBM continues to provide updates and support.
Roughly 40% of mid-sized banks don’t yet have an API strategy
The connections between these complex systems must also be considered. Will the flexibility needed to modernize be found through native integration vs API? Roughly 40% of mid-sized banks don’t yet have an API strategy, as only the largest banks can afford the time and resource expenditure of building and maintaining all their own APIs with internal IT teams.
The Modern Banking Customer
The modern banking customer has grown to expect easy access to their money and financial information. Although the reality of these transactions – which involve retrieving and transferring financial information between institutions who could be under differing governing regulations, and require connecting with a foreign bank integration API – is truly anything but, an app’s slick user interfaces make it all feel very simple from that user’s point of view.
This sense of ease of use, and desire for empowerment is only expected to grow as a customer demand. Gartner lists the three evolutions of digital in financial services are:
- easier self-service transactions
- empowered customer journeys
- embedded financial relationships
As the FinTech sector grows, more competitors to traditional banking come online, eager and better-positioned to meet all of these technological opportunities. At the same time, many countries are making changes that impact the financial regulations governing their banks, meaning any advantage a traditional bank might have with years of history under its belt may be lost in the need to quickly pivot to align with a whole new mode of operation. Open banking policies are a prime example of how shifts in financial regulations have demanded rapid change from the financial institutions of many countries.
Wherever you land on retiring the COBOL mainframe, or any other legacy banking system still in use in the financial world, the key takeaway is that the gap between traditional banking and the modern banking customer has to be bridged.
“The financial system has been structured [over centuries] to protect bank details and has created internal strengths for that. Open banking changes this premise and establishes that the data is no longer owned by the bank. It is a violent cultural change.”
Carlos Augusto de Oliveira, director and coordinator of the technology forums of the Brazilian Banking Association (ABBC), on Brazil’s shift to open banking in 2020
Bridging the Gap with Enterprise Integration
Wherever you land on retiring the COBOL mainframe, or any other legacy banking system still in use in the financial world, the key takeaway is that the gap between traditional banking and the modern banking customer has to be bridged.
“(Banking) systems generally have technologies that are out of date with the needs and standards of security, performance and scalability that are required for today’s connected world.”
Peter Kreslins Junior, Digibee CTO and cofounder
This still leaves a complex dilemma in front of banks:
- Review their entire legacy system and find an internal way to make these API integrations feasible, or
- Seek alternative platforms that work with focus on modern digital financial services.
“I see this second option as a trend, the market is moving in that direction. With the platforms that connect more easily, banks enable and accelerate this integration without needing a high investment, which is essential, taking into account the tight schedule and limited budgets of some institutions,” points out the director of ABBC.
Enterprise Integration Platform-as-a-Service, especially when supported by the right vendor with financial industry experience, provides an excellent option. A good iPaaS works to support legacy systems, giving the flexibility needed to allow a financial institution to marry the latest-and-greatest with the tried-and-true into one seamless system.
When comparing API vs integration, especially iPaaS, the main factors to consider are cost and time needed to build. To build one new API integration, a developer must have a high level of skill and a deep understanding of the two specific systems being connected, with the bank integration API, making it a time-consuming and costly endeavor. The shift to a low-code platform with pre-built reusable tools streamlines the API build process, and automation lends new levels of operational efficiency both to the building of the system and to maintaining it.
Digibee Knows Banking Integration
Digibee has real-world experience working with banks that need to modernize banking core systems fast. In a partnership with a global banking institution, the 5th largest commercial bank in Brazil, Digibee successfully delivered a fully automated and secure integration solution in record time.
Whether your financial institution is trying to create an integrated banking system that relies on Microservices, ESB/Cloud, or APIs, Digibee’s local interface can connect and shift data securely to the Digibee platform in real-time.
Learn more about how Digibee can support your financial institution on its modernization journey or request a demo to see our solution in action.
