Microservices adoption in BFSI

Enabling and adopting Open Banking :?A microservices and containerization based approach

Introduction

Banks and financial institutions, like any other enterprise, are constantly looking to outshine their competitors in providing their customers best of banking facilities and services in a mode that is most comfortable to the end users. As the pandemic has shown us, now more than ever, people rely on and are very conscious about consuming services remotely. This has fuelled the demand for digital payments rather than traditional banking via cash / cheques.

In India, with the advent for Fintech companies and the launch of UPI (Unified Payments Interface), the trend in banking is shifting to digital payment platforms (WhatsApp payment, Airtel Payments Bank, Google Pay, Amazon Pay, PhonePe) and digital wallets (PayTM, Mobikwik, Airtel Money). So far in FY22, UPI has processed more than 45 billion transactions, amounting to over Rs 84 lakh crore. In comparison, in FY21, it had processed a little over 22 billion transactions, amounting to roughly Rs 41 lakh crore [1].

Banks, financial institutions and third party app developers are collaborating to develop customer centric applications via the consented use of customer information securely using APIs. This has led to the rise in popularity of Open Banking.

This article discusses how banks can adapt their people, process and technology to this emerging global banking ecosystem known as Open Banking and launch a digital platform in order to provide better and contextual consumer services, generate new revenue streams, stay compliant and pursue strategic growth opportunities. We will explore the components of such a platform and enumerate the strategy for transitioning from traditional banking platform to Open Banking platform.

Building the Open Banking platform

Open banking provides a new opportunity for banks to monetize the products, services, and data they already have, as well as gain new customers. In fact, nearly 20% of banks have already invested in open banking-related initiatives and 77% will do so by 2019. Going beyond simply meeting regulations can help banks surpass their competition and increase returns from their investments.

The diagram above shows the transition from traditional banking (physical/digital/online) to Open Banking. In order to make this transition, banks would need to set up a flexible digital environment that connects third-party applications to application programming interfaces (APIs) and banking systems of record without compromising the security or operation of the core banking? systems. It should:?

• Allow authorized third-party applications to securely access data from banking systems.
• Protect business systems from security threats and excess traffic.?
• Track requests, audit use, and charge users and third-parties for use.?
• Enable modern development approaches that speed time to market for new products and services and improve developer productivity.
• Monitor infrastructure health and services to identify and remediate issues before they impact users.
• Handle large volumes of expected and unexpected traffic.

Open Banking platform : The Components

For most of the banks, the transformation from the traditional banking model to Open banking based ecosystem model would require a lot of re-architecting and reengineering across their IT infrastructure as well as processes. This article proposes that the ideal approach to this transformation would be to use a microservice based application core, in conjunction with a container orchestration platform to host, scale and manage the workloads as well as help ensure DevOps culture and principles in the organization.

The diagram below shows the reference architecture for a sample open banking implementation. The reference architecture is primarily composed of 4 components :

• An API Gateway & management platform.
• An application and data integration platform.
• A microservices application base.
• A container orchestration platform.

Open banking component : The API Gateway

Managing, securing, and monetizing APIs is critical. The API gateway is the software component which is responsible for exposing the open APIs developed by the bank over secured REST protocol to external channels like mobile and web apps, third party app developers and external partners (like Fintechs) for sharing banks’s data, products and services and connecting the bank with other institutions.

An API management platform allows to monitor and control API use and throttle requests as needed to protect systems of record. They can also charge appropriate users and third-party application providers for use of valuable APIs.?

Using an enterprise grade API gateway and management platform, banks will be able to :

• Standardize the process and data formats for sharing bank data externally via APIs
• Govern, manage and monitor the exposed APIs - apply policies, secure them and gather usage statistics
• Speed up the development and deployment of new products and services and make them available for consumption

Open banking component : Integration platform

The integration layer helps to weave the end-to-end functionality via service composition, business rules execution, consuming and invoking several separate APIs or internal business services and/or retrieving data from databases. An integration platform supporting distributed and container native development provides the below benefits :

• Serves as a connection point for externally facing APIs and internal banking APIs and systems of record.
• Transforms and directs incoming API requests to the appropriate endpoint within deployment environment, allowing changes to systems of record without impacting externally facing services.
• Supports microservices developers to decouple services so they can be created, extended, and deployed independently.
• Built-in patterns for integrating enterprise applications and connectors for various entities like databases, messaging platforms, IoT and so on.

Open banking component : Microservices application base

The microservices application base refers to the core banking applications and workflows that have been transformed into several smaller and? independent services. As an example, rather than having a legacy single monolithic application deployed on a single platform providing all kinds of services and products, create lightweight modular services, each focussed on providing a specific customer service or product like “Account Service”, “Payment Services”, “Lending/Loan services” etc.

A well architected microservice base for applications can usher banks into the next frontier of digital and open banking allowing them to provide the next level of customer services and products at scale. The benefits of microservices based application base are :

• Ability to experiment and bring new features to market faster without fear of breaking existing products.
• Security and auditing of the consumption of core banking products.
• Scale application components on need basis thereby ensuring efficient utilization of IT resources.
• Developers gain the freedom to choose the programming tools required to efficiently solve any business challenge.

Open banking component : Container orchestration platform

Containers simplify application and API deployment and portability across platforms. This eliminates the need to refactor services to launch them on different infrastructure and makes the deployment environment more efficient. In an enterprise environment with a microservice application base, typically it is normal to find more than 200 containers deployed and running all critical business applications. It is easy to imagine that such a scenario does not scale well, if managed manually. Here comes a container orchestration platform to the rescue.

A container orchestration platform simply automates all the aspects related to managing containerized workloads that you might find typically running, spread across multiple hosts on any enterprise infrastructure. A container orchestration platform enables automation of below :

• Provisioning and deployment
• Workload configuration and scheduling?
• Compute resource allocation and management
• Container availability?
• Auto scaling containers based on balancing workloads across the infrastructure
• Application load balancing and traffic routing?
• Monitoring container health and self healing
• Configuring container runtime for applications
• Secure inter container communication

Approaches for embarking on this Open Banking journey

As noted above, in order to make the digital transformation journey towards Open Banking, banks will have to embark on a journey of :?

• Transforming the critical legacy business applications to modern cloud native microservices based RESTful applications and
• Implementing a containerization based modular flexible development and deployment platform to host the micro services and expose the business services as secure APIs.

Based on the maturity level of the bank undertaking the journey, it may be difficult and perhaps risky to perform both the steps in one go. Therefore this article proposes that any bank deciding to make the migration, approach the task in two phases.

Phase 0 : Bring VM based applications on modern container platform

In this (pre) phase, banks can setup the containerization platform first as a parallel setup. Prepare a list of current applications considered for transformation (i.e. these applications are actively used and won't be discarded) and order them based on business criticality - lowest to highest. Subsequently, they can migrate their VM based applications from the created list to the new containerized setup, in the decided order.

Choose a modern containerization platform which combines containers and VMs into a single management platform so organizations can take advantage of the simplicity and speed of containers, while still benefiting from the applications and services that have been architected for virtual machines This way banks can jumpstart their modernization journey, without any significant modifications to their running code base.

Phase 1: Refactor monolithic applications to microservices based architecture

In this phase, first API management and SSO needs to be set up on the containerization platform. Once that is setup, in order of prioritization that was prepared in the last phase, each monolithic application needs to be converted into a micro service. Starting with a small and less critical application shall be ideal as it would give the implementation team confidence to move to the next application, all the while assuring that the organization target is aligned with their efforts.

This phase is not a single phase per se, but it is a continuous cycle which repeats for each service that is being migrated. Configuring service discovery, custom metric collection, service configuration externalization, service composition, caching and standardizing service exposure using Open APIs and so on for each service. Eventually all services running on VM would be containerized and then the VMs can be decommissioned from the container platform.

Conclusion

The move to open banking is inevitable. Legacy banks which embrace and adapt to the new Open Banking ecosystem will definitely be able to generate new sources of revenue, penetrate new market segments and be able to grow strategically. Deploying a flexible, interoperable open banking environment can help banks go beyond simply complying with regulations to create a platform for ongoing innovation and revenue generation.