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Open Banking: A Disrupter of Redundant Banking Practices

Open Banking: A Disrupter of Redundant Banking Practices

Open Banking 101

After struggling to manage the growing issues of unbridled monopolizing of rules and regulations of the banks, the UK Government in 2016 first issued the Open Banking system. It was set up by the Competition and Markets Authority on behalf of the Government to bring more competition and innovation to financial services.

Open banking allows third-parties and fintechs to systematically, securely, and radically change the way they access the financial information of the account holders through their APIs to build new apps and intelligent management services along with greater financial transparency across all their investment and savings platforms.

It culminates the sense of competition amongst the big players in the banking sector, coaxing them to innovate their financial services and make them more customer-centric, disrupting the customers’ financial transaction experiences for the good.

Open Banking and the World

“The UK leads the way in adoption, but international interest in Open Banking is starting to build in the world’s other leading economies.” ~EY: Open Banking Opportunity Index

As the UK pioneered the Open Banking system, the world followed suit with accelerated adoption in both developed and developing countries like the US, Japan, South Korea, India, Australia, and many others. While each country’s framework for the adoption of Open Banking system may differ, it can be typically characterized in two approaches:

  • Market-driven approach: Most countries including the U.S. and India, have not been asserting compulsive adoption of Open Banking regimes and instead, are promoting digital innovation and encouraging fintech companies to build unique data-sharing solutions. In fact, India was amongst the first ones to identify the need for Open Banking systems and became an early adopter and promoter of the same. The success of the platform named PayTM, became a fitting example of how India embraced Open Banking and is moving rapidly towards a more collaborative and transparent financial service environment for the service providers and the customers.
  • Regulatory approach: On the other hand, a few countries including Hong Kong and Australia have opted for a more structured and regulatory-driven approach for systemized migration from traditional banking to Open Banking.

Open Banking and PSD2: What’s the difference?

Most times Open banking gets confused with the EU’s Payment Services Directive or PSD2. The major difference between Open Banking and PSD2 is the Open Banking system mandates the adoption of the open standard by only nine major banks offering current accounts in the UK, the EU’s PSD2 envelopes all financial third-parties to set-up open APIs defined by the market.

Another major difference is that PSD2 mandates the banks to extend their APIs to third parties, while the Open Banking ensures that the sharing-format stays standardized.

However, the differences do not matter as both the directives are aimed towards a singular goal of transforming traditional banking practices into digital ones, enabling easier, faster, secured, and more transparent control to the account holders over their money. For banks transforming to open banking, PSD2 is only the preliminary stage of evolution. Maveric provides end-to-end PSD2 solutions to banks across the EU and the UK and helps them achieve PSD2 compliance smoothly.

The Voluminous Effect of Open Banking

With 8 out of 10 financial firms willing or planning to adopt Open Banking, a PwC report suggests that, by 2022, the Open Banking sector might quadruple its worth to generate £7.2bn of revenues.

These are just estimated figures with many experts suggesting a greater hike in the numbers as more and more countries explore the potential of this approach to financial services.

How will it benefit the industry, the service providers, and the customers? Let us decipher this by studying the key advantages that Open Banking offers:

Digital Identity and Onboarding

The current KYC and onboarding processes are complex, cumbersome, and time-consuming. Using Open Banking, the customers will be able to create a trusted and permissible digital identity that can be authenticated digitally, eliminating the painstakingly long onboarding process.

This framework could create a trusted adaptable digital identity, where customers authenticate themselves digitally, thus removing a key pain point in the onboarding journey.

From the point of view of the businesses, establishing a trusted digital ID to enable the exchange of data will allow the businesses and financial institutions to create better experiences for the customers. A collaborative approach towards enriched digital identity also reduces the chances of cyber thefts and frauds through collective risk management and more controlled data sharing.

Personal Finance Management

Open banking extends the account holders the ease of control over their finances, empowering them to make more informed decisions to manage their accounts and investments. With the benefit of access to their multiple accounts in one place, they will have a more transparent view for improved comparison between service providers.

Credit Facilities: Loans, Mortgages, Credit Cards

Improved transparency and single platform control facilitate the account holder to make faster credit decisions with the availability of more competitive deals to choose from. The system of Open Banking also aids in getting or refinancing a loan a lot easier as the account holder can just permit the lenders to access their digitally recorded credit history and make a valuable offer to them.

From the financial service providers’ view, they do not have to dig in through a lengthy physical process of credit customer profiling as everything is recorded and accessible online for them to review.

SME Finance

When you are an SMB, you may need to undergo rigorous processes to obtain loans in a traditional banking scenario. Through the Open Banking system, the report submission and accounting books review can be simplified as the lenders can just obtain the necessary and updated data from your banks and online accounting system.

Wealth Management

Open Banking brings enhanced tools to service providers to create new solutions offering their customers with options for better financial decision-making via just-in-time education and guidance for investments and savings. Based on the information acquired through data-sharing, the advisers and wealth managers can offer proactive and better solutions with higher chances of conversion, making it a win-win for both parties.

The Roadblocks in the Way of Implementing Open Banking

Migration from legacy systems: Shifting from legacy systems and traditional practices would require undivided attention and a huge initial investment to build robust structures for Open Banking as their current systems are complex and highly interdependent to serve all their needs and their successful integration into open standards may take a lot of time. The aversion to change and risks associated with data-sharing and security are other reasons why most banking and non-banking financial institutions may be delaying their transformation to Open Banking.

Security and data confidentiality concerns: The biggest hurdle in realizing the potential of Open Banking is the privacy and security of customer and analytics data. There is no doubt that Open Banking empowers the customers by placing greater control over their data in their hands, however, the increasing scenarios of hacking, cybertheft, malware, etc., have put the security of online data in jeopardy. The open APIs will be more susceptible to target by fraudsters or hackers, and so highly robust and secured systems will have to be set-up to meet such challenges and effectively operate in the digital environment.

Rising above the market competition: After successful transformation from legacy systems to Open Banking infrastructure too, one key challenge for the banking and fintech companies is to retain their customers and grow their clientele. With Open Banking offering the customers the benefit to unify and manage all bank accounts or financial experiences from one place, it allows the user to directly compare the offerings, prompting them to make a switch from their current banks. So, it becomes imperative for the banks and the fintech companies, dealing with financial services, to innovate and offer better services and have greater promotional and engagement strategies to keep the customers satisfied.

Future of Open Banking and How It Will Impact Our Lives

Will the customer embrace Open Banking? Well, it all depends on winning their trust. In a recent survey, 9 out of 10 customers indicated a moderate-to-low level of trust in data-sharing, the main component of Open Banking, due to their concerns over privacy, forgery, and cybersecurity.

For Open Banking to strive and thrive in the future, the fintech industry as a whole will need to come up with better solutions to win over customer trust. The country’s regulatory authorities will also play a huge role in establishing the ground rules and standardized frameworks for the financial service providers to deal with. Once the trust is won and the digital ecosystem becomes truly secure, the advantages of Open Banking will shine better and will enable the customers to manage their finances faster and more intelligently, eliminating the need to engage in complex systems attached to traditional banking.

To conclude

If you are an upcoming or an established fintech company looking to embrace the Open Banking system, superlative tech talent is your foremost need to develop a robust digital infrastructure to operate in. At Maveric, we conceive and apply digital solutions for banks in the context of customers, their journeys, and the various experience points across these journeys. Our PSD2 solution makes open banking easy and secure, with some compelling features including banking system integration, strong customer authentication, regulatory reporting, third-party aggregator management, fallback mechanism, and more. Maveric brings an expert and diversified team that offers leading-edge solutions for innovative digital transformation journey to businesses in the financial services domain.

The blog was originally published on MEA Finance

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Microservices Series III – Microservices & Cloud

Microservices Series III – Microservices & Cloud

How do Microservices Enable Innovation/Progress in the Adoption of Cloud?

Cloud enables scaling as per requirements

Moving business processes to the cloud is one of the major infrastructure changes for the businesses of today. It requires transferring applications to the cloud environment from their legacy environment.

A few years ago, companies that were considering moving workloads to cloud environments were in two minds about the feasibility of the cloud environment. At that time, the bigger question was whether the feasibility factor would force a vast migration from legacy environments to the cloud architecture. However, the cloud migration did not happen on a massive scale as the Y2K migration from one environment to another. Businesses considered it to be too risky and a painful investment to move the workloads. But as time changed, companies have now widely accepted both private and public cloud due to the rising costs and need for continuous, uninterrupted implementation.

Most businesses choose to put new functionality into the cloud environment, usually in a public cloud. This is generally done by purchasing SaaS applications instead of traditional software. The new development is then done in a Platform-as-a-Service (PaaS) cloud environment.  The challenge nowis not data migration but working towards keeping data within premises, and exposing it for better digitalization through cloud-based microservices.

How do microservices fit into this scenario?

Microservices are often confused with the traditional SOA-type services. Though there is a definite overlap, microservices is an architectural pattern in which composite applications are made up of small, independent processes that work in coordination with each other using language-agnostic APIs.

Micro 3 This process not only facilitates the migration of applications from legacy to cloud, but also helps overcome challenges posed by regulations such as GDPR which require greater accountability with regard to data storage. In the last seven years, most businesses have deployed 60-80% of their current applications, and they continue to re-implement the applications as the new software versions are launched. 

With no data being stored the microservices layer, there is limited persistence. And thereby, only one source of data instead of multiple sources.

Addressing the challenge of re-engineering the legacy environment

Many third-party service providers admonish that they will have to re-engineer their legacy environment and implement it into the cloud architecture to get the desired end-to-end performance of the applications. While this process is happening in some enterprises, it’s very selective. Most companies prefer to have a cloud-based microservices layer, which allows fulfilling the need to re-implement and enables moving legacy applications only when their underlying functionality alters enough or new versions become available in a SaaS or cloud version.

Another factor that keys into the cloud migration strategy is the limited capital. That’s why business units want new functionality and see little or no gain in investing capital, time and risk against replicating existing functionality that works into a new environment. Micro 2

Therefore, instead of making a significant investment in a quick migration like the Y2K movement, businesses are making considerable investments in APIs and microservices. This aids hybrid environments (combination of legacy and cloud) to work well together.

However, this move doesn’t imply that companies won’t have to redevelop a few of their applications in the cloud. But it gives them the option of selecting which ones they wish to redevelop.

How does moving to cloud increase the efficiency of microservices?

The microservices architecture provides a great deal of benefits such as strong subsystem boundaries, independent implementation, technological diversity, and so on. But it becomes complex with distributed application development. Having said that, it is important to note that running a host of distributed applications at scale is a difficult task, even with proper tools and design. It needs a system that has a stable feature set with a well-known system load. For instance, this system can be simply lifted and shifted onto the cloud and the benefits of cloud computing still remain the same.

Micro 1 Moving to the cloud platform helps in managing the health and lifecycle of microservices. Cloud makes it easier by handling much of the operational complexity caused by distributed application development. It makes it easier to scale the application when there is an increased demand, watches out for unhealthy instances, describes services interacting with each other, and more.

A well-deployed cloud infrastructure has a significant impact on the overall performance of the microservices application. In the instances where the microservices are composed using a classic synchronous mechanism (blocking calls, each waiting for downstream calls to return), probable performance problems appear due to the increased call-chain size. A more competent mechanism is to use an asynchronous protocol, such as JMS or any other enterprise-messaging protocol/tool (IBM MQ, MSMQ, and others) to deploy the microservices. With this approach, businesses can ensure that there are no bottlenecks in the final application system since most of the communication is through non-blocking asynchronous calls. Whereas blocking, synchronous calls are restricted to things like user-interactions. A simple rule to abide by is to avoid as many blocking calls as possible.

The implementation of microservices-based API seems to address the loopholes that arise out of monolithic SOAs. But at the same time, it is imperative to have a properly configured cloud deployment and people who can best leverage this new model to realize the complete potential of microservices. Unless this happens, there’s no possibility of exploring the full benefits of the cloud.

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A New Era of Banking – Customer Centric “Open-Banking”

A New Era of Banking – Customer Centric “Open-Banking”

The second payment services directive (PSD2) joins the global trend in banking regulation and focuses on innovation, open-data sharing, and improvement in security. As banks across Europe adopt open banking, we take a closer look at its impact on consumer behavior and the challenges before traditional banking systems.

The move to open banking has laid the impetus on banks to providing customer services that are available on-the-go. Banks have to enter the tech-race where services and products are user-friendly, secure and bug-free. HSBC responded to the new open banking directive by launching its own app, Connected Money, which enables users to access accounts from 21 different banks in one place – setting the precedence for other banks to follow.

API But still, when it comes to customer experience, traditional banks are hit by FinTech companies that excel in offering streamlined customer experience. Banks cannot ignore their low Net Promoter Scores (NPS). The NPS answers the fundamental question of “On a scale from 0 to 10, how likely are you to recommend this company to your friends and family?” Tech companies are known to score higher on NPS and this hurts banks when non-banks start offering similar services to banks. What does this mean for banks? If a tech company like Google or Amazon is to offer a credit card or loan, their existing users would opt for the new service.

 

If tech companies weren’t enough, banks are also threatened by the rise of online banks – those that replace the traditional brick and mortar enterprises. Companies like Alibaba, Baidu and Tencent have built an online banking infrastructure that caters to SMEs and businesses.  Banks have to differentiate themselves from new entrants and incumbents by providing greater customer experience and pricing transparency. API 1

As a direct consequence of such innovation, banks have opened up their banking operations to various industries.  Such an open-source approach is now heralding a sea of change in the finance industry through Open APIs, revolutionizing products and services quicker than ever before. Open APIs enable FinTech companies to access bank data and functionality, bringing a great change in the digital banking ecosystem.

This revolution has been fruitful for the banks who embraced Open APIs and Open architecture in building their services. However, by opening up their APIs, banks face several issues, especially in terms of security, as nothing should possibly go wrong when banks open their APIs up.

Open API

Digital developers are becoming faster at building integrations with banks using Open APIs, but they lack knowledge on business and regulatory compliance.  On the other hand, banks still need to take full accountability of all the security and compliance issues that are likely to arise.

Furthermore, the PSD2 has opened up the banking industry for new entrants to bank-held customer account data to Account Information Service Providers (AISPs). The current banking operating models constitute consumer interfaces owned by the bank. The open banking initiative can change the scenario with companies essentially taking over the interface. For example: Apple has already launched its Apple Pay services across Europe for digital payments. The service caters to in-store payments via smartphones and contactless payments. Amazon is also in the payments services where it provides loans and credit cards. With the introduction of their voice-enabled speakers, Echo, Amazon has enabled ease of everyday banking. Users can say “Alexa, pay my electricity bill” and the process would be over in a jiffy.

Even though big banks don’t face any imminent danger in losing customers, not adopting technology or creating strategic alliances could mean the loss of business. Currently, traditional financial organizations rely on FinTech for their technological needs – from chatbots to cloud computing. What keeps FinTechs from taking over the finance industry is the strong regulatory compliance framework. The entry of tech giants into core banking services would rattle the banking industry and effectively change the financial landscape. If banks don’t up their digital game they will get eaten up by well-established tech companies. The future may seem uncertain for now, but one thing is sure that open banking is here to stay. It would be interesting to see who wins the banking battle between banks, FinTechs and non-banking companies.

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Microservices I – Microservices vs SOA

Microservices I – Microservices vs SOA

In the recent times, microservice architecture, or simply microservices, has become quite popular. To put it into simple terms, microservices is a characteristic method of developing software systems and applications as a suite of independently deployable, small, modular services in which each service runs a distinct process and communicates through a well-defined, lightweight mechanism to serve a business purpose.

Origin of microservices

Microservices has a profound historical background. The term ‘microservices’ was used for the first time in mid-2011 at a workshop of software architects. After James Lewis laid out  his ideas about microservices in 2012, several IT companies started considering the idea of microservices, and by 2014, large enterprises had started serious discussions about investing in it.

Evolution of Software architecture

In 2014, James Lewis and Martin Fowler collaborated to provide a few real-world examples and presented microservices to the world. The major tenet of a microservice is its ability to take the place of services in a system that function independently from each other, the configuration around business capabilities and using smart endpoints and dumb pipes.

In the original object orientation model from the 1970s, an object is like a little computer that you send messages to and program it to perform tasks. The actor model is established on similar concepts, where the actor is the computer to which you send messages through its mailbox. Both of them are antecedents to the core aspects of microservices.

The idea came from the need of isolation between services. When you run every service in its own process within the same server, it is assured that a contract is followed. If all microservices are run inside the same process, all services will be eliminated if the process is resumed. When each service in run in its own process, it is ensured that only one service is eliminated in case the process is reinstated but if the server is restarted, it will eliminate all the services.

SOA vs Microservices

While many confuse microservices to be another name for Service-Oriented Architecture (SOA), they don’t know that traditional SOA is a broader framework and can mean a wide variety of things. Although they both rely on services as the main component, they vary greatly in terms of service characteristics.

The characteristic SOA model has, for example, more dependent ESBs, with microservices that use faster messaging mechanisms.  SOA also emphasizes on imperative programming, whereas microservices architecture focuses on a responsive-actor programming style.

Microservices Vs SOA

Additionally, SOA models generally possess an outsized relational database, while microservices usually utilize NoSQL or micro-SQL databases.  However, the real variation lies in the architecture methods used to arrive at an integrated set of services in the first place. Also, while SOA places more importance on business functionality reuse, microservices emphasize on the concept of “bounded context”.

Benefits of SOA and microservices over monolithic architecture

Before we discuss the benefits of SOA and microservices over monolithic architecture, it is important to understand what monolithic architecture is. Monolithic architectures work on a single application layer that brings together all the functionalities required by the architecture. It is the simplest form of architecture because it doesn’t involve as many actors as other architectural styles.

The monolithic model works perfectly for small and mid-sized architectures and keeps the complications quite low: the problems usually appear when the architecture needs to scale up feature-wise since the modules are extensively dependent upon each other. SOAs usually incorporate functions into small/mid-sized applications and try to keep the complexity of each app / functionality very low and make them communicate over a set APIs (being them HTTP APIs, asynchronous messaging and so on).

In contrast, microservice capabilities are expressed formally with business-oriented APIs. They compress a root business ability, which are prized assets to the business. The execution of the service, which might require integrations with systems of record, is completely concealed. Dependencies between services and their consumer are diminished by applying the principle of loose coupling. By standardizing on contracts expressed through business-oriented APIs, consumers are not affected by changes in the implementation of the service. This allows service owners to change the implementation and modify the systems of record or service compositions which may lie behind the interface and replace them without any downstream impact.

When positioned properly, a microservices-based architecture or an SOA can bring substantial value to the business. That value can be expressed in both technical debt being avoided and a considerable increase in efficiency.

 

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