Enabling the Financial Services Shift to Microservices

Financial services have historically been an industry riddled with barriers to entry. Challengers found it difficult to break through low margins and tightening regulations. However, large enterprises that once dominated the market are now facing disruption from smaller, leaner fintech companies that are eating away at the value chain. These disruptors are marked by technological agility, specialization, and customer-centric UX. To remain competitive, financial services firms are reconsidering their cumbersome technical architectures and transforming them into something more adaptable. A recent survey of financial institutions found that ~85% consider their core technology to be too rigid and slow. Consequently, ~80% are expected to replace their core banking systems within the next five years.

Emerging regulations meant to address the new digital payment economy, such as PSD2 regulations in Europe, will require banks to adopt a new way to operate and deliver. Changes like PSD2 are aimed at bringing banking into the open API economy, driving interoperability and integration through open standards. To become a first-class player in this new world of APIs, integration, and open data, financial services firms will need the advantages provided by microservices.

Microservices Provide 3 Key Advantages for Financial Services

Enhanced Security

Modern fintech requirements create challenges to the established security infrastructure. Features like digital wallets, robo advisory, and blockchain mandate the need for new security mechanisms. Microservices follow a best practice of creating a separate identity service which addresses these new requirements.

Faster Delivery

Rapidly bringing new features to market is a cornerstone of successful fintech companies. Microservices make it easier for different application teams to independently deliver new functionality to meet emerging customer demands. Microservices also scale well to accommodate greater numbers of users and transactions.

Seamless Integration

The integration layer in a modern fintech solution needs a powerful set of APIs to communicate with other services, both internally and externally. This API layer is notoriously challenging to manage in a large monolithic application. Microservices make the API layer much easier to manage and secure through isolation, scalability, and resilience.

Service Mesh Makes It Easier to Manage a Complex Microservice Architecture

In the face of rapidly changing customer, business, and regulatory requirements, microservices help financial services companies quickly respond to these changes. But this doesn’t come for free. Companies take on increased operational overhead during the shift to microservices – technologies such as a service mesh can help manage that.

Service mesh provides a bundle of features around observability, security, and control that are crucial to managing microservices at scale. Previously existing solutions like DNS and configuration management provide some capabilities such as service discovery but didn’t provide fast retries, load balancing, tracing and health monitoring. The old approach to managing microservices requires that you cobble together several different solutions each time a problem arises, but a service mesh bundles it all together in a reusable package. While it’s possible to accomplish some of what a service mesh manages with individual tools and processes, it’s manual and time-consuming.

Competition from innovative fintech startups, along with ever-increasing customer expectations means established financial services players must change the way they deliver offerings and do business with their customers. Delivering on these new requirements is difficult with legacy systems. Financial services firms need a software architecture that’s fit for purpose – agile, adaptable, highly scalable, reliable and robust. Microservices make this possible, and a service mesh makes microservices manageable at scale.