Business Architecture in Capital Markets

New technologies are disrupting financial markets at an increasing speed. Financial start-ups embrace opportunities and quickly adapt to technical advances that are taking over lucrative niches of the capital markets business with their efficient processes and innovative approach. In contrast, traditional banks suffer due to the lack of flexibility and innovation of their long-standing IT and business architectures that were implemented in the 1970s. In order to be competitive, traditional banks are actively searching for ways to overhaul their business architectures and adapt to the dynamic operating environment and customer demands.

There is no scarcity of white papers or business articles elaborating on the topic of rigid monolithic architectures and incompatible vendor solutions of traditional banks. The majority argue that  one size doesn’t fit all and that each bank will have to develop tailor-made solutions for the optimization of their business architecture.

In this article, we at LPA, explore whether a solution to this dilemma can be found in operating systems that are both closed and open (highly standardized but flexible, such as iOS) and if such a solution can catalyze the next stage of the market-wide transformation of the financial industry.

Traditional banks are experiencing difficulties with optimizing business architecture consisting of monolithic software applications, highly customized vendor packages and in-house solutions. Due to this, they are searching for ways to simplify the architecture, ensure of interoperability and flexibility, and increase responsiveness to dynamic market conditions. There are specific requirements of the business architecture that all banks seem to share:

• efficient processes
• user-friendly interfaces
• up-to-date and robust software
• high degree of automation and integration
• easy management of components
• smooth performance of tasks
• advanced security, such as smartphone-like architecture for banking processes and tasks.

If the critical requirements of all banks are similar, perhaps a ready-made solution could be applied? Could there be an option such as the Apple AppStore? We believe this is possible. This article will explore the future of business architecture in capital markets.

The idea of simplifying and standardizing banking business architecture is not new. Service oriented architecture (SOA) has marked the beginning of development of IT solutions for offering standardized and interoperable architecture components. SOA is described as sets of services relevant to specific business functions such as validating customer data, viewing a transaction or simple analytical services. Adoption of SOA standards is a prerequisite for enabling an AppStore-like service for banking functionalities, where one can select from an array of components and build new products and services.

SOA integrates various applications through services within the architecture. Microservices within a microservice architecture are a further development of SOA. They take on the task of structuring one individual application through different services and managing a wide variety of business processes by means of a universal API interface. Due to their small size and independence from each other, services of an application can be processed and developed autonomously. Such architecture favors currently popular agile ways of working and enables quicker response to market demands and adoption of innovations.

Containerization of microservices can shorten the provisioning time between applications by communicating through standardized protocols. An API gateway is a prerequisite for this as it acts as an integration layer between the microservice and the application. The API makes it possible to combine services, which communicate with each other interdependently into consistent units known as containers.

To return to the Appstore analogy, our visionary, cloud-based target of a microservice architecture would correspond to an empty AppStore on the iPhone. There, universal communication standards and a standardized cloud environment is provided. The developers of applications then have access through intelligent user management and make their applications compatible with the associated microservices. A bank can then install, change, or uninstall these applications through license purchase and service level agreements without immediately having to fear unpredictable effects on other applications. Following this, the cloud-based microservice architecture could be made available to other banks as a central platform. If it is possible to design applications analogous for Appstore apps in such a way that they can be used in a corresponding standardized microservice architecture, this could  be used as toolbox for the broader banking community.

We envision that in the future, banks will not have to explore and develop individual tailor-made routes towards optimization of their business architectures. It will be enough to access a central platform that offers secure, integration-enabled, standardized apps to serve any business that can be added, updated or removed in just a few clicks.

Stay tuned for our upcoming articles and follow our journey of exploring opportunities for superior business architectures.

What are your thoughts on this topic?
Do you think an AppStore for banking architecture is possible?