The last 2 decades has seen a number of sweeping changes in the way the Banking and Finance sector has evolved. There have been disruptions in the form of digitization of services. Many small Financial Technology companies have created platforms and products for both the Financial Institutions and End Consumers.
To the banks, this has enabled more products to take to the customers, fewer branches, fewer staff, , less paper work and more agility to address customer requests. The customers are able to get access to credit at competitive rates, able to invest in a diverse portfolio of their choice, buy/renew insurance policies and pay bills digitally all from the comfortable confines of their homes or office.
The following are the characteristics of Fintech companies:
- Customer Centric in their offering – Most Fintech companies have put Customer experience and convenience in their offering. The solutions are simple to adapt and can integrate easily into the existing ecosystem
- Digital is their Mantra- Most Fintech companies embrace all the digital elements. The offerings are omni-channel (web, mobile, tablet get the same experience) and set up on the cloud so that they can be accessed from anywhere, designed to help business from the data generated through the transactions happening in the system
- Highly Regulated- To prevent fraud, the Fintech processes demand high security, availability and compliance to regulation.
In this context, some of the challenges faced by Fintech companies are:
- Scalability- Most Fintech companies start with a niche offering that impacts a small function in the Financial Business process. The user adaptability to the technology is slow in the beginning, but scales exponentially once the benefits of the new technology are accepted by the market. It also creates an opportunity for expansion of services to include certain upstream or downstream functions. It has been found that Fintech companies, under pressure from investors and other stakeholders to go early to market don’t give enough attention to the Application architecture. They end up building applications with monolithic architectures that, is easy to build, but creates tight dependencies when it comes to feature enhancements. An example of a company that started with a niche offering would be Amazon which started as an online bookstore that kept the inventory of books. It has evolved drastically diversifying into a number of categories as well as geographies it operates. Amazon is also a marketplace that enables onboarding of other sellers. It is today the most valuable retailer by market cap (4th largest overall behind Apple, Alphabet and Microsoft), larger than even Walmart.
- Limited understanding of financial compliance and regulations- Fintech companies, at times overlook the compliance aspects when designing the applications. g.:- There are changes made to the tax structure and standards, new license and capital requirements are introduced every now and then. Fintech companies spend considerable rework effort bringing in the compliance. This effort is magnified if the architecture is monolithic and rigid to accommodate changes.
- Security- It has been observed that Fintech companies either overlook the security requirements or tend to overachieve on the security requirements. The former will create the opportunity for the system to be breached while the latter will affect the user experience and system performance. Changing regulations in the Financial Sector also mean that the security requirements have to be reviewed and addressed periodically.
How do Fintech companies address these challenges and quickly react to the dynamic business requirements?
The answer lies in migrating their monolithic, layered architecture to a micro-services architecture.
Monolithic applications are relatively easier to develop and deploy. However, over time the applications become large, complex and difficult to maintain. The performance of the application progressively keeps getting slower and the entire application has to be deployed whenever there is an update. Banks and Fintech companies are most impacted considering the scale, size and volatility of operations and the inevitably large number of integration points with other upstream/downstream applications.
Microservices, on the other hand, decompose the entire application into independent manageable chunks (services) that are faster to develop and easy to maintain. These are typically useful for building and managing banking and other fintech applications that are complex in design, constantly evolving and scaling, integrating with multiple other applications and demanding high security at various levels. When there are frequent changes to be made owing to changes in regulation or business rules governing the operations, only the microservice pertaining to the change has to be amended and deployed. The rest of the application need not be modified which keeps the overall system stable.
Therefore, to be nimble, agile and responsive to changing customer and market demands, Fintech companies have to adopt micro-services as a way of developing modern applications.
We, at Aspire have Solution Architects and Consultants who can help Fintech companies review your current architecture and provide a roadmap towards micro-services architecture implementation. We also help Fintech startups to develop applications using micro-services. Please write to firstname.lastname@example.org to explore these opportunities.