Microservices Architecture in Digital Banking


A microservice architecture is a structured style variant of service-oriented architecture (SOA) that arranges an application into a series of loosely coupled services. It is both an architecture and a strategy.

Microservices divide applications into the smallest units possible, with no interrelatedness. The microservices architecture allows for the unrestricted deployment of large and complicated applications, assisting the organization in innovating and developing technical aspects.

With microservice architecture, each component can be built, deployed, managed, and scaled independently without requiring the entire banking software to be updated or rewritten to accommodate a new feature or minor changes.

Core Banking Systems Architecture

A core banking system is a system in the back end that handles regular banking transactions and updates accounts and other financial records. Core banking frequently have connections to general ledger systems and reporting tools and the ability to process deposits, loans, and credits.

There are two types of this system of banking which include:

1. Legacy core banking architecture

These are old platforms used by banks and financial institutions as their back-end infrastructure. Legacy architecture can delay or hinder a bank’s ability to deliver new customer experiences.

2. Modern core banking architecture

Modern core banking microservices is a new, up-to-date banking system that is cloud-native. It is cost-efficient and allows customers to have a superior experience. Banks have been included in the evolution as they increasingly rely on digital banking. Examples of digital banking include:

• Nedbank- A Neobank is a virtual bank that only has an online presence and offers its customers mobile apps for remote access to its services. Many neobanks collaborate with an existing bank to do operations that require a license, even if they lack one meaning their customers need to create an account.

• Challenger bank-This phrase describes a recently established bank that “challenges” the established financial institutions. Challenger banks concentrate on the customer segments that the major financial institutions underserve since they are more user-friendly and cost-effective for the end user.

• New bank-The only thing separating these fully authorized neobanks from traditional brick-and-mortar banks is the way they conduct business, which is entirely online. Examples of new banks include Monzo, N26, and Starling Bank.

• Nonbank-As the name suggests, these non-banking institutions offer financial services such as expedited loans or mortgages but don’t simultaneously accept deposits or provide checking and savings accounts. Some nonbanks, like Monese, use an EMI license to conduct business.

Microservices Architecture In Banking

Most of the banks have already digitalized their services, allowing their customers to pay bills, open accounts, create and sign documents and carry out transactions. Microservices architecture provides for banks to integrate with third-party services offering great scalability.

This system is fault-tolerant, which means the malfunction of one microservice does not alter the function of the other microservices. Microservices architecture help solve some real-life problems in financial institutions and banks. Here are some microservices banking use cases.

• Fraud

Fraud detection is the most relevant microservice architecture banking use case. Banks being one of the institutions that deal with highly confidential information of their customers such as billing information, transaction details, and personal data, ensuring privacy and compliance is crucial.

• Credit

With microservices, you can make changes in hours as long as you don’t break the contract and use four variables. Compared to a full SFDC, data scientists may easily update a model. If you expose one service, modifications can be made in hours instead of months.

How Can Microservice Architecture Help Digital Banks

Digital banks need to swiftly and effectively introduce new features, enhance their usefulness, and constantly develop to be able to deliver personalized and top-notch services to their customers.

The microservice architecture allows for the development team in digital banks to:

• Implement new services quickly

Microservices enable organizations to easily and affordably incorporate new software or services into their existing products. This means they can start from scratch each time they want to add a new component or service – such as a bank or fintech – without affecting the whole product.

• Implement new services more often

Microservice architecture is intended to allow for more frequent updates and changes and guarantee quicker recovery, a lower risk of failure, and shorter lead times. Unlike the traditional applications which takes more time and efforts to develop and test, microservice architecture is fast and a reliable system.

• Implement changes faster

Microservices are designed so that businesses can separate the application into standalone services. It enables banks to assign responsibilities to several teams, and those teams can work concurrently on application components.

Digital Banking With A Microservices Architecture: A UBank story

UBank is an Australian direct bank that was established in 2008, and it’s Australia’s top digital-only bank. It revolutionized retail banking with its online home loan application process by offering a more straightforward, better, and more intelligent user experience.

UBank converted their agile product teams into entire DevOps teams focusing on the business functions of what they intended to develop for their clients while working on the initial minimum viable product (MVP) and utilizing the Garage Method. This was made possible by the use of microservice architecture.

Customers today select their banks based on how much customer service they will receive and how fast. Only businesses that put customers first and the digital world first can survive. Digital banks must be ahead of their competitors by providing a better and simpler customer experience. Microservice architecture gives digital banks the agility to innovate and build intelligent customer services.