Pedro Camacho
Pedro Camacho

Software • Oct 12, 2019

Hey, BANKS! Do you really need Another Core Banking System?

Hey, BANKS! Do you really need Another Core Banking System?
Our minds are formatted to assume without questioning, that technological systems that involve complex and critical operations are something always tightly crafted in a secret lab and managed by pseudo-scientists from an 80s Hollywood movie.


"complexity is the enemy of execution"

Currently, in our society as a result of this common vision, in the most traditional business areas is very uncommon to ask "why do we need such complexity?".

After several years working on complex software architectures for financial institutions, and since 2017 as Fintech and Software Company Founder, I truly believe that all traditional Banks are the best example of the famous quote from Tony Robins about complexity "complexity is the enemy of execution". The main reason for this conclusion has been identified and is well known to all financial services professionals, we are talking about the dependency on legacy systems.

My goal when I decide to write this article was not to talk about the problems of obsolete, slow or insecure legacy systems, my goal was to share my disturbing conclusion that those responsible for the technological evolution strategy of these banks are repeating the same old mistakes when trying to remove from queue equation their actual legacy systems.

dependence on a single component usually coming from the 80s and 90s that we call the Core Banking System.

What is causing most of these organizations to be doomed to disappear in a shorter period of time than we can ever imagine? The answer is their dependence on a single component usually coming from the 80s and 90s that we call the Core Banking System.

Most of the Core Banking Systems were developed to offer all the functionalities needed to run the Bank. And WOW... this was great for those who want to have a bank up and running quickly! In the 80s and early 90s, there was no internet for everyone, no Fintech companies disrupting the business, and most of the banking products were similar between banks.

The real problems of having an old Core Banking System start when the business processes of your organization slow down every time you need small changes on the system, if you need to support channel solutions in the Digital Banking race with other banks when regulatory changes are mandatory or very specific customisation is urgent to support a new portfolio product.

The Music Lover vs The Music Professional Analogy

Recently I found the perfect analogy for all this Core Banking modernization process. The music lover vs the music professional.

Let me explain my analogy. If you like to listen to music at home and you don't need sound equipment to make a living, buy a hi-fi or just use your parent's hi-fi from the 90s.

If you need to fix something on the old hi-fi will be hard to find a non-expensive good technician, some of the parts can also be hard to find, but the point is that you are not professional, and you like to listen to some chill music at the weekend, this old hi-fi makes what you need! This is what most of the traditional Banks that are not investing in innovation are doing, they are simply listening to some chill music and unconsciously waiting for their end. 

But if you're a professional musician or a DJ, you will have competition, and you need to keep your system updated, if possible a state-of-the-art system, so you can compete in the market with other musicians, in this case, you will not buy a "domestic" hi-fi, you will buy several separated professional sound hardware modules and very quality wires, all of them with standard interfaces so you can quickly upgrade or simply change parameters of sound to better respond and adapt to the space where you are playing your music.

This type of system is hard to assemble, but once they are ready they are so much easy to adapt to any situation.

The picture on the left is in my opinion the perfect analogy to represent a robust and very customisable integration layer of a modern Bank, where we can connect dozens or hundreds of external modules, and orchestrate and fine-tune all the final results.

When a Bank with this modern view of Systems Architecture acquire or develops a new module to integrate into its Microservices Ecosystem, they already know that it will be easy to replace it in the near future, because it was built with integration and domain isolation in mind, and that is the normal life cycle of technological modules on the super-fast current Financial industry.

In the end, it's all about being a professional musician or just choosing to be someone that like music and has a hi-fi box, after all, is all about end result.


Why are Banks replacing old monolithic systems with new monolithic systems?

One of the most difficult questions for me to answer today is why banks are replacing old monolithic systems with new monolithic systems? Even though the new systems are built using more modern tools, using less proprietary hardware architectures or even running on the cloud.

Just because a vendor shows some example integration services like web services APIs, and the product catalogue you found separated modules, doesn't mean that you are not buying another monolith!

In the latest 8 years, I found it more and more common to see banks replacing their Core Banking System with a new modern Core Banking System, the reason is that most of the Banks don't have on their board a real engineer or they have engineers with a short vision of systems architecture or in most of the cases the decisions are made without the feedback of the engineering team.

For decision-makers with a huge ego, and afraid of technology evolutions, the most secure choice when comes to making big investments in technology transformation, is always the buy expensive and proprietary systems from big-name vendors. Normally as a result of one or more reports made for them by one of the big five consulting companies, that have a huge commercial interest in maintaining proprietary, closed and especially hard do adapt systems, so they keep selling obscene expensive contracts of development, analysis, consulting, ...

Decision makers instead should focus on the real problem which is the lack of freedom to manage and rule their technological path, which is the base of the fast pace and low maintenance cost of almost all Fintech Companies.

The soul of the monolith lives on that dark side where the vendor interconnects on the same code base all the business rules of different domain areas.

The soul of the monolith systems lives on that dark side where the system vendor interconnects on the same code base all the business rules of different domain areas, like the "big spaghetti ball from hell". Following this approach, vendors can say that the new Core Banking System offers thousands of integrations services (web service, queues, ....), but all old problems will remain. They are just selling a new Monolith supported by modern programming languages, installed on standard hardware infrastructures or the cloud.

The secret to success in this modernization process is to free your organization from the dependency on one specific vendor, where you will always need them or expensive consultancy companies that work with that product to make, analyse or do all types of tasks so your organization run their systems.

Microservices Architecture is the path for Modernization and speed all business changes and evolution inside a Bank.

All systems inside the Bank should respect industry input and output data structure standards and isolate small business or integration domain functions on separate software modules, the Microservices Architecture is the path for Modernization and also the basis for all business change and evolution processes inside a Bank.

My advice to decision-makers working in the Financial Industry is to understand that the most important asset inside your organization is Data, and they should not depend on one specific group of providers to manage and leverage the power of your Data, so the organization can keep generating business and market opportunities.

Systems Architecture is the base of their organization's flexibility to adapt quickly to market needs

Those decision-makers who don't realise yet, that the investment in technology doesn't have to be the investment in specific vendors with big names, and also that Systems Architecture is the basis of their organization's flexibility to adapt quickly to market needs, will be responsible for the loss of customers and in many cases for the end of the organization. In these cases, the "safe" bet on big-name sellers will be worth nothing in their defence.