Skip to main content

Is Lego building the new way of creating applications in the Financial Services sector?


The dream of any product manager in the Financial Services sector has always been to come up with an idea for a new (or improvement on an existing) financial product or service in the morning and have it implemented in the afternoon.
Unfortunately the harsh reality is that adapting the IT solutions typically takes months, if not years. Despite years of evolution in software engineering and the best intentions of all involved parties, the speed of software delivery has not much improved (if not to say worsened) in the financial sector.
Introduction of new programming paradigms (Object-Oriented Programming, Event-driven Programming, Functional Programming…​), new implementation methodologies and organizational styles (Agile, DevOps, Extreme Programming, Development Anarchy…​), new programming languages (Go, Scala, Kotlin, Python…​) and new programming frameworks (Spring, Angular 2, React, Ruby on Rails…​) are the order of the day, but do not live up to their promises.
The reality is that there is no silver bullet and that building software is hard. Maybe the solution is therefore not just finding ways to accelerate software development, but instead avoid as much as possible programming itself. This brings us to another dream, this time the dream of the software designers or software architects, who want to build software which is reused across the organisation. Already in the 1960s, the term "modular programming" was introduced aiming to separate code in (smaller) blocks, called modules, which could potentially be reused. Just as the dream of fast, agile software development, this dream of reusability has also been around for quite some time. Unfortunately this dream has not become reality either: despite significant evolutions, reusing code is still rare in the financial services industry.
This lack of reuse can be explained by many factors: bad componentization of the software (i.e. bad interfaces, insufficient encapsulation…​), not knowing which reusable components exist in the organisation (or more general in the world), bad documentation of reusable components (i.e. how they can be called and what the component exactly does), new standards and technologies forcing to rewrite old components (e.g. in new programming languages)…​ just to name a few. But often the most important reason is that programmers adore to create their own solution, rather than reusing something existing.
Times are however changing. With the Financial Service industry undergoing one of the most profound transformations in its history, the challenges are immense: changing customer needs and expectations, a tsunami of new regulations, fierce competition of new FinTech players, the search for new revenues and cost reductions due to the historically low interest rates…​ These challenges will force banks and insurers to deliver more agile and with shorter time to market and force IT departments not to reinvent the wheel, but reuse existing components as much as possible.
Just like building Lego, a new business product or service should be built up from blocks, instead of creating the full product from scratch. However contrary to traditional Lego, the composition can happen at different levels:

  • At the fine-grained level, we have the Lego building blocks. These are individual atomic components, which can be reused. As in Lego they can’t be broken down and have a clear connection mechanism, but they don’t provide a direct business added value. A typical example of such a reuse is the reuse of software libraries. Today there is a variety of sites, which allow to download libraries for any problem and for any programming language (e.g. Apache Commons, GitHub…​).

  • At the mid-grained level, we have the Lego functional and technical blocks providing a specific feature and built up of the atomic Lego blocks. Here we should make the distinction between technical services and business services. Examples of technical services are service discovery (automatic detection of services), tracing and logging, monitoring, security, messaging…​ For all those services, several open source software packages exist, which bring best-practices to the table (e.g. ZooKeeper, ElasticSearch, Logstash, Kibana, KeyCloak, Kafka…​).
    For the business services, we should consider the internal micro-services available in the organisation (if the organisation has already evolved towards a micro-service based architecture). Such a micro-service provides one specific functionality, which is well encapsulated and has a clearly documented interface.

  • Finally at the coarse-grained level, we have the entire Lego systems, i.e. a composition of functional and technical services providing an end-to-end product, also exposed by well documented public APIs. With the rise of Open Banking (i.e. banks exposing their services to other parties), the exponential growth of FinTech companies and the increasing list of API services provided by cloud providers (e.g. BigQuery from Google), banks have an almost unlimited choice of products they can assemble in a true API ecosystem.
    Today most banks are still providing only internal products and services to their customers, but if banks want to stop losing market share to FinTechs, they should partner up with FinTechs and other banks to offer all (internal and external) best-in-breed products and services to their customers.
    In other sectors, firms built up of APIs of other companies are already common good. Take the example of Uber. Today Uber has a market capitalization close to that of BMW, but at its base it is built up as a composition of multiple API services offered by other companies, e.g. geo-location is done by the operating system (iOS and Android), route calculation and maps are provided by MapKit and Google Maps, real time text messages are sent to customers by Twilio, payments are handled by Braintree, the receipt is sent via Mandrill and the services are hosted in the cloud on Amazon Web Services (AWS).
Despite those possibilities of reuse and independent of the level of the component assembly, the issue remains always to
  • Know what exists, find the right library/service/system/API for your problem and find the necessary documentation to quickly understand the component.
    For the API ecosystem, this mainly consists of knowing the FinTech landscape. This search can be facilitated by FinTech communities, like e.g. B-Hive in Belgium.
  • Integrate the different components in a well-working integrated solution. Also here software developers should avoid reinventing the wheel for managing the integration aspects, like managing communication between components, error handling, monitoring, service discovery, high availability management…​ Instead they should use a platform facilitating these glue aspects out-of-the-box.
When those issues are tackled and the building blocks from the different levels are correctly assembled, the need for programming can be significantly reduced and the speed of delivery can be exponentially increased.
This type of assembly-software-engineering allows banks and insurers to focus again on what they are good at, i.e. providing financial services rather than solving technical issues. At the same time it means that the organizational structures can be simplified. When programming efforts are minimized, small local teams (rather than complex organisations of multiple outsourcing vendors) composed of both IT and business people, can quickly create business added value.
Maybe by doing so, we can finally realize both the dreams of the product managers and the software architects.

Comments

Post a Comment

Popular posts from this blog

Transforming the insurance sector to an Open API Ecosystem

1. Introduction "Open" has recently become a new buzzword in the financial services industry, i.e.   open data, open APIs, Open Banking, Open Insurance …​, but what does this new buzzword really mean? "Open" refers to the capability of companies to expose their services to the outside world, so that   external partners or even competitors   can use these services to bring added value to their customers. This trend is made possible by the technological evolution of   open APIs (Application Programming Interfaces), which are the   digital ports making this communication possible. Together companies, interconnected through open APIs, form a true   API ecosystem , offering best-of-breed customer experience, by combining the digital services offered by multiple companies. In the   technology sector   this evolution has been ongoing for multiple years (think about the travelling sector, allowing you to book any hotel online). An excelle...

IoT - Revolution or Evolution in the Financial Services Industry

1. The IoT hype We have all heard about the   "Internet of Things" (IoT)   as this revolutionary new technology, which will radically change our lives. But is it really such a revolution and will it really have an impact on the Financial Services Industry? To refresh our memory, the Internet of Things (IoT) refers to any   object , which is able to   collect data and communicate and share this information (like condition, geolocation…​)   over the internet . This communication will often occur between 2 objects (i.e. not involving any human), which is often referred to as Machine-to-Machine (M2M) communication. Well known examples are home thermostats, home security systems, fitness and health monitors, wearables…​ This all seems futuristic, but   smartphones, tablets and smartwatches   can also be considered as IoT devices. More importantly, beside these futuristic visions of IoT, the smartphone will most likely continue to be the cent...

RPA - The miracle solution for incumbent banks to bridge the automation gap with neo-banks?

Hypes and marketing buzz words are strongly present in the IT landscape. Often these are existing concepts, which have evolved technologically and are then renamed to a new term, as if it were a brand new technology or concept. If you want to understand and assess these new trends, it is important to   reduce the concepts to their essence and compare them with existing technologies , e.g. Integration (middleware) software   ensures that 2 separate applications or components can be integrated in an easy way. Of course, there is a huge evolution in the protocols, volumes of exchanged data, scalability, performance…​, but in essence the problem remains the same. Nonetheless, there have been multiple terms for integration software such as ETL, ESB, EAI, SOA, Service Mesh…​ Data storage software   ensures that data is stored in such a way that data is not lost and that there is some kind guaranteed consistency, maximum availability and scalability, easy retrieval...

AI in Financial Services - A buzzword that is here to stay!

In a few of my most recent blogs I tried to   demystify some of the buzzwords   (like blockchain, Low- and No-Code platforms, RPA…​), which are commonly used in the financial services industry. These buzzwords often entail interesting innovations, but contrary to their promise, they are not silver bullets solving any problem. Another such buzzword is   AI   (or also referred to as Machine Learning, Deep Learning, Enforced Learning…​ - the difference between those terms put aside). Again this term is also seriously hyped, creating unrealistic expectations, but contrary to many other buzzwords, this is something I truly believe will have a much larger impact on the financial services industry than many other buzzwords. This opinion is backed by a study of McKinsey and PWC indicating that 72% of company leaders consider that AI will be the most competitive advantage of the future and that this technology will be the most disruptive force in the decades to come. Deep Lea...

An overview of 1-year blogging

Last week I published my   60th post   on my blog called   Bankloch   (a reference to "Banking" and my family name). The past year, I have published a blog on a weekly basis, providing my humble personal vision on the topics of Fintech, IT software delivery and mobility. This blogging has mainly been a   personal enrichment , as it forced me to dive deep into a number of different topics, not only in researching for content, but also in trying to identify trends, innovations and patterns into these topics. Furthermore it allowed me to have several very interesting conversations and discussions with passionate colleagues in the financial industry and to get more insights into the wonderful world of blogging and more general of digital marketing, exploring subjects and tools like: Search Engine Optimization (SEO) LinkedIn post optimization Google Search Console Google AdWorks Google Blogger Thinker360 Finextra …​ Clearly it is   not easy to get the necessary ...

Low- and No-code platforms - Will IT developers soon be out of a job?

“ The future of coding is no coding at all ” - Chris Wanstrath (CEO at GitHub). Mid May I posted a blog on RPA (Robotic Process Automation -   https://bankloch.blogspot.com/2020/05/rpa-miracle-solution-for-incumbent.html ) on how this technology, promises the world to companies. A very similar story is found with low- and no-code platforms, which also promise that business people, with limited to no knowledge of IT, can create complex business applications. These   platforms originate , just as RPA tools,   from the growing demand for IT developments , while IT cannot keep up with the available capacity. As a result, an enormous gap between IT teams and business demands is created, which is often filled by shadow-IT departments, which extend the IT workforce and create business tools in Excel, Access, WordPress…​ Unfortunately these tools built in shadow-IT departments arrive very soon at their limits, as they don’t support the required non-functional requirements (like h...

The UPI Phenomenon: From Zero to 10 Billion

If there is one Indian innovation that has grabbed   global headlines , it is undoubtedly the instant payment system   UPI (Unified Payments Interface) . In August 2023, monthly UPI transactions exceeded an astounding 10 billion, marking a remarkable milestone for India’s payments ecosystem. No wonder that UPI has not only revolutionized transactions in India but has also gained international recognition for its remarkable growth. Launched in 2016 by the   National Payments Corporation of India (NPCI)   in collaboration with 21 member banks, UPI quickly became popular among consumers and businesses. In just a few years, it achieved   remarkable milestones : By August 2023, UPI recorded an unprecedented   10.58 billion transactions , with an impressive 50% year-on-year growth. This volume represented approximately   190 billion euros . In July 2023, the UPI network connected   473 different banks . UPI is projected to achieve a staggering   1 ...

A bank account - A concept of the past

Almost every recent article written about banking starts with the statement that the   banking industry is being disrupted   by new competitors, new innovations and new technologies. Although this statement is definitely true, the extend of the disruption can still be debated. Even the most innovative neo-banks still work with bank (current, saving, term and investment) accounts, cards (credit and debit), traditional credits, existing payment infrastructure…​ The user experience surrounding the origination and servicing of these products has dramatically improved (and will continue to evolve), but the underlying banking products are not really disrupted. You could argue that banking products are so intertwined with society and our way of thinking about finance, that they can’t be disrupted, but looking at those products you cannot ignore that they are far from an optimal solution in our current digital world. Let’s consider   cards   for example. Isn’t ...

The Freemium Model in SaaS: A Smart Acquisition Play or a Costly Gamble?

In the world of SaaS, the freemium model has become a widespread customer acquisition strategy. The premise is simple: offer a free version of your software to attract users and then convert a portion of them into paying customers. The classic tagline — "Start for free, upgrade as you grow" — perfectly encapsulates this approach. But while the model sounds straightforward, the reality is more complex. Freemium is not just a pricing strategy; it is a calculated bet with significant costs. Companies must carefully balance acquisition, conversion, and infrastructure expenses to make freemium a sustainable growth engine rather than a financial sinkhole. Freemium offerings come in different flavors, each designed to balance value for the user with a strong incentive to upgrade: Unlimited free usage with restricted features The core product is free, but premium features (often essential for corporate users) require payment. This flavor is common in open-source solutions, where ente...

From app to super-app to personal assistant

In July of this year,   KBC bank   (the 2nd largest bank in Belgium) surprised many people, including many of us working in the banking industry, with their announcement that they bought the rights to   broadcast the highlights of soccer matches   in Belgium via their mobile app (a service called "Goal alert"). The days following this announcement the news was filled with experts, some of them categorizing it as a brilliant move, others claiming that KBC should better focus on its core mission. Independent of whether it is a good or bad strategic decision (the future will tell), it is clearly part of a much larger strategy of KBC to   convert their banking app into a super-app (all-in-one app) . Today you can already buy mobility tickets and cinema tickets and use other third-party services (like Monizze, eBox, PayPal…​) within the KBC app. Furthermore, end of last year, KBC announced opening up their app also to non-customers allowing them to also use these thi...