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Banks and insurers are undergoing a paradigm shift owing to the challenges arising from competition from new entrants, increased customer expectations, digital disruption, and a low-margin environment.
Meanwhile, non-traditional players are poised to grab significant market share from traditional financial service entities, and are disrupting the banking, financial services, and insurance (BFSI) value chain. Pressure from the digital economy, regulations, and nimble fintechs as well as big entities are forcing a re-imagination of banking and insurance business models, products, partnerships, and the services landscape.
Banks and insurers are responding to these challenges by extending their digital services and leveraging ecosystem partners to drive sales and offer new customer-centric products and services. Here, unlocking siloed data within the enterprise and combining it with data from partners to provide innovative products and contextual services to the customer has become a key imperative. We outline the fundamentals of an ecosystem integration fabric, which refers to the capabilities financial institutions need to expand their integration landscapes by capitalizing on ecosystem partnerships.
Connecting enterprise capabilities to ecosystem partners
To remain competitive, financial institutions must be able to provide new services that customers demand. Present-day banks and insurers carry the burden of outdated middleware infrastructure that contributes to the high total cost of ownership (TCO), longer time-to-market and delays in capitalizing innovative business models. Inflexible legacy application landscape, monolithic architectures, and redundant services are one part of the problem. On the other hand, non-standardized interfaces and multiple integration infrastructures, often involving heavy enterprise service bus (ESB), contribute more to the problem. Establishing seamless connectivity among digital channels, internal systems, cloud-based platforms and services, third-party providers, and external partner networks have become imperative for financial institutions to compete in the marketplace.
The integration abilities are expanding from involving traditional applications, data, and processes to include event-driven architecture (EDA), business-to-business (B2B), software-as-a-service (SaaS), internet of things (IoT), application programming interface (API), and event streams. Meanwhile, deployment platforms are evolving to include hybrid cloud, containerization, and serverless options. Similarly, integration touchpoints are rapidly changing to include devices, IoT, SaaS, and B2B. Further, developer profiles have shifted from integration developers to business integrators, application developers, API developers. In addition to these, new business models are emerging to enable purpose-led customer journeys such as B2B, B2C, B2B2C, monetization, open banking, banking-as-a-service, coreless banking, and embedded finance.
To capitalize on ecosystem opportunities and achieve business and operational agility, financial institutions need to evolve their integration landscape by adopting the latest techniques and approaches in an optimal fashion.
Benefits and key highlights of an ecosystem integration fabric.
An ecosystem integration fabric consists of lightweight application components with features such as built-in mediation capabilities of applications, API management, standardized APIs, event management infrastructure, data, and insights infrastructure, which work in tandem with each other. It helps financial institutions to meet their business demands rapidly and has numerous business benefits, resulting in sustainable competitive advantage:
Breaking down silos
Generating revenue via partnerships
Managing transactions on the cloud
Reducing integration costs
Onboarding new partners
Below are some key considerations and necessary steps that financial institutions must undertake to transform their enterprise service landscape with the help of plug-and-play composable services.
Componentization of banking and insurance functionality and exposing them via standardized API interfaces is a trend that is rapidly evolving. Such APIs enable easier interoperability among the ecosystem partners. The banking industry architecture network (BIAN) is one such standard that banks can leverage while exposing domain APIs. New initiatives in BIAN such as coreless banking, will empower the evolution of banking functionality in integrating with external ecosystem partners seamlessly, thus reducing the overall costs of integration.
Business capability blueprinting by using industry standards such as BIAN, and Association for Cooperative Operations Research and Development (ACORD), help business architects assess the current maturity as well as govern innovative product creation and evolution. Business capability alignment helps banks with service rationalization and is leveraged as part of API governance. Modernizing the integration landscape starts from creating the API catalog based on business strategy and prioritization.
The technology aspect of the integration fabric can be enabled via a lean centralized platform governance team, which creates standards and guidelines. The distributed technology teams can then leverage the guidelines while developing business services. These teams adopt DevOps processes for respective integration fabric components, which improve speed-to-market. In the evolving financial landscape, workloads or APIs are distributed across on-premise, multi-cloud environments, SaaS-based services, or partner systems. The ecosystem integration fabric must be designed in such a way that it allows integration across all such workloads in a secure, resilient, and available fashion.
The API security mechanism should be built with zero-trust security architecture principles. To enable this, the API management infrastructure needs to connect to identity and access management, authorization, and entitlement service infrastructure of the financial institution. One best practice is exposing the external APIs via a designated enterprise API gateway and establishing secure connectivity with the underlying workloads irrespective of environments where they are located. This enforces consistent security and governance policies and involves securing the workloads on the respective cloud or on-premise platform via appropriate API security mechanisms.
Core components of the ecosystem integration fabric
Each core component of an integration fabric (see Figure 1) performs specific functions required for connecting internal systems and ecosystem partners in a secure fashion.
Figure 1: Core components of the integration fabric
The functionalities include:
APIs need to be appropriately secured, managed, and governed irrespective of their deployment location (multi-cloud or on-prem). API gateways securely expose internal and external APIs by leveraging authentication and authorization. The API marketplace and developer portal enables self-service by the internal and external API developers.
Breaking down monolithic applications into discreet functional components, by leveraging domain standards such as BIAN allows banks to identify the right candidates for microservices and prevent unintended consequences. Experience APIs focus on delivering digital experiences to the end consumers and they can consume domain or system APIs internally as needed. Further, with service meshes such as Istio, workloads are deployed to on-premise or cloud platforms, yet are centrally managed via a control plane.
Cloud integration design needs to be carved out so that scenarios that include hybrid, multi-cloud, SaaS, and partner integration aspects are addressed securely. Banks increasingly prefer partner integration via APIs and events, and less of B2B file-based connectivity. Serverless components play an important role in the mediation of workloads and the same should be used based on the business requirement.
Creating, consuming, storing, analyzing, and reacting to events in real time is critical for bank systems to deliver superior customer experience. Microservices are designed to handle events in both transactional and streaming scenarios for a robust, intelligent, and resilient system. Banks can set up an insights engine to derive insights from the events and event streams and make them available for business components.
An optional integration platform as a service (iPaaS) on the cloud helps financial institutions integrate cloud-based workloads faster with readymade templates. Given that SaaS services have become pervasive, iPaaS reduces time-to-market for integrating them with on-premise systems and data.
If real-time data integration is enabled via change data capture, events, and streaming methods, financial institutions can share and use data from ecosystem partners as well as address digital customer experience demands. Extracting data from core systems, combining it with data from partners, and exposing data APIs in line with the ecosystem strategy enable monetization.
DevOps processes for integration fabric components should be established upfront through an API contract-first approach and cover on-premise and hybrid cloud deployment scenarios.