Microservices Are at the Core of Core Banking’s Appeal

For traditional financial services players, core banking beckons as a way to enable other financial firms — banks and FinTechs included — to set up embedded payments, instant payments and lending.

And microservices are in the mix.

The basic building blocks of banking — setting up accounts, processing payments — and essentially bringing the complexities of fund flows and reconciliation are still tied, in many cases, to legacy infrastructure and to batch systems, sometimes even mainframes.

The banking sector, of course, is moving inexorably toward doing everything faster, especially payments, which means that the backend processes must be faster, too. The advent of the cloud and of API has made it easier to integrate with providers and to move data quickly and more securely.

The more recent iteration of providers’ offerings to modernize the push by financial institutions (FIs) and other firms into (digital) banking products includes microservices, which break applications down into smaller components and services that can be accessed in an almost a la carte approach.

Flexibility and Speed

PYMNTS recently noted that this assembling of independent financial services, with speed and agility, has been hallmark of composable banking.

“It’s becoming an imperative to improve the operational efficiency at these legacy banks and be more responsive to client needs and industry trends,” Galileo Head of Product Strategy Michael Haney told PYMNTS during a panel discussion, saying that these new generation of platforms is based on MACH principles: microservices, APIs, cloud and headless — representing the third generation of banking infrastructure’s evolution.

“Gen 3 systems, built as microservices, allow us to choose the parts of the core that give us the highest leverage in our build-versus-buy decisions,” Sachin Shetty, chief technology officer at digital bank Varo Bank, said during the discussion. “We can leave the commonality of what the core does and focus on building unique experiences for our customers.”

Recent Announcements

To that end, and as detailed in a continuing march of announcements around core banking:

Mastercard and Thought Machine said this week they have expanded their partnership to deliver payments and core banking capabilities to financial institutions worldwide.

This collaboration brings together Mastercard’s global network and digital solutions and Thought Machine’s cloud-native core banking and payments platform, the companies said. The joint efforts help financial institutions shift from legacy core banking and payment technologies to cloud-native ones.

Earlier this year, Visa completed its previously announced acquisition of Pismo, taking on board the latter’s core banking and card-issuer processing capabilities across all product types via cloud-native application programming interfaces. The Pismo platform also enables Visa to provide financial institution clients with support and connectivity for emerging payment methods and real-time payments networks, the companies said.

And as 2024 got underway, i2c and The Bank of Missouri said they had partnered to help FinTechs accelerate their launch of digital banking products. With this five-year partnership, TBOM, a community bank with digital banking initiatives, will leverage i2c’s core banking and payments platform, the companies said in January.

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