25 March 2010
As I work with banks across the globe I see two different philosophies of core banking design: The first is the component philosophy, where banks buy best of breed components and link them together, frequently with point to point integrations, more recently using SOA. The second philosophy is the universal or integrated system that does most of what a bank needs, but not necessarily everything, and not necessarily in the best way possible. I see the pendulum swinging towards integrated systems in many markets. Most of the core banking activities are in developing markets where banks may be starting from near green field installations or have simpler requirements than a top tier bank in a mature market. They choose integrated solutions for their easier implementation and integrations, as well as generally simpler and lower cost operations. These products have matured to offer much stronger functionality than in the past, growing with their existing customers and maturing with further investment. Most of the activity around the best-of-breed components is around the SOA or the glue that links these systems together. Managing point to point integrations is an exponential problem as the complexity of the systems and the number of systems grow. This solution is appropriate for the largest banks in home markets, where product complexity is high and the bank is already well along this path. In this type of environment, finding the best path to integration is the greatest challenge. SOA helps this process along, but making hard business decisions about standardizing data and processes at the bank are what really make this possible. The BIAN initiative and IFX attempt to create standards and frameworks as do a number of technology vendors. To summarize, most of the activity in the integrated space is around improving functionality in the universal system. Most of the activity in the component space is around more easily integrating using SOA and industry frameworks. The analogy to stereo components is not a bad one. Do you want the integrated system? It plays CDs, has a tuner and can fill a small room with decent sound. The features and functionality of these systems are improving smartly over time. If you need to fill a large room with high fidelity sound, integrated with your DVD player to create a home theater, the component system is appropriate. It will cost more, be harder to set up, but deliver superior sound. In these lean times, I think the integrated system will gain ground.