Microservice Architecture: A Transformational Change In The Financial Ecosystem

With the tremendous modernization of the digital era, FinTech companies are also rationalizing. To pace with the trends, their demands are dramatically increasing. Strategizing the business process to fulfill these demands is essential for scaling to newer heights. This is possible if the advanced and better-designed software is used to build products that will align with the business goals and cater to the requirements. Therefore, the architecture of a software product can’t be left ignored, as it may cause a potential loss in terms of cost, time, and profitability on a large scale.

With the tremendous modernization of the digital era, FinTech companies are also rationalizing. To pace with the trends, their demands are dramatically increasing. Strategizing the business process to fulfill these demands is essential for scaling to newer heights. This is possible if the advanced and better-designed software is used to build products that will align with the business goals and cater to the requirements. Therefore, the architecture of a software product can’t be left ignored, as it may cause a potential loss in terms of cost, time, and profitability on a large scale. 

In this highly competitive scenario, FinTech companies can’t afford to risk their reputation due to weak architecture. Moreover, modern customers demand extensive personalization across digital platforms, thus, transforming customers’ behavior.

To get acquainted with these expectations, FinTech institutions need a modern outlook to stay ahead in its product architecture. Therefore, FinTech companies are adopting a microservices architecture strategy against monolithic architecture for a long term strategy.

Microservice architecture is a noticeable trend that is taking place on the technological layer of enterprises and operating dimensions of the organizations. According to “Microservice Architecture Market – Global Drivers, Restraints, Opportunities, Trends, and Forecasts up to 2023”, the microservice architecture market is expected to reach $32 billion growing at a compound annual growth rate (CAGR) of nearly 16.17%. 

Why is Microservice architecture gaining popularity in the FinTech industry?

Innovative approaches are often adopted for the challenges the financial sector faces. Some of the challenges are:

  • Frequent changes in regulations, tax structures, license policies, and capital requirements the financial industry has to deal with.
  • Financial institutions have the most outdated systems resulting in inflexibility and difficulty in making changes in the architecture.
  • The FinTech companies are often pressurized by the Investors and the stakeholders for a quick marketing strategy. This leads to an unstable foundation for the companies making it harder to adapt to the enhancements.
  • FinTech companies are always at risk as they deal with large financial data. Therefore, there is a requirement of highly secure systems for protecting them. 

When it comes to challenges, banks have been often stealing the limelight. Due to the digital transformation and demands of modern customers, banks have been facing a lot of problems like:

  • Lack of agility
  • The slow pace of delivering new functions
  • Complicated testing procedures
  • Scaling when the customer base increases

The financial sector has been looking into the simplification of financial services and how the workflow could be speed-up. This was possible with an architecture where every application could be developed, tested, and deployed independently. Moreover, autonomy brings in quick changes and decision-making capabilities in addition to fewer bottlenecks and resistance to change. Also, individual services typically won’t result in the entire system breakdown due to the failure of a single service because of the autonomy. Therefore, financial institutions started reaping the benefits of microservices architecture that scale well with all the contemporary requirements. 

Microservices surrounds itself with two key aspects: Speed and Safety. With microservices, large applications are divided into small modules. Each module, also known as service, is easier to understand and maintain. Each service can be individually developed with any technology stack aligned to the specific business goal. To communicate with other services, It uses a well-defined interface and simple language. Microservices architecture not only allows to scale independently by making the software adaptable at runtime but also, deployed independently of each other, providing the best value to the customers. 

What are the benefits that you get from Microservice architecture?

The financial industry is witnessing a tremendous shift. Technologies like Blockchain, cryptocurrency, and AI are revamping the market. This is deeply affecting the consumers’ behaviors. To survive in this cut-throat competition, financial institutions need to start adapting to the upcoming market. Let us have a bird’s view on the benefits that you can reap from the adaption to microservice architecture strategy. 

Agility :

The first question that arises in one’s mind is whether the system architecture is agile? Will it be able to cope with the ever-changing landscape of the FinTech industry?

Since microservice is surrounded by two key concepts: speed and safety, it results in quicker product development, quick adaptation to changes in the market, and staying relevant to the current market trends. Microservice design should be able to serve and align with specific business functions as it is developed, tested, deployed, and managed individually. 

Structure of the Database :

For monolithic architecture, a single large database that is used by more than one application becomes a bottleneck with an increase in the complexity of the system. To resolve this issue, microservice architecture recommends having separate databases for each service. Moreover, there is a separate database setup for every new service deployed. 

The advantage of having this kind of setup is if there is a change to a particular service, the rest of the services and the databases don’t get affected. Another benefit of using a microservice architecture is if a service requires some data from other databases, then, it may acquire it through a simpler platform or through an API endpoint. 

Enhanced Security :

FinTech has come up with some great innovative products like a digital wallet, Robo advisory, and many more to enhance the customer experience in this sector. With such a wide amount of feature-rich financial applications, the FinTech security infrastructure has numerous challenges to face. A high-security mechanism is a current need for keeping the financial data safe.

When it comes to microservices, it creates a separate identity service like Oauth2 authorization where authorization and authentication are given to the users to access a certain part of the application. The coordination of the requests is carried through an API gateway that also handles security by using OAuth-based security services. This helps the individual microservice to deliver services being completely private and unexposed to the public, adding more security as a whole.

Seamless Integration :

To communicate with other services both externally and internally, the integration layer needs a powerful set of APIs. 

In large monolithic applications, this API layer poses a challenge to manage. Typically Enterprise Service Bus (ESB) is employed to manage all the integration tasks but becomes a bottleneck when the software itself becomes huge and complex.  

With microservices, the API layer becomes very manageable and secure through isolation, scalability, and resilience. Areas like schema validation, management, transformation, and so on, could be written as microservices individually and thus results in the reduction of duplication. 

Scalability :

When it comes to scalability, many FinTech startups drag themselves into complexities. When you wish to add some exciting features or grow your application, it becomes very costly and becomes a huge hurdle. 

With microservices, your application is more scalable helping in the cost reduction and prevention from security risks. Since microservices permit development, testing, and publishing the services individually, changing one service module doesn’t affect the other, making it highly-scalable and resilient to changes. 

Shorter Time to Market :

As stated earlier, microservice has two key points- speed and safety. Moreover, microservices allows a large application to be divided into several modular services where each service can be individually developed, tested, and deployed, without affecting the other services. This enables a faster development process. Whether you are building a complete application from scratch or simply adding some feature, microservices saves a lot of time and, thus, increases the productivity of the developers.

Debugging and Maintenance :

How much time do you require to debug a fintech application? Have you noticed the time required for debugging an existing application that is re-engineered?

To overcome this time-consuming debugging process, it is recommended to opt for microservice architecture. 

Microservices accord multiple modular services instead of one huge application, thus, making it easier to debug and maintain, saving a lot of time as compared to maintaining a huge application. 

Polyglot :

One of the biggest benefits of using microservice architecture in financial services is the choice of technology. You have the freedom to choose any tech stacks and databases and therefore, you aren’t limited to the technology with which you want to develop those services. 

Unified Team :

Employing microservice architecture provides relief to the team members from working on a huge codebase. Each member has to work on their assigned components making it easier to develop, manage, and test. This increases the productivity and morale of the team as a whole. 

Reusability :

Microservices provides the reusability function in modules instead of implementing the same functionality in each and every module. If the application has to be integrated with mobile, web or tablet, microservices enables reusing of the services across all the devices.

Testability :

With microservices, a large application is divided into several modular services. Each service is independently developed, managed, and tested without affecting the other services. If any changes are to be accommodated to any one service, only that service will be modified, tested, and deployed. Therefore, microservices increase the testability of the application. 

Wrapping it up!

Though monolithic architecture has a few benefits for the initial stages of the application, it poses a huge challenge when it comes to application enhancement. It not only consumes a lot of time but also, causes you high-costs with added bottlenecks. Opting for microservice architecture gradually reduces the time and cost of maintaining and managing the applications. This is because only the affected service can be altered without any further changes to the entire application. Moreover, with faster development, each application is tested and deployed individually.  

The digital arena has been witnessing the revolutionization of FinTech industries with the changing behavioral patterns of modern customers. Catering to the requirements of the customers and fulfilling all their demands through flexible, highly-secure, feature-rich and scalable applications is making the financial industry widely adapt to microservice architecture. With microservice architecture, FinTech industries are racing to be at the forefront of the revolution for a long-term strategy that boosts profitability through enhanced customer experience. 

Overall, Microservice architecture has all benefits and pre-requisites to give your FinTech Applications a competitive edge in this fast-changing FinTech market. 

Author Bio:

Jeevan Babu is a technology enthusiast and strong believer in agile product development. He is a Senior Project Manager at Fortunesoft IT Innovations, a leading custom software development company. A Computer Engineer by education and a technology adherent by passion. His interest in computers & the internet has made him a self-proclaimed geek.

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