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SOA in Core Banking

Sunday, 30 November 2008 14:28 Chris Shayan Service Oriented Architecture - SOA in Core Banking

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Abstract: Nowadays there are huge discussions on different software architecture

approaches, and the most well-known one is Service Oriented Architecture (SOA).
Existence of legacy applications as unwieldy weapons impact the technologies in a way
that integration frameworks had been in the battle of consumers. A seismic architecture
and technology in some businesses elevated sense of urgency; one of these businesses is
core banking. Core banking is dissipating hence using service orientation in related
applications is not a choice.

Why SOA?

Gartner has evaluated the competitive landscape of core banking vendors that service
the future of the international retail banking market. Gartner’s evaluation has uncovered
the leading strategies of these vendors/products, revealed their underlying
product/service capabilities and affirmed their relevance to the changing conditions of
the banking industry [REF-1]. Gartner has been concentrated on following items:

1.      Research side: The evaluation began with 32 candidates for the International Retail Core Banking
(IRCB) Magic Quadrant for 2008 and resulted in a qualified group of 22 combinations of vendors and
products that represent the major movers in the retail core banking system market. This final group
submitted information ranging from long-term strategies through to product road maps. Additionally,
Gartner conducted interviews with reference banks to resolve the placement of group finalists on the
Magic Quadrant [REF-1].

2.      Core Banking System definition is a back-end system that processes daily banking
transactions and posts updates to accounts and other financial records. Core banking systems typically
include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and
 reporting tools. Gartner's IRCB Magic Quadrant assesses vendors on the multicurrency products they offer
in support of a bank's financial transaction management in the retail banking market [REF-1].

3.      The main challenge: Gaining access to customer information — a challenge with product-centric
core solutions — is definitely a driver for adopting open, easily integrated core banking systems [REF-1].

4.      Core Banking Road Map: The maturation of middleware messaging architectures and the
evolutionary path to services and event-driven constructs are leading to opportunities that will unlock the
single-use logic in these line-of-business (LOB) solutions. Development techniques, such as service-
oriented development, are focusing on creating components of fine and coarse granularity that may be
exposed to services. For example, a common interest accrual component is used across all front- and
back-office applications to provide consistency and accuracy while extending reusability [REF-1].

And finally, and the reason of such road map is [REF-1]:

“These types of technology innovations are simplifying the maintenance and support of products
while reducing the volatility commonly associated with the introduction of new products and
services. Some core banking vendors already are progressing quickly to achieve componentization of
their back-office offerings. Because changes in banking functionality haven't been market movers,
many packaged core banking vendors have been afforded the opportunity to play catch-up with
product functionalities that once served as differentiators in homegrown or highly customized

solutions — especially in large bank markets. ”

And the result of this research is pictured in a following magic quadrant:

 
  

 Figure  SEQ Figure \* ARABIC 1 Gartner, as of April 2008

Besides, by evaluating some of these vendor’s architectures, effortlessly you can find
that the most of architectures are going to be close to service oriented architecture
(SOA), as a proof of this idea following issues have been taken place.

         Alnova Financial Solutions™ is Accenture's state-of-the-art custom banking solution. This cora
banking platform covers all aspects of universal banking; it handles traditional business
products as well as products designed for wholesale banking and wealth management, all in an
integrated, browser-based environment that crosses multiple delivery channels. Leveraging
market-proven technology, this scalable solution allows banks to achieve high performance
today, and in the future. A three-tier technological banking platform, Alnova Financial Solutions
is flexible, allowing clients to tailor it to their individual environments. Running on Mainframe,
Unix and Microsoft .NET platforms using the most widely known databases (DB2, Oracle, SQL
Server, etc.), the architecture is designed to align with service-oriented architecture (SOA)
[REF-2] principles, including business processes and interoperability, service location
transparency, and standards-based implementation via Web services.

 
 Figure  SEQ Figure \* ARABIC 2 Alnova Architecture

         Infosys Technologies (Finacle): The solution has an integrated CRM module enabling banks to
offer a rich and differentiated value proposition to customers. The layered Service Oriented
Architecture (SOA), STP capabilities, web-enabled technology and 24 X 7 operations ensure
multi-channel, multi-country and multi-currency implementations. The functionality-rich modules
in the solution provide banks with a varied palette of features to continuously innovate on their
product and service offerings. With Finacle core banking solution, banks can meet the
challenges of managing change, competition, compliance and customer demands effectively.
[REF-3]

Figure  SEQ Figure \* ARABIC 3 Infosys Technologies Architecture

         FNIS (Core24): The component for reporting to customers makes it possible KORDOBA
CORE24 enables banks to adjust their software to their own strategies, helping them set
themselves apart from the competition. An extensive range of user program interfaces and the
online parameterization mean it can be extended to suit the needs of individual customers
without modifying the standard solution. By using the pervasive SOA services the connection to
an existing middleware and orchestration of business processes is easily possible. [REF-4]

And overall in the following diagram you can find the segmentation of SOA
investments [REF-5]:

Figure  SEQ Figure \* ARABIC 4 Investment in 2006 in SOA

Enabling SOA in core banking

If we want to enable service oriented architecture in a core banking atmosphere, we

need to have methodology. The best and only the one methodology that can be found on
SOA is called Methodology for Enabling Service Oriented Architecture (MESOA),
which is pictured on following image [REF-6]:
 Figure  SEQ Figure \* ARABIC 5 Methodology for Enabling Service Oriented Architecture

The Process

Starting by SOA in banking should have be in a specific manner, the way that makes
SOA more compatible into your bank is as same as following structure:

         Business Vision Axis

1.       Developing vision and mission

2.       Developing strategies

3.       Evaluating line of business and functional areas

4.       Delineating key business requirement for each area of the business

         Current State Axis

1.       Define business capabilities

2.       Define technical capabilities

By having both axes right now you can have a gap among Current State Axis and
Business Vision Axis, then the final map is:

         Grouping gaps by plans

         Design the roadmap and prioritize the plans

         Develop detail requirements

         Develop final RFP

In your strategic planning activities you should have following teams: project
management, business team, and technology team.

Reference Architecture based on SOA

The Reference Architecture is a framework used as a single point of reference to

illustrate the key operating elements of the core banking solution. The reference
architecture has following categories: technology, people, functions, processes, services,
products, delivery channels, and customer segments.

Technology

As a technology part the following items are mandatory:

         Information architecture

o   Enterprise Service Bus

o   Business Process Executive Language (BPEL)

         Presentation

o   Enterprise web portal such as Liferay [REF-7]

o   Graphical User Interface (GUI)

o   Other (voice, ATM, etc…)

         Web Content Management (WCM) or document management, such as

Alfresco [REF-8]

         Business Intelligence (BI) and reporting tool such as Pentaho

         Core applications

o   Collaboration tools

 o   Core banking applications

         Connectivity

o   Middleware or Enterprise Application Integration (EAI)

o   Extract, Transform, and Load (ETL) tools

o   Web services

o   Unified messaging

         Business Process Machine (BPM) or WS-HumanTasking

         Business Rule Engine Management System (BRMS)

         Data

o   Data warehouse

  OLTP

  OLAP

o   Data mining

o   User data

o   Data classification

o   Enterprise data model

         Data Center

o   Servers

o   Disaster Recovery Plan and backups

o   Data storage (SAN and NAS)

People
 As a people part the following items are mandatory:

         Recruiting and hiring

         Training

         Compensation and rewards

         Career planning

Functions

As a function part the following items are mandatory:

         Strategic planning

         Information management

         Customer segment management

         Channel management

         Product development

         Asset management

         Communications and public relations

         Finance

         Human resources

         Information technology

         Legal

         Marketing

         Security

         Sourcing and procurement

 Processes

As a process part the following items are mandatory:

         Opening and closing accounts

         Deposits and withdrawals

         Statement creation

         Transfers

         Cheque issuance

         Account settlement and reconciliation

         Clearing

         Collections

         Underwriting

         Customer risk enquiry

         Internal bank transactions

         Debt and securities issuance

         Payments processing

         Anti Money Laundering (AML)

Services

As a service part the following items are mandatory:

         Bill payments

         Advisory services

         Cheques
         Cash management

         Document and draft collections

         Safety deposit box rental

         Capital markets

         Trade finance

         Foreign exchange services

Products

As a product part the following items are mandatory:

         Current accounts

         Non-interest savings accounts

         Investment products

         Loans

         Credit cards

         Foreign exchange accounts

Delivery Channels

As a delivery channel part the following items are mandatory:

         Branch

         Automatic Teller Machine (ATM)

         Internet

         Telephone

         Kiosk
         Point of sale (POS)

Customer Segments

As a customer segment part the following items are mandatory:

         Retail individuals

         Small and medium size businesses

         Large corporate

         Government

         High net worth individuals

         International individuals and businesses

All above items can be figured in following image:

Figure  SEQ Figure \* ARABIC 6 SOA banking reference architecture

 
References:

REF-1: Magic Quadrant for International Retail Core Banking, 3 April 2008 by Don Free. Gartner Industry Research Note
G00156674. 

REF-2:
http://www.accenture.com/Global/Services/By_Industry/Financial_Services/Banking/Services/AlnovaFinancialSolutions.htm

REF-3: Infosys Technologies (Finacle), Core Banking Solution

REF-4: The Complete Banking Solution for the 21st Century – KORDOBA CORE24

REF-5: Information Week Research SOA/Web Services Survey of 273 business technology professionals in 200 firms using
SOA/Web Services [Multiple Responses], September 2006.

REF-6: Service-Oriented Architecture SOA Strategy, Methodology, and Technology (2008) by Thomas Erl. (page:30)

REF-7: www.liferay.com

REF-8: www.alfresco.com