It is the customer who defines the development trends

Today the development of the IT industry is immediately determined by bank needs, Interview with Alexander Glazkov, Chairman of the Board of Directors, Diasoft

The leaders of the banking market are increasingly talking about the need for fundamental changes in their IT landscapes. According to Gartner, over 80% of the world's leading banks are planning to move towards SOA or hybrid solutions. That is why we expect big changes to take place in the coming 5 years both at international markets and in Russia.

A couple of years ago CIOs and vendors made only assumptions for the future industry development speaking at conferences and in their publications. Today there have appeared well settled global trends and corresponding innovative solutions. It has become clear that in order to obtain visible results, to reach real efficiency of the implemented financial architecture, it is important to choose the right direction.

But what is the right direction? There are a lot of offerings at the market, but the future is not any more determined by the vendors who rarely offer what a customer really needs. Now the right to chose belongs to the customer. It is the bank requirements which have formed a development vision for the next five years. This happened so quickly that most vendors failed to get ready for this turn.

Five or ten years ago, these were vendors who were in the avant-garde. In the late nineties everybody worked with solutions based on client-server principles. Everybody invested in product development, but the market was not ready to accept these products. Now there is a global tendency for the vendors to be a little bit late with their offerings. Customers have already created a development strategy and have formed the tasks for software developers, but there is still very low choice of the corresponding offers.

Clearly, our work is to serve the business, since this is the mission of the IT. The modern business is getting more accurate and understandable, and it should get more mobility — it is essential to launch new attractive products. In terms of the rising competition, the business needs to do it very quickly, at least within the expected time frame.

But these timeframes have also changed. Here is an example. A bank’s IT Department formulated its mission as to help the business launch a product within 90 days and at a low cost. But the low cost is again a relative concept. The main thing is that the cost of business support was significantly lower than the expected profit. Sometimes it is even not so important how expensive or cheap it is, because time can be a lot more important than some hypothetical cheapness. It is important to take into account the risks, because they, too, are estimated in money. So it makes sense to choose the solutions whose implementation will require a little bit more time and investment, but will guarantee the planned result.

The problem is that the business does not want to wait — it needs the solutions today, and IT-professionals should think about the strategy, about how they will serve the business in the future. The architectural solutions which we select should be scalable and future proof. We must think not only about solving today's business challenges, but also about the future strategy to avoid coming to a deadlock in a couple of years when it turns out that we have no resources for further growth. This means that the decisions we make must be reliable, which also has its price.

Twenty years of experience at the banking market and the results of joint projects with industry leaders allow us to state that there are three key components of successful solutions: architecture, technologies and tools. Together, these aspects make the solution multidimensional, reliable, future proof, and capable to fully meet the needs of modern business.

Proper Architecture

In order to build the proper architecture of a bank, you need to run a thorough analysis of all organizational aspects including IT, specific business tasks (retail, corporate services, investment banking, etc.), and bank business processes (front-office and back-office operations, accounting, reporting, etc.).

The goal of an architect is to take into account all the three aspects while building the appropriate architecture. Today there is no need to reinvent the wheel: there is a reference model for each of the three aspects of solutions architecture. All you have to do is to consult the industry leaders who are developing and mastering innovative technologies. These reference models can be offered by such technology leaders as Accenture, Gartner, IBM, etc. These companies help customers build their own target architecture adjusted for specific business tasks, this is why it makes sense to refer to these proven models, instead of reinventing something.

Naturally, similar reference models are available from the leaders of the financial market like Sberbank, Alfa-Bank. We have to study these best practices. Finally, there are architectural achievements of vendors who are leading the IT industry. We at Diasoft also have our own target architecture, which includes over 70 components. If we analyze all the currently available solutions, we’ll see that these reference models have more common features than differences.

Modern Technologies

There is a strong tendency to develop centralized solutions which causes specific requirements for their scalability and processing performance. Still it is clear that centralized solutions are necessary if we want to quickly create and deliver bank products. The most promising method of developing such solutions is the use of component-based approach built on either SOA or hybrid SOA+EDA architecture (Service Oriented Architecture and Event Driver Architecture).

It is essential that the IT system should be built on the base of business processes. Only this approach can ensure that the system does not become an add-in of some immature solutions. The management of IT also must be based on the principles of business process management.

Tools

Now let's move on to the discussion of proper tools. When a bank needs to make complex changes in its IT landscape, it can implement a comprehensive system from one or several vendors, or integrate the required components into the existing IT landscape. That is the bank has to choose to either undertake a large scale project for the implementation of a complex solution, or a step-by-step move towards the target architecture, with the pointed replacement of components or implementation and integration of new applications required to serve new business needs.  

There is a third option which can be chosen if you have a know-how which can allow you to beat the competition, but there is no suitable solution on the market. Then you will need to develop an innovative custom solution, using the available development platform.

The 4th tool is legacy renovation, which is selected by most banks. This is a transition of a well-functioning aging solution to new technologies and SOA.

For the banks which are not ready to invest into an expensive product, I would suggest another, a more economical option of SaaS which offers the use of a software product as a service.

Here are some examples of how each of the five tools is used in real Diasoft projects.

Soyuz Bank, one of the largest banks in Russia, adopted a new development strategy. The bank could not realize this strategy basing on its existing IT infrastructure. The bank decided to embark on the large scale project for implementation of a software solution with a broad range of functional components. To realize the strategy the bank selected Diasoft’s solution and successfully achieved the required results to support system changes necessary for the rapid business development.

Another example is an innovative retail bank with a diverse IT landscape. To improve customer servicing the bank needed to separate back-office and front-office processes. To meet these challenges, it chose a phased implementation of a new component-based product, starting with the FLEXTERA Front Office.

Our FLEXTERA is not just a suite of out-of-box components. This is a new software development platform with a large number of system services, which allow us to quickly create application solutions avoiding double developing of the same components.

One of the leaders of the banking market, Alfa-Bank, which has always been committed to innovative ideas, has the know-how in remote banking. In terms of lack of required products in the market, the bank embarked on its own project, which will be realized on our platform. I am sure that after the successful realization of this project, Alfa-Bank will continue to work on the development of its target architecture in cooperation with Diasoft.

Another way was chosen by Sberbank, whose main task was IT centralization. This giant bank has a very difficult technological infrastructure with a lot of proprietary know-how solutions having developed over decades. Nevertheless the existing bank products could not become the basis of a centralized solution. We realized a legacy renovation project for this customer. Within the project we transferred the current functionality into a modern, scalable, and high performance platform. As a result we increased the system performance by more than 100 times. Now we are involved in the project for the solution rolling out in more than a half of the regional banks of this financial giant. Can you imagine what business volumes is covered? It is thousands of users and hundreds of millions of contracts.

Such projects are not very frequent in Russia, probably because the market is still relatively new. Nevertheless we have already got several requests for the use of our FLEXTERA Platform within Legacy renovation tasks. We are currently working out the details of several similar projects and are preparing proposals for the European market. These proposals are based on the same technology allowing for transition of existing solutions to a more efficient platform.

Another example is SaaS, or Software as a Service approach which can probably be considered the most innovative tool of today. It perfectly suites the companies which are in the process of their business planning and cannot calculate the ROI on the software yet or are not sure whether the expensive solution will cover the investments. As an example we can use the microfinance market, for which we have developed a separate offering. We have reached an agreement with our partner to implement our software solution at CROC datacenter and provide it to our customers as a service.

This is our view of the basic components and the proper approach to creation of a bank target architecture. It is the Customer who should decide what technologies and what tools to select. It is important to carefully weigh all pros and cons, because the decision you take must be able to cover both today’s and future business needs.