Investments in microservices, open APIs and cloud infrastructure are enabling progressive modernization of financial institutions’ core operating systems as use cases for AI develop.

The way banks and credit unions think about core operating systems – and benefit from updates to them – is changing as technological advances reshape the industry’s foundations.

“One of the things that we’re seeing is more of a progressive approach to modernization,” said Dudley White, head of Core Account Processing  Solutions at Fiserv.

Instead of prioritizing full core conversions, financial institutions want the ability to implement regular upgrades that empower them to improve relationships, expand revenue opportunities and achieve key organizational goals.

White and his team at Fiserv are leveraging four technologies to enable these updates and usher in the future of core banking modernization.

Microservices architecture powers incremental enhancements

Increasingly, modern platforms are built on microservices, which break down the core into smaller components that can be developed and managed independently.

That change makes it possible to accelerate application development, enabling financial institutions to implement new technologies incrementally, improve their scalability and reduce time-to-market – all with less risk.

Microservices also make disruptive “big bang” conversions less necessary for core modernization.

“Having a microservices approach allows you to work within an ecosystem where the modernization doesn’t necessarily have to happen within the core itself,” White said. Instead, “the core becomes the epicenter of fintech-enabled, third-party-enabled services that orchestrate the modernization effort.”

But, White points out, the benefits don’t end there: “Incremental modernization lets you direct your investment toward very specific enhancements for driving competitiveness, delivering growth or reaching other business goals.”

Open APIs connect best-of-breed solutions with core banking systems

In addition to reaping the benefits of a core built on microservices, financial institutions have embraced open APIs to seamlessly integrate third-party fintech products into their core systems.

“The core is always going to be critical,” White said, “but the product orchestration enabled by open APIs is becoming much more pervasive in today’s world.”

That’s because open APIs can benefit financial institutions of all sizes: Smaller organizations can opt for popular pre-integrated fintech solutions that expand their capabilities through plug-and-play

integration, without requiring extensive in-house expertise; meanwhile, larger institutions can leverage fintech innovations and third-party data to build bespoke solutions that support their strategic initiatives.

In both cases, open APIs enable financial institutions to find a product development approach that suits their needs.

“We’re always going to have that balance of build, buy and partner, and an open API system allows you to make the decision across those variables based upon the business case, cost, time-to-revenue, and other important factors,” White said.

By focusing investment on a handful of strategic cores, Fiserv is accelerating tech advancements such as API modernization for its go- forward account processing cores.

Cloud brings increased scalability and resiliency to banking

While for many financial institutions the cloud is nothing new, White believes the technology will soon become the de facto standard of banking.

“Cloud will be a critical enabler in modernizing the core ecosystem in the next five to 10 years,” he said.

Already, financial institutions that opt for cloud-based core banking systems experience increased scalability to handle higher volumes of transactions with 24/7 availability, lower operational costs, self-healing capabilities and full resiliency.

The impact on banking has been so positive that even stragglers have let go of their initial security concerns and other objections, White said.

“Over the last three to five years, some of the financial institutions who were reluctant to consider using cloud have made it part of their strategic plan going forward,” he added. “There are cloud solutions to support any risk profile, any overall company strategy.

AI continues to find its footing in financial services

Although AI is likely the murkiest advancement reshaping core banking modernization, White believes “the writing is on the wall that this is where the industry is moving.”

The team at Fiserv has seen an increasing number of AI use cases around client services and support, fraud prevention and even loan origination. And White predicts the impact of AI on financial services will grow even larger as the industry addresses issues such as unintentional bias and privacy risk.

“Once we get past some of the compliance concerns, it will be very interesting to see how AI enhances the ability for financial institutions to really understand the individuals they serve and provide the best offers,” he said. “From an innovation standpoint, I am very excited about the enablement that AI is going to provide.”

Strategy sits at the center of core banking modernization

Of course, achieving any impact requires financial institutions to know their end goals from the beginning of the modernization effort.

“You don’t want to just launch a sexy AI initiative without really having a business problem solved,” for example, White said.

“The biggest issue right now is having a clear strategy,” he said, as well as a partner with the services, expertise and support to bring that vision to life.