Customer experience is the lifeblood of banking.
In a competitive marketplace, with new and better digital customer experiences being offered all the time, it has never been more critical for banks to invest and to innovate in this area in order to stay ahead of the curve - and to keep meeting or exceeding customers’ expectations.
Organisations that don’t keep pace aren’t just creating a drag on their own innovation; our research shows they will face challenges recruiting and retaining future talent, and competitive displacement in the mid-to-long term. This weighs heavily on Australian tech leaders in financial services, but also more broadly.
As Deloitte observed the Australian sector back in 2016, “Innovation in financial services is deliberate and predictable.” Targeted areas are typically those where “the greatest sources of customer friction meet the largest profit pools”, Deloitte continued. It added that innovations in the sector “have the greatest impact where the business models are platform-based, modular, data intensive, and capital light.”
All of this largely holds true six years on, except that the path to these innovations has forked in recent years.
On one path, banks and other institutions forged close ties with fintechs, helping these small companies to bring disruptive financial platforms to market and to the bank’s own customers. Investing in these fintechs and their innovative plays helped institutions to tap innovative offerings without enormous engineering effort or upfront resource expenditure on their part.
But as anyone that has watched the Australian finance sector will know, the banks are also builders in their own right. Over the past year, many have assembled formidable engineering teams, doubled-down on engineering culture, and generally made a concerted effort to arm their internal teams to innovate fast and at scale.
What has emerged from that effort and investment is a new breed of financial products powered by distributed architectures. Organisations are transitioning to distributed software architectures to support and accelerate innovation, gain digital revenue, and reduce costs.
Applications are cloud-native, microservices and API-driven, and increasingly harness best-of-breed components and services hosted across multiple clouds that are stitched together to operate in a seamless and highly available fashion.
These services and components need to communicate with one another to function effectively. How that is enabled is the next major engineering decision that many banks and financial services players in Australia will make.
Some have already made this decision, many are still exploring their options. But they will all inevitably land in the same place: with a service mesh.
Let the meshing begin
A successful transition to a microservices-based architecture requires many pieces to fall into place: that services are connected reliably with minimal latency, that they are protected with end-to-end security, and that they are discoverable and fully observable.
However, this presents challenges due to the need to write custom code for security and identity, a lack of granular telemetry, and insufficient traffic management capabilities, especially as the number of services grows.
To handle microservices at scale, technology leaders are increasingly turning to service meshes - such as Istio, Kuma or Linkerd - as a complement to API gateways in providing reliable, secure and observable connectivity between services in distributed, cloud-native environments.
A recent study of how Australian organisations by Kong shows they are already building up portfolios of (in over half of cases, reusable) microservices to power new applications and customer experiences.
The numbers show that 32 per cent of Australian organisations have a service mesh in production, while a further 44 per cent say they are in the midst of a deployment and an additional 20 per cent say they intend to start deploying one within the next 12 months.
This is a positive though likely over-enthusiastic assessment. It’s likely that self-identified early adopters are in engineering-led organisations like banks and other finance sector participants. Even drilling down into the specific numbers, things remain relatively nascent on the adoption front in reality.
There are some clues to lower levels of sophistication in the research, where 55 per cent of organisations say they have less than 50 services in their mesh. This points to perhaps one or a handful of composable applications implemented as pilots within these organisations, rather than broad-scale use.
In other words, while new financial apps and experiences that are assembled from microservices and APIs are the goal, many organisations and industries - Australia’s finance sector included - have some headway to make on service mesh adoption in order to demonstrate maturity in their capability and approach.
In saying that, achieving maturity is not a question of ‘if’ but ‘when’. Service meshes are on the technology roadmap of these organisations. The more time they lay these technology foundations, the more developers can use them to build better, more innovative financial apps and features.
Brad Drysdale, APAC field chief technology officer, Kong
Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.
Neil is also the host of the ifa show podcast.