Blog: How Microservice Architecture Can Revolutionize Real-Time Payments Processing

In the transition away from monolithic architecture, financial institutions are looking for a cost-effective, efficient, and proactive approach. This is where microservices architecture meets the demand.

The microservices approach takes the transition from legacy infrastructure to a cloud-based, scalable system by migrating piece by piece rather than all at once, allowing for a smoother, more comprehensive migration. This allows banks to sidestep major disruptions to operating services, whilst enabling regulatory reporting, compliance monitoring, fraud detection, and real-time payments processing as part of the modernization process.

What does an ideal microservices payments architecture look like?
Banks are looking for smooth and efficient migration; disruption is not an option in the current fast-paced fintech landscape. To keep up with the demand, cloud-native platforms are the most effective solution.

According to Straits market research¹, the global microservices architecture market size was valued at USD $3.7 in 2023 and are projected to reach $11.8 billion by 2032. Monzo² and Starling³, which are among the top digital banks in the UK, use microservices architecture powered by AWS to manage their payments processing.

A microservices approach by definition, divides large systems into smaller, more manageable parts, offers a service-based architecture where open technologies are prioritized – which allows for agility and scalability that is crucial in the current age of digital banking and modernization.

In the past, monolithic technological architecture processed large chunks of data and software as one task, but as the banking system evolves and becomes more complex, this form of processing becomes less tenable. Microservices architecture runs multiple services via APIs, which allows for separate tasks to be completed within their own autonomous databases, which is more scalable and time efficient.

A successful migration focuses on areas that require the most flexibility, such as instant payments and A2A transactions. The ideal microservices payments architecture needs to be reliable, secure, and competent. The complexity of microservices can also be outsourced in part to automation and AI tools. To ensure that separate parts of the migration journey remain in-sync throughout the process, unified solutions are necessary.

Transformation is not a one-stop shop, but an ongoing journey. By forming a well-structured migration plan, the transition can be broken down into manageable pieces that innovate and evolve payments systems without disrupting them.

Benefits and challenges of implementing microservices payments architecture
Microservices payments architecture offers efficiency and flexibility, and cuts costs when deploying new products, scaling business models, and managing regulatory changes. The ability to supervise payment operations is heightened through microservices architecture, which can support banks through compliance adjustments such as DORA preparation and fraud reporting.

The speed and scale benefits of microservices allow for new forms of payments such as person-to-person payments and instant payments to evolve, and provides modularity and reduced time to market, enabling independent releases and faster product rollout.

Microservices allows for a flexibility that facilitates banks to introduce a breadth of new services over a shorter time frame – paving the way for a new system of open banking systems that integrates various forms of payments using third-party platforms.

The challenges to microservices architecture include maintaining security and ensuring the programmability is future-proof whilst remaining flexible. Banks employing microservices architecture need to formulate a risk-mitigating approach.
Regulation and compliance are also pain points in any introduction of new technologies in the financial sector, which is why consistent testing and validation is essential to keep on top of regulatory requirements.

Furthermore, there is a cultural shift alongside the move away from monolithic architecture. The leadership needs to be transparent about new changes when bringing in a microservices strategy, and shared responsibility for the migration should be clearly outlined.

How will microservices architecture keep up with the pace of payments innovation?
Looking at how tokenization and new forms of digital payments, such as cryptocurrency, will be impacted by microservices solutions, it comes down to the fact that digital currency will be active in the instant payment system and will be enabled through A2A payments. As more programmable functions are being introduced in banking, such as direct debit and automated payments, there needs to be more flexibility within the banking structure. Modern payment architecture, however, can facilitate programmability and the integration of APIs from third parties can enable it.

Is the cost of change worth it? Open and external APIs will drive the payments services of tomorrow, and to manage that level of data and create a comprehensive payments ecosystem, banks that have a modern platform with microservices running on the cloud, will be able to keep up with pace whereas legacy banks will be left in the dust.

To improve on the customer journey, banks will need to open up to further embedded finance and open banking transactions and invest in the evolution of microservices architecture to ensure consistent innovation. The future of microservices will see the further development of instant payments and more fintech-bank collaboration for the benefit of the consumer.

To discover how cloud-native payments processing and microservices architecture can future-proof your bank, download our whitepaper. 

Originally published in Finextra


Sources:
1 https://straitsresearch.com/report/microservices-architecture-market
2 https://aws.amazon.com/solutions/case-studies/monzo/
3 https://aws.amazon.com/solutions/case-studies/starling-bank-case-study/