IBM Z and LinuxONE Underpin Fintech Efforts
Fintech efforts must be underpinned by a platform that delivers speed, security and scalability. Enterprises are finding those attributes in IBM Z and LinuxONE systems.
Image by Greg Mably
Fintechs are building on open source, so adding Linux and its ecosystem to enterprise platforms gives financial services incumbents and fintechs alike access to the innovative technologies being developed by the community.
“Financial transactions used to be cyclic and now they’re all day long, 24-7-365,” says Maura Schoonmaker, program director for IBM Z and IBM LinuxONE banking and financial market industry offerings. “Having an enterprise platform behind that, which is always available and able to handle those workloads, is key for any financial institution.”
The term “fintech” originated as shorthand for technology applied to financial services applications, not just online banking but security and analytics offerings. Usage of the term has moved beyond its origins, however. Today, fintech might as easily be used to refer to a software product such as the APIs used to run a payment service, the start-up developing those APIs or the company running the digital payment platform itself.
One real-world example of a fintech is Digital Asset Custody Services (DACS)—an organization that’s creating a trusted environment for digital asset transactions. The platform will provide end-to-end security for digital assets, encrypting private keys in transit and at rest. Assets will be protected from cybertheft but available to customers in near real time, compared to a 24-hour delay with conventional off-line “cold storage” solutions.
DACS based its system on IBM LinuxONE and IBM cryptocards. “IBM offered the most secure platform for our offering—it’s as simple as that,” comments Brad Chun, co-founder and board member for DACS and CIO and co-founder of Shuttle Holdings. “In cryptocurrency markets, failure to protect assets poses an existential risk. Get it wrong, and it could bankrupt you. Together with IBM, we’ve co-invented state-of-the-art security features that are unmatched in the market.”
The fintech universe goes beyond pure technology to encompass non-traditional organizations offering consumer services such as budgeting and investment advising applications. A more advanced example might be a messaging provider that offers mobile payments or currency exchange to its user network. Such organizations typically maintain deposit accounts with a banking partner but aren’t responsible for licensing or charters themselves.
At the next level are neo-banks, which are online entities accessible only via desktop or mobile platforms. Because they don’t have to maintain physical branches, they operate with a fraction of the overhead and staff of a conventional bank. Initially, these organizations still stored their deposit accounts with bricks-and-mortar banks.
Bank Zero, a South African digital bank, is an example of a neo-bank. Bank Zero has no physical branches. Instead, when the bank launches later this year, its customers will conduct all transactions using a banking app. In partnership with IBM, Bank Zero created an entirely virtualized IT platform based around IBM LinuxONE. “In a digitally connected world, employing cutting-edge technologies and delivering state-of-the-art security is at the core of innovation,” said Bank Zero Co-Founder and Chairman Michael Jordaan. “As we focus on delivering a robust banking value proposition to our customers, collaborating with IBM will ensure that we have a secure, leading platform from which to deliver banking services.”
Incumbent banks are also paying attention. Most major banks already have online and mobile banking platforms. Others are working hard to deliver the neo-bank experience without requiring customers to leave their familiar financial homes.
For example, Techcombank, an incumbent Vietnamese bank, transitioned to a customer-centric business model that features a comprehensive set of mobile banking offerings. To scale up to the increased customer numbers and transaction volumes, the company moved from a distributed computing system to a centralized system built around IBM LinuxONE. As a result, transaction volume rose by 4x and total cost of ownership decreased by 44%. “The banking market in Vietnam is rapidly evolving, and IBM LinuxONE provides the fast, flexible foundation to support our growth trajectory and the dynamic needs of the future,” says Chester Gorski, chief technology and operations officer at Techcombank. “With IBM by our side, we’re confident that we can make the most of the opportunities that the market has to offer and strengthen our position as a banking leader.”
Putting Fintech to Work
Schooled by the world of fintech, today’s financial services customers expect round-the-clock mobile access serving up a variety of services tailored to their needs. They no longer want to go to a branch to open an account or apply for a loan. They want to access these functions from their mobile devices. This is the promise of the neo-bank, but it can be offered by a disruptive incumbent bank as well.
Determining the credit worthiness of a mobile applicant in seconds requires more than just data. Financial services organizations need to apply artificial intelligence and advanced analytics to convert that data into insights to improve both the customer experience and banking operations. “Always-on” auditing mechanisms, for example, apply machine learning to data from core banking systems (e.g., daily transactions, demographics, online interactions, etc.) to identify fraudulent transactions while they are still processing, or score credit applications in real time.
The security demands of this brave new digital world have also led to the development of technologies such as blockchain. Blockchain is an immutable distributed ledger designed to record digital transactions while preventing unauthorized access and/or alteration. By maintaining a complete, unchangeable record of a process, blockchain creates an environment of trust while streamlining many transactions. The technology is being applied for a range of applications from contracts to digital assets to chains of ownership.
As we focus on delivering a robust banking value proposition to our customers, collaborating with IBM will ensure that we have a secure, leading platform from which to deliver banking services.
Plastic Bank, for example, is a social enterprise tackling ocean plastic and global poverty with blockchain-based token rewards. As scientists predict more plastic than fish in the ocean by 2050, what can we do to protect the natural world? Working with IBM and service provider Cognition Foundry, Plastic Bank is mobilizing recycling entrepreneurs from among the world’s poorest communities to clean up plastic waste in return for life-changing goods. “When we began our journey, we relied on pen and paper to record transactions between Plastic Bank and the citizens bringing us plastic to recycle,” says David Katz, CEO, Plastic Bank. “To grow into a truly global platform for change, we needed a high-performance, enterprise-ready IT system.”
For fintechs and financial services organizations to build customer trust, IT systems must provide the highest levels of security and reliability. To support rapid growth from new initiatives and new customers, the same systems need to be scalable. They must support high availability and deliver the flexibility to allow organizations to adapt to changing market conditions.
“Conventional wisdom says that to take advantage of fintech, you have to replace centralized systems with public cloud or distributed systems,” says Adam Jollans, program director for IBM LinuxONE marketing. “But conventional wisdom is wrong, because you still need to consider security, scalability and reliability—and centralized systems can support new technologies as well as or better than distributed systems.”
IBM Z and IBM LinuxONE provide enterprise-grade platforms to support analytic and security tools alongside core banking systems in a secure, robust virtualized environment. Rather than extracting data to outside servers—always a security risk—the IT shop can maintain all sensitive workloads in a private cloud built on an enterprise platform, with over 99.999% reliability. All operations can be protected by the pervasive security instituted platform wide, and all data can be encrypted in flight and at rest.
The IBM LinuxONE platform supports multiple instances of Linux* running in virtual partitions. The IBM Z server supports multiple OSes, including Linux on IBM Z. In that sense, both platforms enable developers to take advantage of the best the open-source community has to offer.
“Fintechs are building on open source, so adding Linux and its ecosystem to enterprise platforms gives financial services incumbents and fintechs alike access to the innovative technologies being developed by the community,” says Jollans.
For software deployment and operation, developers can build containerized applications and then deploy and manage them using Kubernetes on IBM Z and IBM LinuxONE. IBM Cloud* Private packages up the support for containers and Kubernetes within an enterprise Platform-as-a-Service environment.
Developers can also take advantage of the IBM Secure Service Container, which enables them to package the application and then run it in a secure environment, protected from both internal and external threats. Data interacting with the application is automatically encrypted both in flight and at rest. As a result, even administrators cannot access the data inside.
For example, Phoenix Systems, a fintech producing digital asset platform, developed a secure trusted digital asset management platform called KORE. KORE leverages IBM LinuxONE and Secure Service Container for IBM Cloud Private to enable issuers to securely tokenize, manage and trade digital assets while maintaining compliance. “We offer banking-grade services to the nascent crypto industry, with a special focus on security of data management,” explains Thomas Taroni, CEO, Phoenix Systems. “This is only possible when partnering with the best. Both IBM and Securosys offer an unparalleled infrastructure to maintain the highest security standards at all times.”
The Modern Financial Landscape
Succeeding in the modern financial landscape requires agility, whether from the standpoint of the services offered, the technologies applied or the market being addressed. At all levels, organizations need a secure, agile, flexible infrastructure that can support next-generation applications, process and store huge amounts of data, and deliver insights in real time.
These platforms should support modern open-source tools and enable users to adapt to changing needs at a moment’s notice. The IBM Z and IBM LinuxONE platforms and associated tools like IBM Secure Service Container and IBM Cloud Private give fintechs and financial services organizations the ability to deliver comprehensive mobile offerings to the ever-expanding marketplace.
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Kristin Lewotsky is a freelance technology writer based in Amherst, NH.
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