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Why the mainframe remains a crucial foundation of the banking sector

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The financial sector has been underpinned and shaped by technological developments for decades. However, while the majority of incumbent banks have relied upon known technologies – online banking services, for example – the new wave of challenger banks have been capitalising on the client experience gap left behind.

New start-up competitors such as Monzo and Starling in the UK, and Chime and Simple in the US, have embraced consumer demand for agile mobile banking services and utilise a component-based infrastructure to bring such services to market. They’ve made an impression on traditional incumbent bank consumers, too. Research published by Crealogix at the end of last year concluded that one in four people below 40 had opened an account with a ‘challenger’ bank either alongside or instead of their traditional bank accounts.

Naturally, this is a cause for concern for the banking giants, who aren’t taking this challenge lying down. They are investing heavily in further developing their own online and mobile banking services. Take a look at the Connected Money app from HSBC as just one example. It boasts a “joined up banking” experience where all of its client’s bank accounts can be accessed in one central place. Adoption has been so popular that HSBC is already taking steps to merge features from its Connected Money app with its main mobile banking service.

What lies beneath many of these new, shiny apps is an existing infrastructure which has underpinned their businesses, and the financial sector, for decades: the mainframe.

What mainframes still have to offer

Mainframes have been processing transactions and managing accounts long before the new wave of alternative banking companies had even been conceived. And they’ve come a long way since they were first deployed in banking over 50 years ago.

The days of punch cards soon gave way to transactional processing systems, and now these systems process tens of billions of transactions every day. As much as big banks are directing investment towards mobile products, they’re also sinking significant funds into improving and modernising their mainframe systems. Billions of dollars of investment goes into mainframe development annually, and it’s the financial sector at the beating heart of that.

In fact, while mobile banking seizes the headlines, 92 per cent of the world’s top banks are still reliant on mainframes. And that’s by choice. The advantages remain sound.

For a start, there’s the sheer brute force of such systems. What lifts them above other platforms is their ability to process large numbers of transactions, drawing data from several resources, all at the same time.

Visa, the world’s largest credit card company, relies heavily on mainframe technology, and processes 145,000 transactions every second using such systems.

But speed is only part of the equation. Security remains just as key.

Physical mainframe infrastructure has long been respected for its deep encryptions and safety features. And it’s in security where much of the development funding is being invested. ‘Pervasive encryption’ is one such key innovation, facilitating user encryption of data right down to database, data set and disk level. IBM’s latest mainframe series, the Z-15, has also notably introduced a new security feature: Data Security Passports. These allow banks the ability to encrypt data, to grant and revoke access, and, ultimately, to maintain complete control of it – even as it moves off the mainframe.

Furthermore, mainframes are now actively working with open source technologies, harnessing the opportunities offered by the likes of cloud technology and the Internet of Things, while remaining grounded in those key tenets of speed and security.

So pervasive are these benefits, that a recent Forrester study revealed that half of organisations will continue utilising and improving their mainframe infrastructure in the next two years. This is versus just 5 per cent of businesses looking to decrease or remove mainframe activity.

Does the mainframe offer you the best of all worlds? There’s certainly an argument for that, and these legacy systems remain the infrastructure of choice for traditional banks who understand the advantage over newer competition.

A promising future

Assuming the investment continues to marry up the agility of emerging technologies of competitors with the processing grunt and water-tight security they remain renowned for, mainframes are set to underpin the banking sector well into the future. It’ll be a long time, if at all, before anything can match their sheer workload.

Incumbent banks aren’t resting on their legacy laurels either, with new features, new ideas and new approaches continuing to broaden and improve the services mainframes offer. In fact, the above mentioned Forrester report highlights how more businesses than ever are using the mainframe for new technological developments, such as blockchain and AI; innovations that both challenger and traditional banks are exploring.

No longer are they an inconvenience, to be maintained as cheaply as possible. For the banking sector, particularly traditional banks, they’re the answer to many of the challenges lying ahead.

Don Dejewski, Director of Mainframe Services, Ensono

As Director of Mainframe Services for Ensono, Don Dejewski has extensive experience in IT, most specifically leading mainframe and client projects in the banking sector.