Digitalization is not an end in itself. Digitalization enables increased customer benefit and more efficient processes – two important prerequisites for long-term competitiveness. This is made possible, among other things, by increasing and using organizational knowledge, which comes about through the correct collection and evaluation of data. Event sourcing has great advantages for the handling of financial data and especially transaction data.
[This article was published first on IT-Finanzmagazin.]
Many players in asset management, in particular, are currently looking for the ideal strategy to digitalize their processes. When deciding on the right technology or the right partner, the approach to data collection and analysis should therefore also play a relevant role. Event sourcing is such an approach, which, if properly implemented, brings many advantages for asset managers and banks.
Event sourcing makes it possible to combine regulatory requirements with modern data analysis. In particular, asset managers and banks benefit from the comprehensive insights into the behaviors of clients made possible by event sourcing. This makes it possible to determine and verify the best strategy for an investor.
Sebastian Böttner, CTO & Co-Founder
A centuries-old accounting method for the digital age
The principle of event sourcing is simple: every transaction, every interaction, every change in a data record is recorded as an event in an event store. Old values are therefore retained, and only new ones are added. With repeating the events, changes can be traced transparently at any time.
The approach, which, in many functionalities, is similar to blockchain technology, dates back to a centuries-old accounting method. Due to falling data storage costs and new data storage options such as the cloud, it has become increasingly attractive in recent years and is now used by IT specialists for the digital processing of sensitive data in various industries.
Several advantages speak for its use in the financial services context and especially in investment:
- Automated Audit Log: With event sourcing, each individual entry (event) is invariably stored – this corresponds exactly to the definition of an audit log. Because the events are always used to picture the current state of the system (aggregate), you can even prove the correctness of the log.
- Time Travelling: In event sourcing, the status (e.g. asset statement) is calculated from all individual events. Since all events are stored, it does not matter until when the process is continued. This means that the state can be calculated at any time.
- Delta can be determined over any period: Because you can go back to any point in time, it is also possible to determine a delta between two points in time. This allows you, for example, to show the yield for any period of time.
- Testing over the entire history: The status of the system is determined from all events. If the state for a new version of the system is identical to the previous version, it can be assumed that this version works correctly.
Event sourcing is also exciting in other areas such as behavioral data, as it can generate information that would not be available without this approach.
Sebastian Böttner, CTO & Co-Founder
Whilst ensuring data protection on the highest level, data can be evaluated effectively. The user behavior can be analyzed, and future user wishes can be anticipated and fulfilled at an early stage. The knowledge generated by event sourcing ensures an organizational advantage and a good basis for long-term customer loyalty. Also, customers expect their service provider to use the information they share with them to continuously optimize their individual solutions.
However, the approach also poses challenges that must be considered during implementation:
- Event Sourcing vs. Command Sourcing: Event sourcing can easily be confused with command sourcing during implementation. In this case, commands are saved instead of events. This approach loses several advantages of event sourcing.
- Performance: The processing of all events at each start leads to longer and longer start times in the long run. Snapshots can improve performance, but they increase the complexity of the system.
- Modification of the data set: It happens again and again, that data has to be adjusted in retrospect. In principle, this is not possible with event sourcing. Instead, new events must be created, usually with a different type. The change is therefore many times more complex than a simple update in the database.
Conclusion: Powerful but difficult without an experienced partner
Event sourcing is an extremely powerful approach that can be used for financial services through a modern digital platform and offers many advantages, especially in the area of investment. However, the challenges associated with the scope and irrevocability of the recordings require an individual consideration and implementation of the approach in the contest of one’s own digitalization. In order to keep focus on their core competencies, asset managers and banks should, therefore, seek a competent technological partner who has the necessary expertise and uses event sourcing as a fundamental approach to the digitalization of processes.