Why the future of banking is composable

Today’s big banks face many challenges. Consumers expect the same kind of digital convenience from their banks as they get from other experiences. Regulators agree, and have made it easier for new entrants like non-banks to give people access to the financial services and information they want. These disruptors are armed with cloud-native technologies and the mind-set to get to market with new services at breakneck speed.

But the threat of a bank is another opportunity. Those who understand the urgency, and start moving now from old technologies that struggle to enable speed change, will win. Those who do not will find it difficult to compete in this new banking paradigm.

So what kind of platform should banks use? The answer is a composable.

Learning lessons

Banks need only look at some of the most successful B2B technology companies to understand the value of composability. Think Salesforce for CRM, or ServiceNow for workflow management.

Contrast this with the technologies that continue to dominate the big banks. The picture here is dislocated systems acquired from multiple vendors, requiring complex integrations (and often more software) to enable process automation and a single view of data. Furthermore, most of them run on-premise, meaning banks must bear the cost, management and risks of hardware, networking and security.

Faced with this complexity, the temptation for banks is to hold on to what they have, rather than the costly rewiring needed to add new capabilities. In other words, the price of innovation outweighs the commercial opportunity, as more nimble players woo customers with better service and experience.

Transgressing boundaries

Composable banking also creates opportunities beyond traditional market boundaries. Increasingly, non-banks are entering the banking game, using composable banking platforms directly to attract their customers with credit offers, new payment methods, investment opportunities and solutions wealth management.

But offering ’embedded financial services directly has limitations – regulation and knowledge are two of the obvious ones. Banks that can enable merchants to expand their portfolio of ’embedded finance’ products will take their share of the revenue, and can also collect new prospects to sell their core services to banking.

A composable platform allows this to happen in a big way. Without it, it would be too complicated for a bank to integrate their systems, processes and protocols with those of the merchant. But the ‘plug and play’ nature of a composable banking platform means that a merchant is only limited by the extent of available capabilities, and how fast they want to go.

How you compose matters

A composable banking platform should be able to run freely in any environment, including any public cloud or as SaaS. It should also be database agnostic, and use API architecture. These things are not only important for deployment, but also for the developer ecosystem that needs to be built around it. Developers are the lifeblood of a composable platform. Without their involvement in expanding modules with rich new features, or building entirely new capabilities on top of core capabilities, the platform will starve of the innovation it needs to stay relevant.

The platform should also embrace the ability of partners to bring their own solutions, and easily integrate those. So the platform must be cloud-native, to enable containers, microservices and other modern DevOps tools. There should be a sandbox environment to facilitate experimentation and testing; and a marketplace where developers can commoditize their work.

It is only through these open principles that a composable banking platform can develop the breadth and depth of capabilities for which it was designed; the deployment flexibility to adapt to current and future needs; and the ease of use that allows rapid adoption and then scale.

The time is now

Talk of the need for breadth in a composable banking platform may lead some to assume that this means large-scale, and complex, adoption. The opposite is true. Breadth affords modularity; the opportunity to start small and deploy individual capabilities, and then seamlessly add complementary functions or branch into new areas.

The revenues generated by composable banking activity will ultimately dictate the need for urgency. Banks and businesses that move first are in pole position to analyze the commercial implications, double down, and reap the most benefits.

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