Why the future of banking is composable

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

But one bank’s threat is another’s opportunity. Those that grasp the urgency, and begin migrating now from the old technologies that struggle to enable innovation at pace, will win. Those that don’t will find it harder to compete in this new banking paradigm.

So what sort of platform should banks be using? The answer is a composable one.

Learning the lessons

Banks only need to 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.

Compare this to the technologies that continue to dominate big banks. The picture here is of dislocated systems procured from multiple vendors, requiring complex integrations (and often more software) to enable process automation and a single view of data. What’s more, much of this runs on-premise, meaning banks must take on the cost, management and risks of hardware, networking and security.

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

Breaking boundaries

Composable banking is also creating opportunities beyond traditional market boundaries. Increasingly, non-banks are getting in on the banking game, directly using composable banking platforms to entice their customers with credit offers, new payment methods, investment opportunities and wealth management solutions.

But offering ‘embedded finance services directly has limits — regulation and know-how being 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 may also collect new prospects to market their core banking services to.

A composable platform allows for this to happen at scale. Without it, it would be too complex 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 a merchant is only limited by the breadth of capabilities available, and how fast they want to go.

How you compose matters

A composable banking platform should be free to run in any environment, including any public cloud or as SaaS. It should also be database agnostic, and leverage API architecture. These things don’t only matter 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 extending modules with rich new features, or building entirely new capabilities on top of core ones, the platform will be starved of the innovation it needs to stay relevant.

The platform must also embrace the ability for partners to bring their own solutions, and integrate those easily. So the platform must be cloud-native, to enable containers, microservices and other modern DevOps tools. There must 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 generate the breadth and depth of capabilities that it is designed for; the deployment flexibility to suit current and future needs; and the ease of use that enables fast adoption and then scale.

The time is now

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

Profits generated through composable banking activity will ultimately dictate urgency. Banks and businesses that move first will be in pole position to analyse the commercial implications, double down, and reap the most benefit.