The Composable Bank

In tech history, it’s rarely a single hyped-up innovation that changes the game. Take the iPhone and its revolution of the smartphone market; the colour touch screen, power efficient processor, integrated phone, WiFi, Li-ion battery technology, internet browser and app store were all features singularly available in devices that predated the iPhone by several years.

So, what was it that tipped the iPhone from being just another phone to being the device that redefined a category? Sure, great product design and brilliant marketing played their part. However, the real magic ingredient was the technology eco-system in 2007.

2007 saw a “Confluence of Disruptors”; massive parallel development of many technologies with pace and urgency, allowing the underlying technologies of the iPhone to be combined in a better, faster, lower cost and higher margin device.

And so a category was killed and a new category was born. And so established players Nokia and Ericsson retrenched. And so a $400bn revenue business was created.

Fast forward to 2016, and shift focus from the smartphone to Financial Services.

We’re seeing our own Financial Services Confluence of Disruptors:

• annual Venture Capital FinTech investments are increasing 67 per cent year-on-year with $22.3bn invested globally in 2015. Banks invested an estimated further $50bn on internal FinTech ventures 
• first wave of industry utilities are moving from seed to amplify stages of their businesses and providing valuable core capability to the industry…
• … and the second wave is coming. Banks and startups are accelerating cost and capability mutualisation plays, with public/private Distributed Ledgers and Smart Contracts headlining
• Cloud, Containerisation, DevOps and Agile are maturing, providing new benchmarks for change frequency and a shift from a traditional fixed-cost, capital-intensive, “mortgage-the-future” model to a flexible, expense-based, “pay-as-you-go” model for service.

The pace, scale and impact of these disruptors are unprecedented in the Financial Services industry. We believe these disruptors drive new operating models, architectures and competences for banks. It is not a case of changing the bank to adapt to any one individual change, such as Blockchain, but moving to a model where the bank can adapt to the confluence of disruptive change taking place in our industry.

We call this “The Composable Bank” – and it is defined by the following shifts:

• migrating the composition of commodity capability from within the bank to the wider eco-system
• shifting the architectural emphasis from Functionality and Product to a model where Data, Customer and Orchestration has primacy
• moving from an infrequent change model (once every six months) to a high frequency change model (several times per day)
• leaving behind fixed-cost models and moving to consumption-based pricing in contestable markets
• adapting to a new regime where businesses are no longer regulated “on the business” but “in the business”
• shifting from heavily governed, teams of thin-sliced specialist roles to self-governing teams of broadly scoped “T”-shaped people.

There are a number of strategies that accelerate clients toward The Composable Bank model. These include FinTech-based Capital Markets processing platforms and initiatives that create high frequency change within organisations.

To find out more, look out for the next blogs in the Composable Bank series.