Banking on Low-Code: The Secret Sauce of Digital Banking Systems That Are Crushing It

So far, the low-code bastion has been mostly custom applications (built by “citizen” developers) – which are, sort of, spectrally opposite to core software platforms built by professional coders.

The tide is now turning.

Software platforms, specifically in the banking world, are embracing – even infusing – low-code capabilities – either through build or buy (license, OEM) routes.

But first, the backdrop: It is no secret that banks – and all financial intermediaries in general – are rushing to digitally innovate their business and transform their technology. And we know that these interventions target both top and bottom-line impact, while purporting to deliver speed, agility and simplicity in operations. Add in a host of headwinds – pandemic induced credit losses, muted revenues in a low-interest environment, rise in challenger banks that are digital-only, and fintechs that threaten to drive new non-interest business models on a modern tech platform – and you have a real test of banks’ resilience over the next 4-5 years.

To make good on the digital innovation and technology transformation theme, banks must buy or build banking software (core and channel facing systems) based on 4 foundational pillars:

1. API marketplaces – increasingly becoming the core of digital banks to expand the reach of their intellectual property, democratize access and cast a wide net.
2. Cloud-native or Cloud-ready – designed or ported to the public Cloud; service mesh ready for hybrid or multi-Cloud environments.
3. Component-based and customizable – address varied customer needs in an agile, low-cost and even self-serve manner.
4. Enable ecosystems – for banks to stay relevant in the long run, embrace a world of co-opetition and lay the foundation for service offerings and business models that can drive new value.        

With this backdrop, market-leading digital banking systems – cores and application portfolios – are increasingly turning to low-code capabilities (and third-party low-code platforms) as a significant intervention.

Here are 4 value plays that low-code drives for banking systems providers:

1. Accelerate – using a homegrown or a third-party low-code platform, providers significantly accelerate the development of serious, Cloud-native modules, components and applications.
2. Modernize – Leveraging an available API backplane, a low-code studio can generate consumer-grade, responsive front ends (UI/UX), enabling rapid modernization.
3. Optimize – A low-code enabled (OEM version) or infused banking system allows banks themselves to configure, compose, extend or customize certain parts of a digital banking core or application portfolio – reducing/optimizing professional services effort from the provider and evolving the provider-client engagement to the next level.
4. Proliferate – A custom low-code platform with industry-specific componentry can be offered as a layer in front of a banking API portfolio – to open up the ecosystem for the provider’s client and dramatically ease the process for third parties to use democratized assets to build a plethora of applications – very quickly.

In short, Low-Code + Banking Software = Results (digital innovation and tech transformation).

Temenos, a Swiss banking system provider, bought Kony (a digital banking SaaS company and a low-code platform vendor) for $600m in 2019. EdgeVerve, a wholly owned subsidiary of Infosys, a $14b IT consulting and services provider, has built-in low-code capability in its Finacle Digital Engagement Suite per leading analysts that profile digital banking systems. In mid-2020, new age composable banking platform provider, Mambu, partnered with Argentina-headquartered Veritran, an enterprise low-code platform provider, for the Latin America market.

Per Forrester, EdgeVerve and Temenos feature as Leaders in their Wave reports on digital banking platforms (processing and engagement) across 2019 and 2020. Mambu is a Challenger per Gartner’s Magic Quadrant for Retail Core Banking. Low-code capability infusion seems to be clearly correlated with leadership in the banking software domain. We should expect other leading players – TCS, Oracle, Finastra and FIS – to follow suit.

And future banking platforms with leaner digital cores will only serve to further drive the embedded adoption and proliferation of low-code capabilities – whether homegrown or licensed as OEM from third party low-code platform providers.

Epilogue:

A recent McKinsey report on the banking industry points out that the COVID-19 pandemic will cause $3.7 trillion of revenues – more than half of the total financial intermediation industry revenues – to be foregone and never come back. In that same scenario, return on equity would fall from 8.9% in 2019 to 1.5% in 2021, with North America bottoming out at -1.1%.

It is not all doom and gloom though.

The report points out that there is a hopeful picture – if banks do the hard work on productivity and capital management, their ROE can return to pre-pandemic levels by 2024.

What has all this got to do with low-code development?

(Hint: low-code => high productivity)

2024 awaits the resilient and transformed banking industry.

References:

1. The Forrester Wave™: Digital Banking Processing Platforms (Corporate Banking), Q3 2020; The Forrester Wave™: Digital Banking Engagement Platforms, Q3 2019
2. Gartner Magic Quadrant for Global Retail Core Banking – August 2020
3. McKinsey’s Global Banking Annual Review | McKinsey