Composable Core Banking – A symphony on cloud

The pandemic has provided an impetus to the Core Modernization and Digital adoption strategies.  The Banking technology landscape is constantly evolving and adapting and building on that change is a massive opportunity and creates a competitive advantage. Whilst embarking on the journey of Core Modernization the Banks are focusing on two main questions “how can I simplify this for my customer?” and “how soon can I get this to my customer” The key here is the speed and agility with the Banks react to the change.

There are different approaches to core banking modernization that enable a shift to modern banking platforms and Banks are aligned to one of the below mentioned approaches.

• Core Banking modernization approach – where a legacy system is replaced with a new age platform.
• Progressive Core Transformation approach –allows the Banks to spread the risk in Transformation by ‘hollowing out’. The core banking systems’ efficiency can be extended without disruption of the digital journeys. The Banks can choose specific customer segments (retail, corporate), geographies, business areas (deposits, lending) identified for modernization an on successful implementation it is rolled out to other areas
• Digital wrapper approach – where the core platforms remain intact however with the use of microservices and API, specific customer experiences are digitized (E.g., Omnichannel experience, customer onboarding)
• Composable / Coreless Banking approach – where an eco-system of independent, fit for purpose solutions are brought together and integrated seamlessly via APIs to launch digital platform (E.g., a virtual deposits or cards platform). Composable Banking is also a key component of the next gen cloud core value proposition.   

What is Composable or Coreless Banking

Composable or Coreless Banking as a trend has caught my attention. The initiative Coreless Banking was introduced by Banking Industry Architecture Network (BIAN) in 2021, “the initiative empowers the financial services sector to select best of breed partners to help them bring new services to market quickly and efficiently “

Why composable banking can bring about a change.

Legacy applications come with their set of challenges which composable banking can address.

1. In an environment where customer demands are shifting, it is important that products and services are launched quickly.
2. Customer experience get impacted.
3. Product development in legacy solutions is likely to take a longer time and could be sequential in nature.
4. Higher costs associated with delivery and maintenance.
5. Restricted choice of product and technology partners within the partner eco system deliver advanced digital services.
6. Lack of support due to limited skills on the legacy technology

How the Symphony is composed

Traditionally composing a symphony brings together 4 movements -Sonata, Andante, Minuet and Allegro, the composer uses them to create different melodies.

Drawing a parallel, Composable Banking also involves the orchestration of numerous independent systems from many suppliers, tightly integrated with multiple customer touch points. The success lies in the how the Banks go about composing their symphony.

Movement 1: Componentized Architecture

Composable banking follows the pattern of Lego like architecture, there are many analogies in this regard and rightly so. The architecture fosters an environment where systems can be independent yet well integrated.

The most unique feature in this approach is the ability to swap components across different vendors to create, modify and customise user experiences. And such component swaps can be easily validated through Conference Room Pilots   

Componentized architecture over a period aid in increasing the productivity of the developers and reducing the technical debt, a problem that many legacy systems have to deal with.

API managements plays a key role to ensure that the systems interact with each other effectively and efficiently.

Movement 2: Enhanced banking and customer experience  

Customers today, know what they want and want it now. Hence the Turn Around Time at which Banks can launch new product and services plays a pivotal role. This is applicable to existing product suite as well, where new functionalities can be introduced within a short span of time.

With the help of a robust Fintechs ecosystem, newer business models can be introduced in the mix through Open Banking and Embedded Finance duly powered by APIs. Banks can now extend their banking services beyond traditional banking to cater to a whole new segment of customers.

Movement 3: Steady Innovation roadmap

This approach provides an avenue for the tying in innovation to create a market differentiation. Each of the parties within the Banks eco system is an innovation agent and by leveraging the technical and functional expertise a roadmap can be created.

The crux of the Composable Banking lies in synergy. The synergy between the selected, fit for purpose systems and applications within the eco system, enables innovation. With continued focus on digitization Banks and Fintechs will partner to use emerging technologies, Blockchain, 5G, Artificial intelligence, Machine Learning et al to create innovative solutions. Services can be created with use of industry standard software that is cloud agnostic.

As agility and speed are key principles of this approach – incremental innovation delivery would be more effective.

Movement 4: Scalability on Cloud

The composable infrastructure enables cloud native platforms to work in tandem to create the desired value proposition. The most recognised benefit to be scalable on cloud is cost optimization.  In addition to this, the time taken to implement a Composable banking platform on cloud is faster.

Being on cloud will also help fuel both vertical and horizontal growth across business and technology offering thus transforming the Banks digital strategy.

Success in execution

There are many factors that determine the success of a composable banking platform and what is of paramount importance is how the entire partner ecosystem is synchronously brought together to deliver a symphony, that results in superior customer experience.

• Selection of the most suitable Fintech and non-Fintech partners, including cloud partner.
• Managing different licensing models
• Access to large amounts of Data and effective management of the same
• Robust API management
• An Enterprise architecture view and strong system integration skills
• Partner Ecosystem management and governance