Composable Banking | Modefin

Composable Banking

The key to success is often the ability to adapt! – Confucius

Traditional banks are facing a unique dilemma. On the one hand, they must compete with agile fintech firms (with the best technology), as they offer a consistent customer experience across numerous channels. On the other, they must find the best way to access their legacy systems while integrating it with new digital platforms.

According to a recent report on digital transformation in banks, about 42% of organisations consider legacy systems or architecture, as one of the top three challenges. This is because while these legacy systems may be archaic, they are valuable and are deeply embedded across the bank’s operations. So, in this case, a ‘remove and replace’ method will not work. Further, the continued dependence on these traditional systems makes it difficult for banks to innovate and stay competitive.

The leading research company Gartner says that by the year 2030, 80% of the current crop of financial establishments (that do not digitise) will cease to exist or will do so without being competitive (and this was stated before we were hit by the pandemic).

Why don’t the traditional systems work?

A simple answer to the above question is “Silos”. Most banks (with legacy systems) are known to have an IT infrastructure that is highly segmented. Each part of the business such as credit cards, loans, branch operations, digital operations, ATM’s have a separate technology stack, creating information silos. While this may have worked successfully for many years, modern consumers are more demanding (seeking better and more customised experiences) and there is increased competition from fintech companies (offering better technology and customer experiences). This justifies the need for a solution that bridges the gap between the legacy system and newer technologies.

Broadly, here are the problems with traditional systems:

  • Cost- The fact remains that clunky legacy systems drain your IT budget. Some of these systems are written in languages not in use anymore. Further, the cost of maintaining and updating the same is high.
  • New products- The banking space is crowded and extremely competitive. Therefore, being able to launch a product quickly and effectively is a key differentiator. However, Legacy systems or traditional architecture (interdependencies and manual deliveries of processes) are a major bottleneck for quicker product delivery into the market.
  • Inconsistent Experiences- The bank’s traditional systems obstruct the smooth flow of data between silos (departments). It does not offer a 360-degree view of the customer, preventing the bank from offering personalised services to the customers anywhere, anytime.
  • Lack of Communication- One of the biggest problems with departments having individual databases and systems, is the lack of internal communication. This has a huge impact on the bank’s overall efficiency. With no easy way of sharing customer information quickly and efficiently, banks end up dealing with inaccuracies and delays in servicing the customer.

The solution:

Composable Banking: What is it?

A Composable Banking Layer is the perfect answer to the challenge that a ‘Silo’ presents. It creates a digital layer between the bank’s existing systems and the numerous customer touchpoints. The composable layer uses an API (Application Programming Interface), which works like the perfect glue between the existing architecture and the ecosystem layer. This leads to a seamless, intuitive, and customer experience across banking channels. Once the composable layer has been installed, existing applications can share data and talk to each other; plug-in and unplug applications, all the while innovating competitively and effectively.

Banks must respond to the constant shift in the markets with a composable architecture that allows them to align and adapt as quickly as possible to emerging opportunities. This will help them to stay relevant while securing their future.

Why does it work?

  1. Less Complex– Currently, there are numerous ways that a customer can interact with the bank or a financial institution. Apart from laptops, tablets, and smartphones, there are virtual assistants such as Amazon’s Alexa. Customers like the fluidity and convenience that comes with using multiple channels for a single transaction. However, a seamless experience is only possible when you have a single and unified view of the client across the business. Composable banking layers make this possible, as it serves as a centralised service repository for all channels. It offers a consistent and unified channel layer that works between the bank’s core systems and the numerous customer touchpoints.
  2. Better Proposition for Customers- Guided by the retail industry where personalised experiences reign supreme, customers seek the same in banking too. These higher expectations can be met when banks become customer-centric as opposed to product-centric. Bridging the gap between legacy systems and cutting-edge technology, a composable banking layer ensures that customers get a unified, easy, flexible experience across banking channels.
  3. Perfect Solution for Banks- Traditional banks feature monolithic technologies that require extensive and expensive upgrades very often. Replacing it in its entirety may be time-consuming and expensive. However, using a composable banking layer is the perfect solution as it not only extends the life of the legacy systems but also supports your immediate digital transformation requirements. Banks can benefit immensely from the improved capabilities and agility that it contributes.

The buzz of the many fintech companies all around need not be a threat to the traditional banks. It can serve as the ideal tool to improve customer experience.

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