Digital banking transformation is being powered by emerging technologies such as cloud computing, artificial intelligence (AI), machine learning (ML), the blockchain and other recent innovations. While these technologies have enabled financial institutions to improve speed to market, enhance customer experience, and increase operational efficiency, existing core systems have made it difficult to effectively integrate these technologies in a cohesive manner.
Composable platforms allow for the combination of pre-built business solutions that create custom applications through automated programming interfaces (APIs). This approach is centered on the idea of modularity. In this approach each component is designed to perform a highly specific function, while still being easily integrated with other components within a larger, legacy core system. The goal of composable technology is to enable faster development, better collaboration and increased flexibility.
“Composable banking is the future of banking. It enables financial institutions to offer customers a highly personalized and tailored experience, while also being able to iterate and improve at speed. With the right technology, banks can easily plug and play services, creating a truly customer-centric ecosystem.”
— Anne Boden, founder and CEO of Starling Bank
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Characteristics of Composable Banking Solutions
Composable banking represents a paradigm shift in the way financial institutions operate, emphasizing the principles of modularity, reusability and adaptability. The concept enables banks and credit unions to build and improve the functionality of their existing technology infrastructure by leveraging modular components often offered by external partners. These components can be reused, repurposed, or replaced easily, ensuring that the overall back-office systems remain agile, deploying new solutions faster … catering to the evolving needs of customers and the market.
Central to the development of a composable banking solution set are APIs. These enable seamless integration and interoperability between different systems, services and third-party providers. With APIs, banks and credit unions can share their data and existing products and services with external partners, fostering innovation and improved collaboration. APIs also facilitate the rapid integration of new technologies and services, improving the digital transformation process which ultimately improves the customer experience.
Most importantly, collaboration allows banks to leverage the expertise, innovation and agility of fintech firms and other third-party providers. By collaborating with external partners and adopting a plug-and-play approach to banking, financial institutions can quickly respond to changing customer needs, develop innovative solutions, and stay ahead of the competition.
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Benefits of Composable Banking Solutions
Composable banking offers several benefits that can help banks and credit unions increase agility, innovate faster and provide a more personalized customer experience. By breaking down products and services into components, financial institutions can quickly adapt to changing market conditions and customer needs. For example, if a particular service or feature is no longer popular with customers, product developers can easily remove it from their product offering without having to re-engineer their entire system. This can help banking institutions stay competitive and responsive to customer demands, avoiding the traditionally lengthy process of reengineering existing products and services.
By taking a modular building block perspective, banks and credit unions can quickly develop and launch new products and services, leveraging one or several inside and/or outside solution providers. This is particularly important in today’s fast-moving digital economy, where customers expect new and innovative services on a regular basis. According to a report by McKinsey & Company, composable banking technology can help banks reduce their time-to-market by up to 80%.
Finally, composable banking technology also enables banks to offer a more personalized customer experience. By using APIs to connect various services and systems, banks can create a seamless and integrated experience for customers, leveraging more internal data sets for contextual engagements. For example, composable technology can enable banks to create streamlined and user-friendly digital onboarding processes by integrating various components, such as identity verification, risk assessment, and compliance checks. This approach allows banks to offer a seamless customer experience while ensuring regulatory compliance and reducing manual processes.
“Composable banking is not just the future, it’s the present. As the banking industry becomes more digital, more open and more customer-centric, composable banking offers a way for banks to keep pace with changing customer demands and industry trends. In the coming years, we can expect to see more and more banks adopting this approach as they look to innovate and differentiate themselves from competitors.”
— JP Nicols, managing director of FinTech Forge
Marketplace Examples of Composable Banking
There are many marketplace examples of composable banking that illustrate how financial institutions and third party providers can leverage the principles of modularity, reusability, and adaptability to create highly flexible, scalable, and efficient solutions. These organizations range from the largest international institutions to community banks and credit unions that understand the power of collaboration to become more competitive and future-ready.
Two examples of the diversity of financial institutions that have leveraged composable banking are WeBank (a digital-only bank in China) and New Jersey-based Cross River Bank. As one of the pioneers in the digital banking space, WeBank has adopted an open and modular approach to its banking services. providing API-driven services and collaborating with third-party providers to create a highly customizable and adaptable banking platform.
For example, WeBank has built its core banking system on top of a microservices architecture, which allows it to scale and adapt quickly to changing market demands. This ecosystem helps WeBank to develop and deploy new solutions, products, and services in less than 20 days by reusing and integrating existing components.
As one of the foremost global leaders in leveraging composable banking, WeBank has quickly become the largest digital bank in China.
“The most important thing for us is to collaborate with third parties. We cannot possibly innovate as much as we need to on our own, so the best ideas may come from other places.”
— Anne Finucane, retired vice chairman of Bank of America
On the other end of the asset spectrum is Cross River Bank. This community banking organization has implemented composable banking strategies to create a technology-driven platform that provides traditional banking services while also catering to the needs of fintech partners and customers. By partnering with fintech companies and third-party providers with API-driven solutions, Cross River Bank offers a range of innovative financial services, such as payment solutions, lending platforms, and digital banking products. This collaboration has enabled the bank to expand its reach, improve customer experience, and drive innovation.
Cross River Bank has also adopted a modular and flexible architecture for its core banking system and an open banking framework which enables rapid development and deployment of new services. By leveraging composable banking solutions, Cross River Bank has successfully transformed itself into a technology-driven community bank that offers a wide range of innovative financial services while staying true to its community-focused roots.
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Future Trends and Opportunities for Composable Banking
As the financial services landscape continues to evolve, composable banking is poised to play a significant role in shaping the future of the industry. Here’s a look at the future for compasable banking.
- Greater API adoption and standardization: This will lead to easier integration and interoperability between financial institutions and third-party providers, promoting seamless collaboration and fostering innovation across the industry.
- Expansion of Banking-as-a-Service (BaaS) platforms: With increased modular financial services and APIs, more banks and fintech companies may enter the BaaS market, offering a wider range of services and driving competition.
- Enhanced use of artificial intelligence (AI) and machine learning (ML): As the use of composable banking solutions increases, banks and fintech companies will increasingly leverage AI and ML to develop innovative financial solutions that cater to the evolving needs of customers.
- Increased collaboration between banks and third parties: As speed and scalability becomes more important, collaboration between traditional banks and fintech companies will increase. This trend will be positively impacted by decreasing VC funding and a greater emphasis on fintech revenue generation.
- Focus on data security and privacy: As composable banking relies heavily on data sharing and integration, ensuring data security and privacy will become increasingly important.
- Emergence of new business models: Banks and credit unions will look to monetize their APIs, offer white-label financial services, and create new value-added services based on data analytics and external collaborations.
- Integration with emerging technologies: Composable banking will increasingly integrate with emerging technologies such as blockchain, IoT (Internet of Things), and 5G, enabling the development of next-generation financial solutions.