In this blog post, we take a quick plunge into the fundamentals of composable banking backend, highlight the pivotal role of every player in the ecosystem, and offer concrete steps to embark on your journey toward the banking infrastructure of the future.
Banking services as we see them are soon long gone. In an era defined by instantaneous demands, the financial sector has been compelled to evolve since yesterday, witnessing a transformative shift toward agility and innovation. This game-changing concept also has a name: composable banking back end.
Banking services, as we see them, are soon long gone. In an era of instantaneous demands, the financial sector has been compelled to evolve since yesterday, witnessing a transformative shift toward agility and innovation. This game-changing concept also has a name: composable banking backend.
The composable banking backend is an innovative ecosystem that harmoniously combines various independent services and components to construct an adaptable and versatile banking infrastructure. This groundbreaking approach, founded on modularity, has paved the way for unmatched flexibility, scalability, and rapid development capabilities.
As laudably pointed out by Ben Robinson in his blog post, "The internet has revolutionized banking as it has revolutionized most industries, turning it into a set of microservices that can be molded to individual requirements. These services seamlessly embed into our everyday activities and are delivered by an interconnected ecosystem of players."
Robinson's observation has a point: the modular and adaptable architecture of composable banking backend empowers banks to piece together a customized banking infrastructure that integrates perfectly various components, services, and APIs, all aligned with their unique needs and objectives.
Consider this: the new composable backend is a paradigm shift for the banking industry. We can’t emphasize enough the importance of creating a winning ecosystem to support and enable new future-oriented banking businesses.
”I can’t emphasize enough the importance of creating a winning ecosystem to support and enable new future-oriented banking businesses.”
A smart new ecosystem tackles the challenges of core banking systems
As we highlighted in our recently published whitepaper, there are many reasons why replacing core banking systems with modern infrastructure is now imperative. The challenges of scalability, adaptability, and openness have taken center stage for banks in the digital age.
Scalability pertains to the constant demand of the modern age, where services must be available 24/7, in contrast to the days when banking hours were limited. This shift presents a significant challenge.
Adaptability involves a deep understanding of customers, who now expect personalized solutions. Core banking systems were designed for an era when banks controlled the entire value chain, offering standard products to a mass market. This stands in stark contrast to today's landscape.
Openness encompasses the dynamic nature of banking services, sourced from various providers, reconfigured into composite forms, and seamlessly delivered through customer-centric channels. Traditional core banking systems were built with the assumption that a single bank would manage the end-to-end process of creating and selling its own products through its proprietary channels.
Having discussed with multiple experts, all these challenges have something in common – relying solely on single vendors doesn't cut it. That's where the partner ecosystem comes in, offering freedom and flexibility to explore best-in-market solutions tailored to specific needs.
The key players of composable banking backend
What are the makings of a future banking ecosystem, and who should be involved, then? Modularity is king when it comes to well-functioning infrastructure. This means that multiple independent services and components seamlessly must work together, with each partner contributing unique solutions for various banking capabilities within the ecosystem. They collaborate closely to establish a cohesive and flexible banking infrastructure.
These are the core players:
Banks and financial institutions drive the composable banking backend, embracing modularity and transforming legacy systems for flexibility.
Enablers, consultants, system integrators, and other service providers support banks adopting the composable banking backend. They offer expertise, tools, and solutions, including specialized software and frameworks, facilitating infrastructure and capability-building modularization.
New core banking providers form the foundation of the composable banking backend, focusing on their core offering of the core banking ledger and robust APIs for seamless integration with other components.
API management platforms act as intermediaries, facilitating communication and integration within the composable banking backend. They offer tools for API design, security, documentation, and monitoring, empowering banks to collaborate and innovate effectively.
Fintech companies bring innovation and specialized expertise to the composable banking backend, integrating services like payments and risk management through well-defined APIs, enabling banks to leverage the latest advancements.
Cloud service providers offer secure, scalable and cost-effective infrastructure for building and scaling the composable banking backend. Their platforms also provide complementary services like data analytics and artificial intelligence, enhancing the ecosystem's capabilities.
Combine these aligned forces, and you have a winner. Banks swiftly adapt to evolving market dynamics through this modular approach, integrate new technologies, and deliver innovative solutions to their clients.
Get started with composable banking backend: 5 steps
So, as the revolution is knocking on our doors already, it's time for banks to take decisive action and harness the potential of a composable banking backend. Here's how you can get started:
1. Evaluate Your Current Infrastructure:
Begin by assessing your existing banking systems. Identify areas where a composable approach can yield significant benefits. Seek opportunities to dismantle silos, enhance interoperability, and improve scalability.
2. Invest in Talent and Technology, and Partner Up:
As you embark on the journey towards a composable banking backend, invest in skilled talent and modern technology infrastructure. Ensure your teams possess the expertise to design, develop, and maintain modular systems effectively. Collaborate with a trusted partner who can provide guidance and support in this transition. Additionally, consider outsourcing backend operations to your partner for efficient management.
3. Embrace Standardization:
Collaborate with industry organizations such as BIAN to adopt and contribute to standardized interfaces, protocols, and data models. Embracing common standards will ensure compatibility, simplify integration, and unlock new collaboration opportunities.
4. Cultivate a Culture of Agility and Innovation:
Foster a mindset of continuous improvement and innovation within your organization. Empower teams to experiment, explore new technologies, and leverage the flexibility of a composable banking backend to adapt swiftly to evolving customer needs.
5. Partner with Fintech and Third-Party Providers:
Forge strategic partnerships with companies that offer specialized solutions and services. Harness their expertise and seamlessly integrate their offerings into your composable banking backend to elevate customer experiences and expand your service portfolio.
More information on the composable banking backend, including its construction and operation, industry insights, and a complete analysis of the ecosystem players, can be read in our whitepaper, downloadable here.
Stay tuned for more posts about the revolutionary power of composable banking backend from us!
Leo Vaskelainen is the Head of Banking at Siili Solutions
Read more about composable banking back end on our recently published whitepaper.