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The future of banking is composable

Will the banking industry continue to evolve at an increasing rate year on year? In the 21st Century, the answer to this question seems to be inextricably linked to the progress of technology and regulation. As new technologies emerge, they drive the industry in a new direction, charting the course for industry participants, clients, and customers alike.

In recent years, customer experience has taken center stage in the retention and acquisition of customers, and banks are looking at innovative ways to meet this demand. Composable technology platforms provide an opportunity to do so. To explore the intersection between composable technology and banking, I will examine the concept, importance, benefits of composable banking, and most importantly, detail how banks can implement it. 

A win-win for banks and consumers

Whilst it’s yet to be a household name, on the level of something like “Buy Now Pay Later”, composable banking is a term you'll likely hear more often in the near future. It refers to a modular approach to banking where financial institutions can select and integrate different services from various providers, without disrupting the entire system, to create unique offerings. By building with a modular approach, each solution serves a specific function and can be combined to create complex structures. This is made possible through APIs (Application Programming Interfaces) that allow these components to communicate and work seamlessly with each other. The key here is interoperability.

So, why should banks start considering composable banking? The answer lies in its inherent flexibility and agility. Traditionally, banks have relied on monolithic systems which are hard to change and slow to adapt. However, in an ever-evolving market where consumer demands shift rapidly, this traditional model is proving insufficient. Composable banking, with its modular nature, allows banks to quickly add, remove or modify services as per market demands or regulatory changes. It's all about being adaptable and responsive without the need for major overhauls or disruptions. Time is money, and most banks – particularly those below the top tier – have neither the time nor the money to rip and replace their technology infrastructure.

For banks, the advantages are numerous. They can innovate faster, reduce operational costs, improve time-to-market for new products, better meet regulatory compliance, and leverage modern technologies without the need for extensive overhaul or downtime. It also allows them to differentiate themselves in a crowded market by tailoring their services to specific customer segments or needs.

However, the benefits of composable banking extend not only to banks themselves but also to their customers too. For consumers, composable banking means more personalized, convenient, and efficient services. Whether it's quicker loan approvals, seamless international transfers, or integrated financial management tools, composable banking can make these possible. Customers get access to a wider range of services that evolve as their needs change.

The market demand for personalized banking services is clear. Research from NTT DATA, conducted on a representative sample of consumers in the UK in 2023, revealed that only 11 percent of respondents felt that their main bank or building society always understood their personal banking needs. For an industry that is evolving to become more customer-centric, a composable approach is a necessary step to create a more personalized and relevant banking experience for consumers.

Putting theory into practice

Transitioning to composable banking is a strategic journey that requires careful planning and execution. The first step in implementing composable banking solutions lies in a shift of mindset. Banks must transition from an attitude of ownership to one of access. This change in perspective is crucial in embracing the modular approach that composable banking entails. It will benefit the industry in the long term, but it requires a somewhat difficult change in the short term. From there, a clear, strategic vision is essential for aligning composable banking initiatives with business goals.

Openness to collaboration is another key factor. Banks should strongly consider the idea of partnering with Fintechs and other service providers. These partnerships can bring about a diversification of services and can equip banks with the necessary tools for a seamless integration of composable banking. Fintechs are an undeniable force in the industry, and collaborating with them is the best approach banks can take to leverage their innovative and revolutionary approaches to integrating financial services and emerging technology.

Investment in API integration capabilities is vital too, as well as ensuring the right IT infrastructure is in place. However, this doesn't necessitate a complete overhaul of existing systems. Solutions exist that can integrate with legacy systems in a customizable way based on each bank's needs. Banks can initially identify key areas suitable for the introduction of composable elements and expand gradually. This approach allows for a smoother transition and minimizes disruption to existing services. 

Finally, navigating the regulatory landscape is a critical aspect of implementing composable banking. Financial institutions looking to embrace composability need to ensure compliance and can do so by keeping abreast of relevant financial regulations and standards, integrating compliance considerations into the design and deployment of new services, and leveraging technology to automate and streamline compliance processes. Engagement with regulators is a useful part of this process, as it helps to clarify requirements as well as demonstrate compliance.

Charting the course for composability

As banks continue to navigate an increasingly complex and dynamic market, composable banking emerges as a viable path forward. It offers the agility, speed, and flexibility that traditional models lack. While implementing it may pose challenges and require significant changes, the potential benefits make it worth considering. In a world where customer experience is king and change is the only constant, composable banking represents the future of banking.

It's clear that the banking industry must move towards a more personalized future. Therefore, the time to embrace composable banking and the opportunities it presents is now. The future of banking is not just about surviving but thriving in a constantly changing landscape – and composable banking is the key to unlocking that future.


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Sandeep Gupta

Sandeep Gupta

Strategic Advisor, Banking Transformation

NTT DATA Services

Member since

27 Mar


Greater Philadelphia

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