Embracing Digital Transformation: The Composable Banking Approach

The prevailing landscape of severe competition and heightened customer expectations affects every industry, including banking. Existing banks must address the constant evolution of customer demands to thrive. Furthermore, banks that make transformations to meet customer needs and adapt through necessary technological changes are the ones who will differentiate themselves and survive in this disruptive ecosystem.

Many leading banks are charting digital transformation journeys aided by innovative technologies such as cloud computing, artificial intelligence (AI), machine learning (ML), and blockchain. However, banks’ current core systems lack the infrastructure to integrate these technologies effectively. This is where Composable Banking emerges as a solution, enabling banks to confront these challenges head-on and meet the ever-changing needs of their customers.

Composable Banking represents a groundbreaking approach that empowers banks to deconstruct their services and offerings into individual components or modules. These modular building blocks can be seamlessly combined or integrated according to specific needs, giving rise to purpose-built applications. The term “composable” derives from the notion of composable architecture, which underpins the development of these applications. Notably, components within this framework are loosely coupled, ensuring flexibility and adaptability.

By adopting composable architecture, even non-banking institutions can offer banking services such as loans, innovative payment solutions, and wealth management services. Composable Banking solutions facilitate a plug-and-play implementation, allowing for swift adjustments to meet the ever-changing demands of customers. Undeniably, this approach emerges as the future of banking, with an unwavering focus on customer needs.

Notably, the newly developed components can be reused, updated, or replaced with other compatible modules, ensuring the rapid deployment of intended solutions. An increasing number of banks are poised to embrace this approach to maintain competitiveness and relevance within the industry. Composable Banking empowers banks to cater to customers’ unique and diverse needs, enabling new banks to enter the market and become market-ready within a remarkably short time.

The entire application is constructed as a unified system in traditional banking and other applications. In this setup, all components tightly interconnect and operate as a singular application. Introducing a new feature necessitates modifying the entire system, resulting in a time-consuming and costly process. Scaling up becomes resource-intensive in terms of both time and money. Furthermore, most of these technologies are deployed on physical premises, incurring additional expenses related to hardware and networking.

Characteristics of Composable Banking
Composable Banking embodies a range of distinctive characteristics that contribute to its effectiveness. First and foremost, it adopts a flexible approach, enabling it to accommodate the ever-changing banking industry’s needs. It achieves this by breaking down banking services into smaller, manageable components that can be developed and deployed independently, with each component catering to specific functionality. These components are seamlessly interconnected through microservices, facilitating the development and implementation of new modules and functionalities.

Furthermore, Composable Banking leverages APIs to enable seamless data exchange with external partners, fostering innovation, improving engagement, and harnessing the capabilities of these partners. New components can be developed quickly by reusing existing components and fine-tuning the technological stacks. Notably, updating a specific component within the system does not impact other components, ensuring a smooth and uninterrupted upgrade process. Manual intervention is not required for system upgrades, streamlining the overall operational efficiency.

Composable Banking also provides greater agility and scalability, enabling banks to adapt to market demands swiftly. One of the significant advantages is the drastic reduction in time to market for new products and services, allowing banks to respond promptly to evolving customer needs and gain a competitive edge.

Challenges of Composable Banking
Composable Banking is not without its challenges.

Firstly, clear requirements are essential when selecting components to fulfill specific business processes. Integrations must be smooth and precise across all components and peripheral applications.

Ensuring data consistency becomes crucial due to the utilization of multiple components. These applications often require continuous testing to maintain their optimal performance.

Finally, the security and privacy of data must be carefully addressed, particularly in light of the integration with third-party tools.

Certain hurdles must be solved to fully realize the promise of Composable Banking and ensure its effective deployment.

Benefits of Composable Banking
Composable Banking offers a multitude of benefits and advantages. Firstly, existing components can be easily modified or removed without disrupting the entire system, making it highly flexible. This flexibility extends to removing redundant business products or services effortlessly. The ability to rapidly develop new features enables quick transformations and facilitates the rapid expansion of the business.

Moreover, existing components seamlessly integrate with third-party tools and solutions, enhancing the overall customer experience. New components can also be integrated with the existing components of core applications and systems, complementing each other. This adaptability allows banks to respond promptly to customer demands, changing market needs, and regulatory guidelines.

Composable Banking eliminates dependence on a single banking application vendor, enabling engagement with versatile partners and fostering a collaborative platform for developers and partners. Scaling individual system components independently optimizes resource utilization and workforce efficiency.

Composable Banking fuels the development of innovative and tailor-made products and solutions. Customers benefit from a seamless experience while banks comply with local and international regulations.

Additionally, the technology reduces manual processes and enhances the applications’ efficiency. Most notably, Composable Banking drastically reduces the time to market for new products and services, enabling banks to seize opportunities and stay ahead of the competition swiftly.

The merits of adopting the composable architecture in Composable Banking have not gone unnoticed by many banks. This innovative approach has garnered significant attention as banks seek to enhance their operations and increase their relevance within the banking ecosystem. Leveraging cutting-edge technologies such as AI and ML, Composable Banking enables the development of new customer offerings.

Conclusion
Integrating Composable Banking with other technologies like blockchain and the Internet of Things (IoT) opens new possibilities. This integration fosters increased engagement between existing banks and fintech organizations, propelling large banks to become more flexible in meeting customers’ ever-changing needs and creating new revenue-generating avenues.

Cigniti specializes in delivering exceptional quality assurance services for banking applications, encompassing a comprehensive range of testing processes such as functional manual testing, functional automation testing, performance testing, security testing, API testing, and more. We are dedicated to supporting global banks in their digital transformation journeys, enabling them to enhance the customer experience and gain a competitive advantage. Our expertise ensures that our client’s applications and systems run seamlessly, facilitated by efficient back-office operations. Our track record is a testament to our position as a trusted advisor and preferred technology partner in the banking industry.

With our profound domain knowledge and extensive understanding of industry regulations, Cigniti offers diverse solutions tailored to the specific needs of banks and financial institutions. These solutions encompass ISO20022 Migration, analytics-based digital lending, open banking assurance adhering to Banking Industry Architecture Network (BIAN) standards, and even Composable Banking platforms. Banks can deliver reliable and innovative financial services to their customers by leveraging our banking assurance services.

To achieve a distinct competitive edge, banks must continually transform themselves by embracing agile technologies that enable them to adapt rapidly, seamlessly, and effectively to emerging challenges. This transformation should prioritize customer centricity, go-to-market agility, and the adoption of intelligent processes. At Cigniti, we are committed to empowering banks with the tools and strategies necessary to achieve this winning edge and confidently navigate the evolving landscape of the banking industry.

Need help? Contact our Digital Banking Assurance experts to learn more about embracing digital transformation through the composable banking approach.