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June 5, 2018updated 06 Jun 2018 10:16am

Bringing the Pieces Together: Banking on a Composable Architecture

Financial institutions can - and should - use composable architecture to streamline operations and automate processes, says Mambu CTO Ben Goldin

By CBR Staff Writer

Nimble new entrants in financial services have shown established institutions the future, and it is composable. These new players embrace a modular or composable architecture which is cloud-native, flexible, fast and allows scalability and innovation.

In a world where customer experience is the key differentiator, agility and speed is a key differentiator. This API-enabled approach is setting the pace. Customers benefit from enhanced products, services and transparency. This means their expectations are higher and established institutions have to adapt in order to ensure their sustainability.

Legacy bank systems cannot compete with this level of agility.

Most established institutions systems are siloed, do not ‘talk’ to each other and need a large number of resources with specialist skills to operate and maintain them.

It is established institutions’ inability to adapt and respond to market changes quickly, share data, and innovate that is holding them back.

Long term sustainability can be found in recognising the need to change thinking and embrace a digital-first approach, or risk being left behind.

This entails adopting an API-enabled composable architecture to access the same technology that give new entrants an edge.

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Along with enhanced customer experience and streamlining operations, the right technology open doors to more opportunities that could vary from launching an independent digital banking spinoff to scaling and growing into unique markets or geographies.

Composing the Architecture

APIs enable a composable architecture which makes multiple integrations possible from new payment networks, customer-facing channels or custom-code for process automation to card processing services and other complimentary cloud services.

Ben Goldin

This gives institutions the flexibility to work with best-in-class providers in each area. Both the business and IT teams are able to make changes quickly, adopt new technologies or switch providers and services – all without having to depend on an army of consultants for execution and customisation.

APIs empower in-house developers with the ability to innovative, adding new features and functionality like custom mobile apps, chatbots or voice recognition capabilities to their ecosystem in weeks rather than years.

New products or iterations of existing offerings can be rolled out, integrated and modified at a fraction of the cost and time it would take with a siloed system.

Data Security and Regulation

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In any large organisation data security is always a concern. With API-driven systems, the access to system data and capabilities is done solely through the APIs, offering significantly more security than manual or file-driven processes reducing the chance of human error and compromises of data integrity.

Single Policy Enforcement points can also be introduced such as API management to ensure the authenticity and confidentiality of information and to govern the API access centrally across systems. This is also an effective tool in combating fraud and enforcing necessary segregation of duty regulation given its ability to access and monitor information across systems.

Automated and Data-Driven Decisioning

Credit decisioning is ordinarily a highly complex and resource heavy process but many fintechs are using APIs to automate and speed up the process by using third-party services to cover critical steps. Combining these services such as identity validation and credit ranking alongside internal insights into customer behaviour decreases new loan approval times from five days to one minute. A single developer would be able to implement these business process automations in a matter of days, speeding up a cumbersome process cost effectively.

Opening Up Opportunity

An API-enabled composable architecture allows industry players like fintech vendors, software providers and developers to easily integrate to an institution’s banking and lending capability.

According to HBR, generates 50% of its revenue through APIs, generates 90% and eBay, 60%.

By creating a marketplace environment and leveraging its platform and access to data, institutions will be able to see a growing return on their API investment.

This technology allows for innovation and customisation in scenarios that institutions cannot possibly predict. The more people build on the solution, the more opportunities there are to differentiate. Almost like building an architecture without a precise end goal, APIs can take banks into different markets, open up innovation and allow the capability to build something unique. In time, the need to personalise services will become the new norm and it will be necessary to fall in line.

Best of Services

Taking a composable approach enables the use of best-of-breed providers. Each company is focused on a specific part of the architecture from the SaaS engine to chatbots or credit scoring, to analysing customer data insights. This allows multiple integrations to specialised complementary cloud services.

Banks and lenders cannot keep moving in the same direction if they want to see themselves as relevant and innovative. The key is to learn from what works best in the market and build on that, eliminate aspects that did not go as smoothly, then change tact and direction. This is what innovation is about: the ability to explore and quickly iterate on what works in the market and in the process, redesign banking for the 21st century. A flexible architecture allows for iteration, learning and institutional growth.

Financial institutions can derive value by leveraging technology to streamline operations, automate processes and significantly reduce the overall cost of doing business. By accessing the very technology used by the new players allows them more focus externally on clients and service instead of internal systems and processes. If managed like a product, an organisation’s core assets can be reused, shared and monetised, extending the reach of existing services or provide new revenue streams.

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