Download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration. 

Facing mounting competitive pressure from neo-banks and other fintechs, traditional financial institutions are being forced to re-evaluate their offerings and service models. For many FIs, legacy technology stacks have rendered it too expensive and time-consuming to build and deploy the digital-centric capabilities today’s consumers increasingly demand. 

Against this backdrop, it’s becoming clear that banks’ traditional role as one-stop-shop, serving the full gamut of customers’ financial needs, may no longer be sustainable. 

For FIs facing this existential dilemma, composable banking could be a promising solution–offering banks a way to transform their role into serving as the hub of an interconnected network of financial services provided by an array of narrowly focused specialists.

What is composable banking? 

Composable banking is a service model in which banks offer their customers specific services from third-party providers on a modular basis, using application programming interfaces (APIs) to integrate these offerings into an overarching bank-owned framework and customer environment. 

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This approach enables banks to quickly and easily offer best-in-class, purpose-built products and services, such as fraud prevention, instant payments and embedded banking tools, without the time, effort and expense required to build such offerings in-house. 

Under a composable model, banks can rapidly adapt to changing market conditions, customer demands and new technologies by simply swapping out or adding new components as needed, without disrupting the operations of their core technology–all while maintaining a central role in their customers’ financial lives. 

How composable banking can help FIs compete

While banks traditionally have enjoyed quite entrenched relationships with their customers, today’s consumers are highly willing to jump ship if they’re dissatisfied. 

More than three-quarters of consumers in a recent study from The Motley Fool said they were willing to change FIs for better services, a sharp rise from 52% in 2020. And, with an ever-increasing array of new market entrants courting their business, consumers have more options than ever when it comes to fulfilling their financial services needs. 

In this highly competitive environment, banks must be able to deliver robust, compelling, high-value services. Unfortunately for many FIs, their technology stacks render it highly difficult to build and launch these services at the speed and scale necessary to remain competitive in financial services’ digital future. 

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Composable banking allows banks to shed these technological constraints. The model’s modular, API-driven paradigm enables banks to seamlessly integrate high-demand services, while leaving the technological heavy lifting to the digital-native partners actually providing these tools. 

By leveraging composable banking, FIs can assemble tailored solutions and create highly engaging, personalized experiences with the speed and agility of a fintech, swapping out components and integrating new ones as customer needs and market dynamics shift. 

Want to learn more?

For more on how composable banking can help FIs compete, download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.