Established financial institutions know they must upgrade their core banking technology to compete with neobanks and fintechs by offering the digital-centric services and experiences that today’s consumers expect and demand. And increasingly, these FIs are realizing that a composable banking paradigm is a highly promising route to that critical technological transformation, according to Galileo Head of Product Strategy Michael Haney.
“It’s becoming imperative to improve the operational efficiency at these legacy banks and be more responsive to client needs and industry trends,” said Haney during a recent roundtable discussion hosted by PYMNTS. “Many banks are finally making some serious effort to modernize their back-end account and transaction processing systems.”
Why FIs Must Upgrade their Banking Cores to Compete
Increasingly, FIs are taking a composable approach to this overhaul. A modular model that enables banks to combine various services and components–including those from third-party providers–into tailored solution suites, composable banking enables FIs to quickly adapt to changing market demands and integrate innovative services without a complete overhaul of their back-end technological systems.
Banks getting familiar with digital
As Haney explained, more and more banks are recognizing that a composable strategy offers a cost-effective, scalable way to remain competitive with newer, digital-native providers and relevant amid banking’s rapid digital transformation. They’re also becoming more familiar with the granular technological building blocks and application programming interfaces (APIs) that enable the easy integration of various different services under a single system to offer a unified, multi-functional customer experience.
How to Start Your Journey Toward Core Banking Modernization
“Banks have watched with interest what the digital challengers have done with these technologies, and perhaps have even been supporting them as their partner banks in a banking-as-a-service model,” observed Haney. “Some banks have experimented themselves with building a digital sidecar on a modern tech stack, or maybe have modernized a specific part of the bank, such as their payments processing system,” he added.
“These experiences have taught them that the latest generation of core processing solutions is ready for prime time,” said Haney.
A shift in strategic mindset
Effectively enabling composable banking can entail significant changes to how established banks have traditionally operated–and thus requires a shift in strategic and organizational mindset among bank leadership to embrace this new approach, Haney said, offering advice to driving this crucial buy-in from top brass.
“The first consideration as you present the case for change to your management team or to your board is not to make this solely about technology. Instead, create a business case that encompasses things the business side of the house cares about, like revenue and profit,” Haney advised.
“Focus on what the technology enables, such as improved customer engagement and product innovation, rather than the technology itself.”
One particularly effective way to demonstrate the business case for composable banking is experimenting with a single service or capability that runs on digital technology–a limited pilot that enables a bank to test and learn while attracting new customers and revenue streams.
“Once you’ve proven this new platform helps reduce total cost of ownership, time to market and other critical factors, leaders become more open to modernizing … and embracing the composable mindset,” noted Haney.
Want to learn more?
Contact us to find out how composable banking can help transform your FI.
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