Experts: Composable Banking Boosts Digital Customer Experience

Composable banking, a modular approach to banking services, is enhancing digital customer experiences by allowing for greater flexibility, personalization, and seamless integration. Experts highlight how this method enables banks to quickly adapt to customer needs, integrate new technologies, and offer tailored financial products. By leveraging composable banking, financial institutions can improve user satisfaction, streamline operations, and stay competitive in the rapidly evolving digital landscape. This innovative strategy is transforming the future of banking.

Boston Brand Media brings you the latest news - Digital banking architecture is currently in the spotlight. Fintech companies and consumer-oriented neobanks are leveraging it to develop new features, applications, and enhance customer experiences. Regulators are examining it closely to understand their potential role in this evolving landscape. As the significance of digital banking architecture extends beyond the chief technology officer, financial services executives must familiarize themselves with its evolving structure to grasp the future of their industry.

This matter is particularly pressing as banks upgrade their back-end systems for managing accounts and transactions. The FinTech sector is providing various solutions to address this growing need, focusing on the foundational aspects of banking such as deposits, payments, and lending.

Numerous traditional banks have not only collaborated with these innovators in a banking-as-a-service model but have also begun developing their own digital platforms using modern technology stacks. Some banks have opted to overhaul their payment systems. These efforts indicate that the new generation of core processing solutions is poised for widespread implementation.

“Improving operational efficiency at legacy banks and being more responsive to client needs and industry trends is becoming imperative,” Michael Haney, Galileo’s Head of Product Strategy, told PYMNTS. He explained that these new platforms are built on MACH principles: microservices, APIs, cloud, and headless architecture.

Haney described how companies like Galileo create a reusable library of detailed building blocks. These building blocks, akin to Legos rather than traditional server stacks, are utilized to construct core services that dismantle traditional silos and enable the creation of new financial products and features. These new features are then made accessible through APIs for easy integration with other systems and deployed in the cloud for scalability.

Haney recently led a roundtable discussion on “composable banking” with PYMNTS, where he and other banking innovators discussed its impact on the consumer digital banking experience.

Boston Brand Media also found that composable banking, which uses modular components instead of monolithic mainframes to deliver financial services, is not a future concept; it is an active and urgent reality in the present, according to the panel.

Evolution of Core Banking Architecture

Haney and the other panelists explained that composable banking is an architectural approach enabling financial institutions to assemble and reassemble various banking components into tailored solutions to meet specific customer needs. This modularity allows banks to quickly adapt to changing market demands and integrate innovative services without overhauling their entire systems.

“Many banks are finally making a serious effort to modernize their back-end account and transaction processing systems,” Haney said. “These experiences have taught them that the latest generation of core processing solutions is ready for prime time.”

Haney elaborated on the evolution of core banking systems, highlighting that the earliest systems from the late 1960s were built on mainframe technology. These Gen 1 systems, though reliable, were monolithic and costly to maintain.

Gen 2 systems, emerging in the late 1980s and 1990s, introduced modularity with service-oriented architecture but were still limited in their integration capabilities.

Gen 3 systems, built around microservices and cloud-native architectures, set the stage for the composable banking approach that is now driving innovation.

For Varo Bank and MoneyLion, composable banking has translated into enhanced customer experiences and the ability to swiftly roll out new products. Sachin Shetty, chief technology officer at digital bank Varo Bank, explained how this architectural shift is manifesting in their offerings.

“Gen 3 systems, built as microservices, allow us to choose the parts of the core that give us the highest leverage in our build-versus-buy decisions,” Shetty said. “We can leave the commonality of what the core does and focus on building unique experiences for our customers.”

Varo Bank’s composable approach has enabled it to launch products like Varo Advance, a short-term loan program, and the upcoming Varo Line of Credit, designed to help customers manage unexpected expenses. These products, developed leveraging composable architecture, provide quick, hassle-free access to funds, illustrating the agility and customer-centricity that modern core systems afford.

Phill Rosen, chief technology officer at MoneyLion, shared a similar sentiment, emphasizing the importance of composability in delivering a seamless customer experience. “It starts with having the core functionality below the waterline, the invisible pieces of it,” Rosen said. “We combine first-party microservices with third-party systems to create a cohesive and enhanced user experience.”

Rosen said MoneyLion’s journey from a neobank to a comprehensive financial services platform underscores the impact of composable banking. By integrating third-party products into its ecosystem, MoneyLion offers a wide range of financial services, enabling customers to choose the best solutions tailored to their needs.

Change in Mindset and Technology

Transitioning to composable banking is not only a technological endeavor but also a significant cultural shift. Haney highlighted the necessity of a mindset change within banks to fully embrace this new approach.

“As an ex-banker, I witnessed the dichotomy, where banks invested heavily in digital front-end solutions while their back-end systems lagged behind,” Haney said. “This created a disconnect, limiting their ability to innovate rapidly.”

Banks traditionally operate in silos, with separate teams for payments, deposits, and lending, each working at different speeds. This approach, Haney argued, is outdated. The modern banking landscape demands an integrated, agile mindset where teams collaborate across functions to deliver value continuously.

Rosen echoed this sentiment, pointing out that the shift is also driven by changing consumer expectations. “Every consumer is expecting a digital-first experience,” Rosen said. “Mid-size and regional banks need to quickly adapt to provide full-service digital capabilities.”

Identifying Quick Wins

The roundtable concluded with insights on the business case for composable banking and the critical steps for successful implementation. Shetty emphasized the importance of organizational culture, advocating for leadership to champion a mindset of collaboration, iterative development, and continuous improvement.

“Think big, but start small,” Shetty advised. “Identify quick wins, form cross-functional teams, and build momentum with bite-sized goals.”

Haney underscored the necessity of a business-centric approach to core transformation. “Core transformation doesn’t have to be a high-risk proposition,” he said. “Focus on what the technology enables, such as improved customer engagement and product innovation, rather than the technology itself.”

All panelists agreed that the shift toward composable banking represents a generational change in both technology and mindset. As banks navigate this transformation, the emphasis must be on creating flexible, customer-centric solutions that leverage the strengths of modern core systems. By adopting a composable approach, they agreed, banks of all sizes and stages of maturity can position themselves for future growth, meeting the evolving needs of their customers with agility and innovation.

For questions or comments write to writers@bostonbrandmedia.com

Source: pymnts‍