Building the bank of tomorrow: How to adopt composable banking

Jouk Pleiter, CEO and founder of Backbase, says composable banking is how his company is able to stay agile in a rapidly changing financial landscape.

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Composable banking allows for open and modular IT architecture, enabling banks to take a building-block approach to digital modernization. That gives them the power to move at their own paces, molding and building the institution of their choice. With a composable architecture, banking leaders have a unique opportunity to embrace digital transformation in a platform model that elegantly shifts away from complex monolithic systems toward a simpler, future-proof, customer-centric framework. Banks that have committed to this type of digital reinvention have flourished in comparison to their more conservative competitors, achieving higher profitability of more than 120 basis points in pre-tax return on investment, as well as significant gains in efficiency and cost management.

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Note: This article was created by Backbase, a client of Business Reporter.

To achieve these gains, banks need to invest in a modern, layered digital core banking system. This means several things:

Adopting a platform mindset in establishing the digital core as a set of technologies that can be consumed by engineers and data scientists on a self-service basis. Going cloud-native to enable automatic scaling. Embracing a modular architecture, featuring continuous integration, modular deployment, and third-party connectivity through application programming interfaces (APIs). Prioritizing real-time operations and the aggregation of quality data from all parts of the organization.

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Applying composability to modernizing banking architectures Composable architectures take advantage of API-first integration and microservices to speed integration, interoperability, and development cycles. They leverage a relatively new architectural framework known as MACH (microservices-based, API-first, cloud-native, and headless), which means every component is pluggable, scalable, replaceable, and can be continuously improved. This architecture forms the foundation of a composable banking fabric that allows you to use a platform model to choose best-of-breed tools and maintain a structure that makes it easy to add, replace, or remove tools in the future. A composable banking fabric is modular, standards-based, and API-first. An API-first composable platform fabric sits on top of your downstream connectors to provide seamless connections to core systems of record and best-of-breed fintech solutions. With a composable banking fabric you can:

Rapidly accelerate time to market and time to innovation by empowering developers to use standardized interfaces and protocols, along with banking microservices. Orchestrate customer engagement by seamlessly leveraging third-party fintechs in your tech stack. Leverage platform APIs to rapidly create differentiating user experiences so you can focus on delivering real business value. Position your technology platform to take advantage of the benefits of AI and big data analytics to create more personalized customer journeys.

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Considerations for building a composable bank While composable banking is clearly the path forward, not every bank will have the same journey. In fact, one of the key benefits of composable banking, particularly with a progressive modernization model, is that you can start anywhere and still end up where you need to be in the future. For many banks, the starting point is to work with a partner to do a health check, identifying their challenges, needs, and priorities. What initiatives will have the biggest customer or operational impact? Is it customer acquisition, hollowing out their cores, or using APIs to get access to legacy systems? With a short-term, getting-started project, you can often see results within three to six months. With strong leadership in place, you can create a whole new customer-centric bank, leveraging composable digital transformation, in just a couple of years. A key starting point to a successful, composable banking transformation is to identify your pain points, obstacles to change, and highest priorities. It’s best to approach this with a business mindset, as opposed to viewing this as an IT project. Map out how you want to differentiate: What are the goals for your organization? What are the goals for its customers? You can evaluate your bank’s preparedness to become a composable organization and adopt a composable architecture with these nine key considerations:

Strategic alignment and leadership buy-in—leadership must not only understand composability but actively advocate for it. Cultural readiness—focus on empowering independent decision-making and decentralized control to maximize responsiveness. Business architecture—structural capabilities should be designed to maximize flexibility in assembling and disassembling business functions. Technology architecture—your tech stack must support composable tech that prioritizes modularity, autonomy, and orchestration across digital assets. Data and integration capabilities—evaluate data architectures based on composable technologies, as data should flow easily across modular business units. Product and service modularity—products should be designed using composable principles, allowing for the rapid recombination of services to meet customer needs. Process and workflow adaptability—business processes must be adaptable and decomposable, built to change without the need for full system overhauls. Governance and compliance—governance models should be flexible enough to support a composable architecture while maintaining control over outcomes and risk management. Results and continuous improvement— readiness should also be evaluated by tracking improvements in agility, responsiveness, and time-to-market.

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Jouk Pleiter CEO and Founder, Backbase

By adopting this tailored framework, organizations can assess their composability maturity and readiness on various critical dimensions, allowing them to identify gaps and areas of friction that need to be addressed. Taking the next step As long as banking leaders are willing to transform, invest, open their systems, and put the right people in place, a composable banking future is not only possible, but necessary. What, after all, is the alternative? Do you want a future where technological innovations such as AI are a threat, or do you want a future where you can easily absorb innovation and differentiate the value you provide to your customers? The challenge for banks now is to gradually replace or decompose disparate legacy systems and construct a modern, composable banking architecture built around customers’ needs. Incremental, progressive changes will allow banks to streamline business-critical customer journeys across all touchpoints while eliminating silos and empowering both customers and employees at their own pace and priorities. Want to learn more about composability? Check out our Banking Reinvented content, including whitepapers, podcasts, blogs, and beyond.