Adopting composable banking: the complete guide

Across the world, banking leaders are exploring new ways to maximize their investments in advanced digital technologies. Unfortunately, this is harder than ever, thanks to the maintenance of outdated systems, which eats up to 70% of the average bank’s IT budget every year, according to McKinsey.

Enter composable banking. With this bold, future-proof approach to modernization, your bank will be able to use a single, unified platform for customer engagement and servicing, one that’s tightly integrated with your core infrastructure, as well as the latest, greatest services from your fintech partners. And that’s only the beginning of the benefits, which we’ll explain later in this guide.

Check out the full guide to get a holistic overview of the key concepts of composable banking, including implementation tips, first steps, and everything you’ll need to know to ensure your modernization journey is a success.

What is composable banking? 

Composable banking is a strategy where financial institutions take a building-block approach to digital modernization, allowing them to move at their own pace, molding and building the institution of their dreams. By creating an open, modular IT architecture, your bank can embrace a platform model that helps you shift away from complex, monolithic systems towards a simpler, future-proof, customer-centric framework. As a result, the question for most banking leaders has become not whether they should embrace composable banking, but rather how they can do so in a way that maximizes efficiency, minimizes disruption, controls costs, and secures their bank’s future.

What are the four principles of composable banking? 

The four basic principles of composability, according to Gartner, are: 

• More speed through discovery 
• Greater agility through modularity 
• Better leadership through orchestration 
• Resilience through autonomy

As Gartner explains, these principles allow businesses to survive — and even flourish — in times of great disruption, making it an essential part of any banking modernization strategy. 

How is composable banking different from traditional banking? 

Composable banking differs from traditional banking in several key ways. For one thing, unlike traditional banking, composable banking doesn’t rely on siloed legacy systems that are rigid and difficult to modify, often requiring significant time and resources for updates and new product launches. Conversely, composable banking is facilitated by a modular, microservices-based architecture that allows banks to pick and choose components and then integrate them into their systems. Other notable differences include the fact that — when compared to traditional banking — composable banking is lower cost and more scalable, more customer-centric, more collaborative with third-party ecosystems, and allows quicker adaptation to regulatory changes and security updates. 

What are the benefits of composable banking? 

Composable banking emphasizes flexibility, modularity, and speed, allowing banks to respond significantly faster to market changes and customer needs. Accelerated time to market is also a massive plus, as is increased cost efficiency, more personalized customer experiences, streamlined integrations, and enhanced security, just to name a few.

These benefits make composable banking a real game-changer, allowing financial institutions to become more responsive both to customer demands and regulatory requirements, and all while fostering confident innovation. 

Why do banks need to act now to adopt composable banking? 

While banking leaders may be reluctant to adopt composable banking, due to concerns about technical debt, fear of change, and the faux buy vs. build dilemma, the time to act is now. Keep in mind that if your bank has been operating for decades, your legacy IT infrastructure is no longer working for you — it’s working against you. And investing in point solutions isn’t just a losing strategy, it’s an expensive one. In fact, according to McKinsey, developers at traditional banks spend only 32% of their time developing new features, with the rest going to maintenance. This isn’t the type of problem that goes away on its own, but by adopting composable banking, you’ll be able to achieve unprecedented speed and agility, not to mention five-star levels of customer centricity.

How does composable banking enhance the customer experience? 

Composable banking enhances the customer experience by allowing financial institutions to easily deliver segment-based, personalized, flexible, responsive services. By using a unified platform model, your bank will be able to create a seamless omnichannel experience across channels, respond faster to customer needs, empower users with greater control and customization, and even boost financial wellness in the process. From onboarding to mortgage applications and everything in between, your bank will offer next-level banking journeys that actually result in lower cost for your bank — and more engaged, satisfying experiences for your customers. 

How does composable banking create opportunities for personalization and customization? 

Composable banking enables financial institutions to tailor specific products and services to individual customer needs and preferences. By leveraging modular components and data-driven insights, banks can offer customized financial products, personalized user interfaces, and even targeted recommendations like investment advice and loan pre-approvals, when relevant. And on top of that, composability also gives your bank’s customers increased control over their user experience, including the ability to customize digital interfaces, tailor product bundles, and manage financial data sharing. So if your bank is looking to boost customer-centricity, composable banking is the way to go.

How can you integrate composable elements into your existing systems? 

To adopt composable banking, you’ll need to do a few key things: 

• Invest in a modern, layered digital core banking system that will help you future-proof your institution for the year ahead 
• Adopt a platform mindset across your entire organization 
• Go fully cloud-native to enable scaling 
• Embrace a modular architecture, featuring continuous integration, modular deployment, and third-party connectivity 
• Prioritize real-time operations and the aggregation of quality data from all parts of your organization 

What are the nine things you should keep in mind while building a composable bank? 

The key considerations above are essential, but it’s also helpful to evaluate your bank’s preparedness to become a composable organization and adopt a composable architecture. Here’s nine things to keep in mind: 

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

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.

How can you tell if your bank is ready to adopt composable banking? 

To pull off composable banking, you’ll need an architecture that allows you to modernize your legacy IT systems with industrialized, open-platform capabilities, including: 

• The ability to co-exist with other technologies, vendors, and standards within your bank’s existing ecosystem. 
• Enterprise integration with plug-and-play capabilities to quickly connect with cores, CRMs, fintechs, and other techs in your ecosystem. 
• Polyglot architecture that allows maximum flexibility in using multiple programming languages and tech frameworks. 
• Open standards that enable your bank to access talent from broader developer ecosystems and utilize popular developer tools and skills while avoiding lock-in. 

How can a unified platform accelerate the adoption of composable banking?

Adopting composable banking may sound like a daunting task, but a unified platform model can help in a few key ways: 

• Accelerating time-to-market with out-of-the-box functionality for up to 80% of what your bank needs to run 
• Providing the flexibility to build at speed and scale, thanks to significantly leaner, more agile development teams 
• Reducing tech debt by incrementally moving away from monoliths and legacy systems, reducing complexity and dependencies 
• Reallocating IT budgets from constant maintenance of legacy systems to focus on business-value creation 
• Fast-tracking success with pre-built accelerators and industrialized governance models 
• Leveraging a long-term partnership with a new-gen, future-proof solution that fosters innovation, enhances customer experiences, drives efficiencies, and ensures sustainable growth

What does the future of composable banking look like? 

Composable banking has already made its mark on the industry, and its impact will continue to spread as time goes on. Thanks to increased modularity, banks will soon have the flexibility to mix and match different solutions from a marketplace of best-in-class components, such as customer relationship management (CRM) tools, lending platforms, and more. Collaborations with fintechs and third-parties will also increase, due to higher access to open APIs, allowing banks to create increasingly personalized customer experiences while boosting agility and speed to market. Managing risk and compliance will also become considerably easier, as will the interoperability of ecosystems. Finally, composable banking will further facilitate the democratization of financial services, as barriers to entry will be lower, promoting greater innovation throughout the banking sector.

Now that you’re up to date about the key concepts of composable banking, you’re ready to take the next step, and you have a lot of options here. Our weekly Banking Reinvented podcast is a great way to keep up on the latest industry trends, straight from our leadership team and high-level executives from across the world. But if you’d prefer to get started, you can read our composability whitepaper, written by our Founder/CEO, Jouk Pleiter, and our CTO, Thomas Fuss. And if you’d like, you can also reach out to our experts for a demo or even just a short chat. Just let us know how we can help and we’ll take it from there.