Compose the bank you want to be

Composable banking enables affordable, fast change so that its proponents can constantly evolve to thrive not just today but tomorrow, writes Eugene Danilkis – Mambu

When a new company launches, it’s a rare beast that is fully formed. More usual is for the launch version to feature just the core product, which is added to over time as the company
matures. So it is with banking.

Over the past few years, we’ve seen first challenger and then neo banks come to market with a limited product set and big ambitions to expand – and expand fast. A significant number have been successful – banks such as N26 and OakNorth, and fintech New10, among others. What these organisations have in common is a pick-and-mix approach to technology; they compose their enabling technology, including their core platform, from a number of specialist suppliers. They practise composable banking.

Composable banks rely on open banking and plug-and-play connectivity to quickly and efficiently add technology that enables them to deliver their business goals. That may be
about opening in new markets, adding mortgages to their product line, savings accounts, wealth management or insurance. What is more, composable banking allows banks to work
with whoever provides the best solution, rather than be stuck with proprietary software. This allows them to maximise their chances of delivering the best possible customer experience and fulfilling their business strategy.

Take composable bank N26, for example. Its customers all get access to lending, saving, wealth and insurance, among many things. While the first two are provided in-house, wealth
is provided by specialist Raisin and insurance by Allianz. But customers will be completely unaware – their delivery is seamless, white-labelled by N26 and run from a composable core.

The joy of composability means banks can focus on what matters most to them, concentrate their resources on what they do best and work with the ideal third parties for the rest. But that’s not all. The very nature of composability means the banks adopting it will be agile, whether bringing new products and services to market or adapting to new regulations or unforeseen market conditions, such as Covid-19.

Providing for payment holidays on loans, for example, becomes a matter of selecting an option from a drop-down menu rather than recoding and testing an entire piece of software. It takes minutes rather than months and leaves developers more time to do work that creates value for the bank.

Composable banks are therefore built for change – essential for longevity as we head into what will be the most disruptive market environment the sector has ever seen. Banking, for so long the most conservative of industries, is being completely shaken up – by customer expectations, by regulators, by opportunities, by market conditions, by new competition in the form of big-platform technology companies and even insurers. The ability to adapt and change fast and efficiently is a prerequisite. Change can’t be expensive because it will need to be constant.

But there’s more to composable banking than flexibility. Composable banks have no need for third-party professional services. Instead, their own staff are empowered to use the platform, eliminating the need to pay for an army of developers. As a result, instead of spending the typical 80 per cent of the IT budget on maintenance, and just 20 per cent on innovation, composable banks can reverse that ratio, making innovation the engine of value creation.

In addition, a good composable core does much of the heavy lifting. Providers such as Mambu deliver weekly updates that incrementally improve performance, again ensuring change is constant and gradual, rather than sporadic and risky. In this way, a composable core is an enabler and certainly not, as is so often the case with legacy systems, a drag.

The experience of N26 typifies the real-life benefits of composable banking. In 2016 it took just four months to complete the N26/Mambu platform integration with an in-house project team of four. Since then the bank has expanded across 25 countries and scaled to support a customer base of 5 million.

Composable banking makes change affordable and fast. Where once adapting to change was a bank’s biggest liability, today it can be its biggest asset. It allows a bank to compose its own future.

Authored By: Eugene Danilkis, chief executive of Mambu

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