Embracing the Future Through Composable & Coreless Banking Part 2: Challenges & Solutions 

Whether you’re a small bank serving the savings and lending needs of the local community or a nationally-recognized brand delivering banking and investment management services, one thing holds true: Today’s retail banking customers have clear expectations for the digital services and experiences they receive from their banks.

In order to deliver on those expectations, banks need to be capable of integrating a variety of emergent technologies — like AI for fraud detection, personalization and enhanced KYC processes — into existing banking operations. Not only that, but they need to be empowered to do so in a manner that allows for both agile innovation and complies with global regulations. The key to achieving this lies in composable and coreless banking.

In part one of this blog series, we took an in-depth look at the forces of change driving the adoption of composable banking before delving into its benefits and use cases. In part two, we’ll explore the various obstacles banks will need to address on their journey toward becoming composable and the strategies they can employ to overcome those challenges. 

Ready or Not, Here Comes Composable

The move towards composable banking, while clearly beneficial, presents a set of unique challenges that banks must navigate with care, including:

• Reliability and Complexity: While breaking functionality down into smaller services simplifies operations within single domains, it also introduces the opportunity to unbundle core banking functions from distribution and transactions. This separation can enhance transparency and investor confidence by demonstrating clear, focused operational efficiency. Unfortunately, this separation can also introduce complexity into the overall banking ecosystem due to the orchestration of multiple services. If not executed properly, this can lead to issues around reliability. It's crucial for banks to adhere to established best practices to mitigate these risks and harness the intended flexibility of microservices without making compromises on stability. 
• Third-Party Management: In an era where many banking components are delivered as Software as a Service (SaaS) offerings managed by external parties, effective third-party management becomes imperative. Moreover, banks could extend these principles to customer-centric services by integrating comprehensive solutions, like real estate and insurance, into their offerings, deepening client relationships and increasing profitability along the way. To ensure seamless integration and management of these third-party services, banks must develop robust operational models that align with regulations, such as the Digital Operational Resilience Act (DORA).
• Redesigning and Migrating Processes: Transitioning to composable banking requires a thoughtful redesign and migration strategy. Products and processes must be realigned with the capabilities of the selected composable products to ensure a smooth transition. This necessitates keeping redesigns and migrations closely attuned to the functionalities and constraints of the new systems to avoid misalignment and potential disruptions.
• Managing FinTech Partnerships: Identifying and managing partnerships with FinTech companies is a nuanced challenge. Banks must skillfully select the right partners to fill technological gaps, fostering relationships that are both strategic and symbiotic. The complexity lies in integrating these partnerships into the banking ecosystem in a way that complements existing capabilities and aligns with the bank's long-term vision.

Addressing these challenges requires a strategic approach, where careful planning, expertise in technology integration and a deep understanding of the regulatory landscape are vital. By surmounting these hurdles, banks can fully realize the potential of composable banking to bring about a more agile, customer-focused and resilient banking environment.

Leveraging Accelerators for Composable Banking

As the banking sector advances towards more adaptable and resilient solutions available via various FinTech providers, accelerators can prove to be a useful tool to help banks understand how quickly they can leverage these solutions to innovate and offer new banking products and features. Our own model bank accelerator – referred to as Nou Bank – can help financial institutions swiftly bring to market a wide array of banking services by leveraging a suite of pre-integrated, composable products. Leveraging accelerators like this offers banks an unprecedented ease of customization and integration, while placing an emphasis on the agility and shorter time to market that characterizes composable banking. 

Accelerators can be a useful tool to help banks rapidly adapt to ever-shifting market demands and evolving customer expectations. In addition, these tools can help banks bypass the intricacies involved in constructing complex systems from the ground up, thus ensuring a seamless transition to a modern banking framework.

Perhaps the most important aspect composable banking accelerators have to offer is their versatility. Whether charting the course for a new, greenfield project or transitioning existing systems through a phased approach, accelerators can provide banks with access to a necessary toolkit and modular components to ensure a successful journey toward becoming composable.

Conclusion

The shift towards a composable and coreless banking architecture represents more than technological evolution; it is a strategic transformation that aligns with the future of banking. This model not only anticipates the need for high operational efficiency and robust risk management but also positions banks to create value in innovative ways, ultimately leading to enhanced customer satisfaction and stronger financial performance. The industry's progression from traditional, monolithic systems to modular, cloud-based architectures promises a future of flexibility, efficiency and responsiveness to rapidly changing market demands. 

Banks that successfully navigate this transition, leveraging accelerators like EPAM’s Nou Bank and adhering to best practices, will position themselves as leaders in the next wave of financial innovation. They will not only overcome the challenges of today's banking environment but also set new benchmarks for customer satisfaction, operational excellence and strategic growth. As financial institutions continue to adapt and evolve, the insights and case studies discussed herein should serve as beacons, guiding them through the transformative waves of composable banking.