The Future of Banking: From Monolithic and Modular to Composable

composable banking

Over the past few years, we’ve seen a vast evolution taking place in the banking sector. Many of these changes can be attributed to the leaps and bounds in technology, resulting in a rapid uptake in FinTech across a variety of sectors.

As emerging technology continues to transform the way businesses and consumers spend their money and manage their finances, the future of banking looks to be bright, innovative and accessible.

But these changes did not happen overnight, and some solutions that were game-changing a few years ago now threaten to hinder the adaptability, and therefore profitability, of businesses still taking them on.

Some of the key solutions you may already be aware of include:

  • Monolithic banking
  • Modular banking
  • Composable banking

 

To help you to understand the fundamental differences and subtle nuances of these different approaches to modern banking, we’ve written this article to round up all the essential information and reflect on what else you can expect from the future of banking.

 

What is a monolithic core banking system?

Monoliths have long been the core banking system of choice for incumbent banks.

In a monolithic architecture, all of the different banking components are combined into one individual software program.

This may sound convenient, and in a way, it is. With a Monolithic system, initial software development, testing, and deployment are relatively simple.

However, Monoliths have their share of disadvantages, too. One of the biggest drawbacks is that they are not built for configuration, making the systems clunky and difficult to adapt to your business and customer needs as they grow and develop.

This means that any updates require a redeployment of your whole system each time. Doing so costs your business time and money, and if there’s an issue such as a virus or bug, it could bring your entire system to a halt until it’s fixed.

Last but not least is arguably the biggest issue with monolithic systems: they simply aren’t built with the future of banking in mind. As new technologies continue to revolutionise the banking sector, a monolith’s lack of integration capabilities means it will always lag behind the more agile and configurable solutions now available on the market.

 

What is a modular core banking system?

Modular banking is a solution that attempts to solve the many roadblocks of a monolithic approach.

Unlike monolithic banking, modular uses a brick-by-brick approach to building a core banking system, allowing businesses and incumbents to increase their capacity in specific areas.

This is done through single modules where capabilities are loosely coupled, so there are no dependencies between each other.

As a result, organisations can pick and choose only the microservices that they need. For example, suppose a business wants to integrate a payroll system but does not require cards or multicurrency transactions. In that case, it can implement that one specific capability without needing to take on irrelevant functionality.

The big benefit here is that, as a business grows, it can gradually add more pieces to the puzzle to enhance its offering and take advantage of new opportunities as they emerge onto the market.

However, modularity is like a puzzle where the pieces fit together in one specific way. It’s not possible to just swap out any of these modules for better ones, as they were designed with a specific purpose in mind.

In addition, developing a modular architecture is highly complex. This means that:

  • Modular requires a strong DevOps culture
  • It’s difficult to retrofit better functionality
  • Failure rates are high
  • It’s not transactional safe

 

So while modular architecture does offer a higher level of scalability and specificity than monolithic systems, it still comes with its share of complex challenges.

Luckily, there’s a new kid on the block that can overcome these challenges: composable banking.

 

What is a composable core banking system?

The introduction of composable infrastructure marks a new generation of cloud-native core banking platforms emerging alongside offerings from the traditional core platform vendors.

In short, composable banking is a decoupled, cloud-native microservices platform that offers businesses and banks the ability to quickly build, launch and iterate on new products and customer experiences.

This is done by allowing organisations to mix and match different services – or “bricks” – from a variety of vendors to create highly customised user experiences for internal business operations and external customer-facing journeys.

These services are then linked together by event streams that shape the user journey and work to make applications more ​​real-time, resilient, and agile. That’s why Orenda use AWS Lambda, a serverless event-driven computer service natively integrated with over 200 AWS services and software as a service (SaaS) applications.

Some of the key benefits for businesses and banks include:

  • Interchangeable services
  • Customer-centric propositions
  • Quickly adapt to market needs
  • Quick and convenient scalability
  • It’s secure and robust
  • Ideal for driving innovation

 

By rapidly designing and delivering flexible services and systems without the traditional constraints of the market, composable banking unlocks the true potential of BaaS.

 

Which core system architecture is best?

If you haven’t already guessed it, we believe that the future of banking is composable.

This is because, unlike their counterparts, composable platforms offer the perfect balance of flexibility, power and agility that businesses and banks need to succeed in today’s ever-changing digital landscape.

So if you’re looking for a core banking solution that can keep up with the ever-changing demands of the future, composable banking is the way to go.

If you’re in search of a solution that will enable you to exploit untapped revenue streams, create ideal customer-facing journeys and aid business growth, then you’re in the right place.

At Orenda Finance, we specialise in accessible no-code FinTech solutions built to make your business thrive. To find out more about what you can achieve with our help and expertise, get in touch.

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