When it comes to digital banking, getting the IT architecture right is critical. Ace Lam, senior group risk manager at WeLab Group in Hong Kong, says success is built on flexibility – or “composability”, in the parlance of the banking technology industry.
“Composability is helpful,” Lam said. He is looking for solutions that don’t require a lot of extra programming or a heavy investment to understand how a system works. “We want to just buy something that is user-friendly, easy to deploy, and meets our needs.”
The more sophisticated a business, the more important it is that bank teams are able to mix-and-match service infrastructure, be it front-end functions like lending or wealth management, or back-end matter such as accounts and reports – or the data analytics that drive the middle office.
In WeLab Bank’s case, it has two very different businesses: a virtual bank in Hong Kong, built from scratch; and an acquired bank in Indonesia that it is transforming into a digital player.
The virtual bank requires a system to handle term deposits; timing to get new products to market is a huge priority. The Indonesia bank is more about building value-added services on top of an existing deposit base, such as wealth management.
To achieve operational coherence, WeLab has first relied on a cloud-first infrastructure, rather than maintaining a fleet of proprietary servers. This gives it flexibility to scale when and where it needs to bring computing firepower. Second, it is using composable core banking services provided by Temenos, to give it the flexibility to operate different business models.
Frankie Wai, business solutions director at Temenos, said composability enables swift go-to-market strategies: “Configuring an innovative term-deposit product requires flexible software.”
Getting to market
Speed is becoming a business advantage. The underlying products are similar across banks, but how a digital bank can launch and package new products, and the user data that underpins them, is a major differentiator.
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“Speed is changing how we respond and react,” said Connie Leung, senior director and financial-services business lead for Asia at Microsoft. “Cloud provides the agility and the ability to do more with less. A traditional banking business takes six to nine months to test a new feature, but digital banks now want to launch a product in a few weeks.” Cloud makes that possible.
Speed through openness
Achieving these results requires banks to take a more open approach to how they work with technology and vendors. The days of banks keeping everything proprietary are over. Although some data sets may remain on-prem, the shift to cloud means more of a bank’s activities are disbursed among cloud vendors. And from there, it’s a logical move to embrace open-source models.
“Open source is about community and contribution,” said Marco Au, head of enterprise accounts at Red Hat, a provider of open-source software to enterprises. “Banks have a lot of experience, but when they seek new solutions, they are becoming more open.” That’s because no one vendor or solution can satisfy all customers.
Composable banking therefore becomes less like choosing from a menu a la carte, and more like choosing dishes from multiple restaurants. “It’s a community approach versus operating in a closed loop,” Au said – adding that any enterprise-grade of open-source solutions must accommodate security and compliance requirements.
Partnering for data
Neil Tan, chairman of the Fintech Association of Hong Kong, says embedded banking and partnerships is key to banks’ digital transformation. “Banks are increasingly receiving data from platforms, not just from their own activities.”
Take how banks make credit decisions about a consumer or a small business. A bank relying purely on its own systems and data will only record when a customer uses its app or system to borrow or make a payment. But a customer browsing an e-commerce site may fill up a shopping cart but never finalize the transaction. The bank won’t see this, but the e-commerce company counts this as useful information – they can add this data to their own credit-decisioning tools.
“The opportunity for banks is to use artificial intelligence inside a partnership in order to get a more complete picture of a customer,” Tan said.
That kind of speed and agility isn’t just for new digital banks such as WeLab. Traditional banks now want this too.
Open banking on the cloud
Cloud is the key building block to enable that kind of capability, and cloud vendors are pursuing partnership models to purveyors of core banking systems to support composable services. Microsoft Azure, for example, supports Temenos’s Software-as-a-Service version of its core banking systems.
Not all cloud environments are the same. “Cloud is not a commodity,” Leung said. Providers must adhere to banking and data regulations in every jurisdiction, to ensure security and compliance.
Regulators have become more supportive of banks adopting cloud, particularly in the wake of COVID-19 and the shift to remote work. Now the pace of adoption is set more by a bank’s willingness to embrace open source or third-party partnerships, rather than whether a regulator has doubts about the treatment of sensitive information.
“Until recently, bank CTOs and COOs wanted full control, with everything run in-house,” Leung said. “Today it’s better to outsource if you want to scale. The use of cloud-based SaaS allows you to deploy Temenos solutions in every market. And software upgrades take place just once, globally through the cloud.”
There is growing evidence that open-tech approaches are paying off. Navin Dulani, regional head of banking products at consultancy Tech Mahindra, says return-on-equity from customers in digital segments is averaging 10 percent more than from physical interactions.
“Cloud becomes a digital bank’s biggest lever,” Dulani said. “Open banking on the cloud delivers efficiencies while meeting demands for digital-banking services.”
WeBank’s Lam says open-banking models now make it easier for smaller and mid-sized banks to compete against big players. They are more agile, but they are also able to use SaaS offerings to deploy sophisticated tech. “Temenos has thirty years of experience serving many banks, and we can learn from all of them,” Lam said.