Due Diligence Checklist for Selecting a Composable or Digital or Open Banking System

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Due Diligence Checklist for Selecting a Composable or Digital or Open Banking System

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Discussion of the twenty (20) questions on the Composable Banking Services web page on this site

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We offer consulting services to help you with expanding your bank and adding a "composable bank" design and architecture to let you move onto this platform that has come with internet enabled mobile telephones. This is new marketing, delivery and technology in the banking industry, and at the present time only a few companies are offering this service where the products are at most still somewhat limited now and where the traditional banking software vendors "claim" to have composable banking architecture but maybe not to the level that the FULL definition proscribes or that most of all YOU require for your banking needs in this area. This is a rather loosely defined area anyway at this time where what exists is perhaps not all what it claims to be. Here are the main points to be aware of when considering moving to a composable banking architecture where you will have to evaluate whether there are compatible software products available that meet your bank’s needs and whether the vendors who sell them can in fact support you to the level you require and on a reliable basis.

Premises taken in this paper--

1.         There is no such thing as a composable or digital or open “core banking system” – core banking systems have not evolved to this level of design yet despite companies that claim to offer “100% cloud banking” including the core “back end”
2.         Digital, open, and composable banking are mostly one in the same idea for the purposes of this paper
3.         Composable banking is not a clearly defined technology yet
4.         Digital banking has not been 100% successful yet
5.         There are companies that claim to offer composable banking components and they do but their proof of concept is spurious at best
6.         Issues exist with any banking in the “cloud” the primary among which is that it is safe – that is not 100% a true statement
7.         Banks that have launched digital banking services (defined as banking mostly on a mobile or internet-enabled phone) have not necessarily experienced raving results
8.         The repositioning of the banking services market “to the cloud” due to the increased use of internet enabled mobile phones is at best not a massive shift in how banks still do most of their business
9.         Banks that are considering more use of the digital banking services and platforms are still advised to go with extreme caution into this technology because it has been “rushed to market” more than not and those who are offering these products are for the most part either very new companies or very “questionable” companies as to their true expertise in this area
10.       Composable banking may be the future when faster 5G phones are common but right now there are any number of risks associated with this type of banking where the driving force is attracting the millennial age customer base

Actually, Open Bank APIs make it easier for banks to provide access in multiple languages, support the visually impaired, spice up its customer interfaces with cool graphics or 3D animations, or let customers interface their accounts to personal financial management (PFM) packages.

Definition— Composable Banking Platform (CBP) or Open Banking or Digital Banking is the self-service discovery, provisioning and creation of new banking services by ecosystems inside and outside the bank.
CBPs will enable new bank revenue streams through integration of APIs into emerging and flexible ecosystems of developers and partners. CBPs enable a mass world to be customized for the individual, complete with all of a person's favorite applications and the ability to feed his or her data into those applications as he or she chooses.
Definition— App Performance Monitoring tracks the execution of software algorithms that constitute an app, measures and reports, determines whether the app executes successfully, records the latencies associated with execution step sequences and determines why an app fails to execute successfully or at expected levels.

This requires:

End-user experience monitoring: The capture of data about how end-to-end app availability, latency, execution correctness and quality appear to the end user.
App topology discovery and visualization:  The discovery of the software and hardware infrastructure components involved in app execution, and the array of possible paths across which these components communicate to deliver the application.
User-defined transaction profiling:  The tracing of user-grouped events, which comprise a transaction as they occur within the application as they interact with components discovered in the second dimension (application topology discovery and visualization). This is generated in response to a user's request to the app.
App component deep dive:  The fine-grained monitoring of resources consumed by, and events occurring within, the components discovered in the app topology discovery and visualization dimension. This may include server-side components and client-side devices and interfaces.

DUE DILIGENCE QUESTION 1. What is your composable banking or digital, OPEN banking purpose and strategy? Have you considered these points:

Cost
Complexity of your project
Compatibility of this sort of I.T. with your existing legacy systems (back-end core banking system)
Value for the money - return on investment
What your budget is
Who will your vendor be
What sort of digital market are you trying to attract
What is the general level of support your require
Do you plan to upgrade your legacy system at some point in the near future

DISCUSSION

A. What are your objectives with setting up a composable banking platform?

App discovery: Enabling users to find the apps they want and need through search, categorization, past behavior and other methods.
App downloads: Enabling users to download an app they want.
App ratings and feedback: Enabling users to provide ratings and comments on apps.
 Idea posting: Enabling users to post an idea for an app and interact with developers.
Recommendation engine: Recommendations for other apps a user might want based on their past behavior or role.

B. Who are you considering as a vendor to partner with you to transform your bank into a "composable bank" type of I.T. architecture? There are NOT that many in this market right now as of March, 2020.

Temenos
Mambu
SDK Finance
Another vendor

C. Three that claim to be major players are listed below:

Temenos
Mambu
SDK Finance

DUE DILIGENCE QUESTION 2. Does this vendor have experience with banks similar to yours in size and market?

DISCUSSION

The big banks in the UK are at risk of losing their most valuable customers because of open banking. The Bain and Company, Salesforce and MaritzCX report, titled 'Coping with the Challenge of Open Banking', identifies high-risk customers that are more likely to abandon the traditional banks for digitally savvy fintech providers and challenger banks – people who are typically 55 or younger and with an annual household income of at least £55,000.

These are the sort of customers that are the lifeblood for challenger banks like Monzo, Starling and Atom, as well as fintechs like Revolut and Bud.

The 'big five' banks - Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander UK - still account for 80 percent of the UK retail banking market.

Of these high-risk customers the report states: "65 percent are open to sharing their personal data with other banks or non-banks in order to get better products or services. While high-risk customers account for only 15 percent to 20 percent of the total customer base, we estimate that they make up close to 45 percent of bank profits."

In contrast, about 25 percent of bank customers are "low risk" - that is, unlikely to switch providers or adopt new technologies in an open banking environment.