How Core Augmentation and Composable Architecture Drive Customer-Centric Innovation
SunTec Business Solutions
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Banking is being shaped by evolving customer demands for seamless, personalized experiences, increasing competition, and global economic and geopolitical trends. Banking institutions are hard-pressed to transform decades-old business models to deliver customer-centric offerings and engagement models. Legacy banking cores cannot quite deliver on this promise, and yet completely replacing or transforming the core is risky, expensive, and time-consuming, and something most banks are unwilling to do. What, then, is the solution for banks looking to modernize their systems, processes, and strategies?
Why Banks Must Modernize Their Legacy Core Systems
Most banks invested heavily in their core systems, and these systems continue to be vital to the functioning of the bank. Over time, banks enhanced core systems to gain some new functionalities, and this resulted in a highly complex and intricate infrastructure that lacks the agility and scalability required for modern banking strategies. But given the complexity of most core systems and their importance in driving banking operations, most banks are reluctant to undergo a highly risky transformative effort. Instead, they are interested in ways to supplement the capabilities of the core systems to drive personalized, customer-centric strategies and power new business models.
And this is where core augmentation comes in. Core augmentation is the process of adding modern, cloud-native, microservices-based solutions to existing legacy core systems to enhance their capabilities. Banks add complementary and modular layers over the top to power new capabilities for a new era of banking. They can leverage this augmented layer to understand and respond quickly to customer needs, keep pace with regulatory change, and roll out innovative new strategies, all without touching core operations.
Powering Customer-Centric Personalization and Innovation
For decades, banks operated much the same way—rolling out whatever products, services, and offerings they thought made business sense and catering to broadly segmented customers. This strategy no longer works today. Thanks to technology-powered innovation in other aspects of their lives, customers expect banks to understand their unique requirements and address them with their offerings. They expect seamless, unified experiences across all touch points, and they are not afraid to take their business elsewhere if their bank fails to meet their expectations. Unfortunately, banking operations are spread across departments and functions, and customer data resides in silos across the entire banking ecosystem, hampering its ability to leverage it for a comprehensive understanding of customer behavior.
Banks need to be able to unify customer data to gain a holistic view of customer engagement and requirements. This is crucial for catering to the segment of one. By leveraging data to understand customer behavior and relationships across the banking ecosystem, banks can gain a better understanding of their needs. And they can use these insights to craft customized products, dynamic pricing, and cross-product bundling that are tailored to individual customer profiles and behavior. For example, each customer can be charged a particular fee or rate based on their relationship with the bank. Or the bank can offer personalized pricing, rates, or fees to customers based on their relationship history, their transactions, and their overall portfolio and engagement with the bank.
Legacy core systems also lack the agility to break down silos or integrate offerings from different business lines to offer an integrated, seamless, and customer-centric experience. The ability to cut across business lines to craft cross-product offerings based on customer profiles is an extremely powerful proposition. For example, if a customer maintains a positive balance in their savings account for a sustained period, the bank can reward them with reduced mortgage rates. Or they can offer preferential pricing or benefits on savings or family accounts based on the customer’s loan payment patterns, investments, or cash flow. This provides value-driven benefits that enhance customer delight and loyalty and encourages them to deepen their relationship with the bank across product and service lines.
The Move to Composable Architecture
As banks focus on augmenting their cores, they must remember that composable, modular system architecture is a critical enabler of modernized, customer-centric, and efficient banking models. The traditional core banking system was a monolithic big box that held all functionalities ranging from pricing and catalogs to payments and trade finance. Any changes to one component necessitated changes to the entire system, making it expensive, risky, and time-consuming. But a composable, modular approach to core augmentation can split up functions between specialized components. Core systems can focus on their primary and crucial role of being the system of record and managing accounts and transactions. And other functionalities, such as product management, payments, and CRM, can be moved out to specific units. This will allow the bank to make localized changes— to just the product catalogs for example, without touching the core. Not only is this modular design easy to tweak and update according to market and customer demand, but it also ensures less risk associated with changes, faster time to market, and greater cost efficiency. With a composable, modular system architecture, banks can also easily combine products from across the ecosystem to create customer-centric offerings without involving the core.
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Banks embarking on their augmentation journey must ensure that all key stakeholders are committed to the project and are aligned with a clearly defined final architecture. This is crucial for avoiding split functionalities where capabilities are divided between old and new systems, leading to inefficiencies and inaccuracies. A clear and unified vision for system architecture with well-defined and documented roles and responsibilities for all stakeholders can ensure a smooth augmentation process.
Banks have no choice but to transform operations and strategies for the new digital-first market. Core augmentation powered by modular and composable architectures allows them to innovate without incurring the risks and costs of a large-scale core replacement project. This approach enables banks to remain competitive in a rapidly evolving landscape.
We’d love to hear your thoughts on this approach and how your bank is tackling the challenges of legacy systems. Feel free to share your insights or comment below—let's continue the conversation!
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