Modular Bank: what is a modular bank? 🧱

In recent years, fintechs, neo banks, and other big techs have emerged, offering new innovative services and value-added features for their customers.

To face this new competition, universal (or traditional) banks must become more agile and innovative. However, they are held back by inflexible and difficult-to-modify Core Banking Systems... Fortunately, the Modular Bank is now changing the cards! Here are some explanations.

Modular Bank: what is it? 🔎

Modular Bank: Definition

The Modular Bank is a bank 4.0. This anglicism refers to the evolution of a universal bank towards a modular architecture.

The banking services offered by modular banks are the same as traditional banks. It is just the way they are organized and technically called that differs.

The modularity of the Modular Bank is played out at two levels: the technological architecture on the one hand and the decomposition of services on the other.

Modular Bank: the end of monolithic architecture

Most universal banks still use core banking systems built on a monolithic technical architecture. These solutions comprise a single technological block in which all of the bank's IT systems are coupled. This means that a change to system "A" also impacts the other systems (B, C, D, etc.). In the end, the bank needs more control of its end-to-end IT system.

The Modular Bank takes the opposite view of the monolith because it is based on an architecture composed of several modules, communicating but autonomous, called "." Thus, modules A, B, C, and D are connected, but each can be reached and modified independently of the others. The evolution of a system then impacts only it.

Modular banking: a breakdown of services in a business logic

The second characteristic of the Modular Bank is that the services are no longer broken down according to the system's technical capabilities but rather according to business capabilities. For example, a service that manages current accounts is then differentiated from a service that manages payment orders.

Thanks to this breakdown into business modules, Modular Banking allows the creation of new products by orchestrating these different services while guaranteeing their integrity.

Modular Bank: a new lever for universal banks 🏦

Innovation, time to market, costs, customer experience... The Modular Bank model meets several challenges and needs of universal banks. It is, therefore, in their interest to turn to modularity.

Modular Bank: innovation with an accelerated time to market

Whether facing competition from new financial players or responding to the rapid evolution of consumer habits, universal banks must stay caught up in innovation. Modular Banking allows them to experiment and develop new innovative financial products quickly.

Launching a product can take years of development in a Core Banking System. Modularity avoids this pitfall by reducing the time required to establish new services to a few months. The autonomy of the modules makes it possible to add or modify specific components without impacting the entire IT system. There is no need to rebuild everything; you must orchestrate the services to offer innovative customer experiences. As a result, the time to market new products is considerably reduced.

Modular Bank: cost reduction

Since most universal banks allocate 70% of their IT budget to system maintenance and 30% to innovation, reducing costs is a strategic move to redress the balance.

In addition to being particularly complex and time-consuming, maintaining coupled IT systems can quickly prove very costly. Indeed, the monolithic architecture generates redundancy in maintenance, i.e., it requires rebuilding a part of the system for each modification.

In addition to maintenance, launching new products can be highly costly to banks using a monolithic core banking system. The cumbersome nature of the IT system also means that development is very complex, which increases the time required and, therefore, the cost.

The different modules can be re-used as soon as the Modular Bank allows for a mutualization of services. The cost of adding a new product or activity is much lower. Recreating and maintaining the other benefits is no longer necessary, only to modify and coordinate them.

Modular Banking: improving the customer experience

The Modular Bank’s facilitated innovation accelerated time to market and reduced costs directly impacting the customer experience. The bank can focus on rapidly developing new products and services to meet unique customer needs. With modularity, it becomes possible to adopt a user-centric approach. The bank is relieved of maintenance issues and the difficulties of modifying coupled systems. It can therefore focus on the end-to-end user experience and effectively address market needs.

The Modular Bank also enhances the performance and availability of banking products and services. Let's take an example to illustrate this point: until now, bank X was able to handle 100 payments per second. Customer demand is increasing, so it must now process 1,000 transactions per second. With a monolithic system, the bank is forced to review its services to ensure end-to-end system performance. The entire customer experience is likely to be impacted. In the case of a modular approach, the bank has a specific service that manages payment execution. The increase in performance is then limited to this service, which is much easier than reviewing the entire performance of the chain. The new customer need can be covered without compromising the availability of services and the customer experience.

Modular Bank: towards new business models

Finally, the Modular Bank improves the bank's ability to address new business models.

The emergence of new financial players has challenged the one-stop-shop model of banks. If, until now, banks produced all the services they offered to their clients, they must now be able to ensure services and distribute new ones. However, coupled systems prevent the opening up of new markets or business models since the coupling of systems precludes the separation of production from distribution.

On the contrary, modularity allows new products and services to be integrated quickly. The bank can thus address new business models and customer typologies to create new sources of revenue.

Universal banks: how to get into the Modular Bank fold? 🧱

As you can see, the Modular Bank is a model that offers new strategic opportunities for universal banks. And to achieve modularity, Core Banking Systems are not suitable.

The bank then has several options:

1. Transform its IT system into different modules. While this solution is attractive because it allows you to control the system internally, it will require a large-scale project over several years, which will delay the launch of new innovative products and services.
2. Migrate to a new generation Core Banking Platform. Here again, the project will be long and complex, but it will allow you, in the long run, to reach perfect modularity: agile, fast, and scalable.
3. Opt for a hybrid approach by adopting a simplified Core Banking Platform to develop a new banking product or service. The idea here is to integrate a new Core Banking Platform that you need. This Test & Learn approach will allow you to focus on a limited perimeter rather than modifying your core banking system. The risk is reduced: you can test and experiment with the new solution on your new project. You can then gradually add new modules as you need them. This approach is the most interesting because it is adaptable and scalable and does not require the migration of your current Core Banking.

Skaleet, an open and modular Core Banking Platform

Skaleet supports you in this transition to modularity by allowing you to experiment with its Core Banking Platform as part of a project or product launch in a Test & Learn approach. This way, you can test this Platform solution while acquiring new customers and migrating gradually.

Our open architecture allows you to choose and integrate the partners you want or develop components or new customer experiences yourself. Thanks to the modularity of our Core Banking Platform, the architecture is fully customizable and interchangeable, allowing you to test, replace or redeploy the features you want. Want to know more? Contact us for more information!