The benefits that digital transformation can bring to revenue and growth initiatives are well established in banking. Improved omnichannel customer experiences with Generative AI productivity, agents and relationship managers empowered with better data, AI-enabled insights, the ability to launch new products at speed and engage in new business models with ecosystem partners – these initiatives are all highly invested across the industry for growth outcomes.

The other side of profitability and Return on Equity (RoE), driven by operational efficiency and cost transformation, is getting attention. Banks see the prospect of recent increases in Net Interest Margins (NIM) being eroded as rate hikes are passed on to customers, and credit losses potentially start to manifest in a highly-inflationary economy that continues to flirt with recession.

Composable banking architectures, progressively modernized with cloud-native building blocks as mainframe cores are hollowed out, are seen by many as a path to increased efficiency and doing more with less. As Microsoft’s digital core banking partner Mambu have found, where banks have migrated to next-gen SaaS banking platforms their IT costs associated with core services have reduced by approximately 50 percent.

Through better configurability, cloud-based solutions such as SaaS core banking architectures, are transforming banks and helping them to harness the agility they need to thrive while moving the needle positively on efficiency measures across four themes: reducing Total Cost of Ownership in the tech estate, optimizing the resource model, democratizing change and transformation at speed, and operational simplification and standardization.

1. Reduced Total Cost of Ownership (TCO). SaaS core banking solutions enable banks to exceed growth targets, adapt to changing market forces and deliver a better customer experience, focused on rapid build, test and change cycles. Perhaps most importantly, they can achieve all of this while improving efficiency across the organization and enabling a predictable and transparent cost structure with minimized latent capacity driven by an elastic and scalable consumption model.

2. Optimized resource models. Because they require fewer resources to deploy and manage, cloud-native core banking solutions can significantly improve the cost base. They also prevent the ‘one-size-fits-all’ approach that results in vendor lock-ins, expensive professional service engagements or option-limited modularisation.

3. Democratized transformation at speed. Banks no longer need to operate with inefficient technology stacks and siloed development teams. Instead they can democratize development through fusion dev teams and citizen developers taking advantage of low-code and no-code platforms, and next gen AI-enabled development platforms such as GitHub Copilot. Research shows that developers using GitHub Copilot code up to 55% faster, shipping more code in less time to keep the organization moving and competing at pace, at reduced cost.

4. Simplification and standardization. A composable banking architecture based around a Cloud-native core banking solution takes advantage of the providers’ single global code base, increasing the simplicity and standardization of fundamentals while creating the optionality for configured process and experience augmentations. This consistently standard application layer creates the basis for an industrialized operational layer with centralization of operational teams to follow optimized business processes that diverge only by necessity for location, product, and customer segment.

According to a study conducted by Capco and Wipro, analysts have determined that banks' investments in the cloud are yielding positive results, with: 62% improved profitability, 55% increased revenue, 55% increased market share, and 50% decreased costs.

In today’s climate, moving to a cloud-native digital ecosystem can give banks the tools they need to do more with less.

The move towards a composable system means that banks no longer need huge IT budgets with large teams of developers deployed to develop new solutions through monolithic systems. They don’t have to pay to maintain or upgrade existing tech stacks. Instead, they can operate simplified and lean operations that employ the solutions they need to deliver the kind of exceptional experience today’s customers demand.

It’s a win-win situation. A solution in which operational efficiency and market share growth are not mutually exclusive, but dual benefits of a shift towards digital transformation that is improving the banking experience for everyone.

Written by guest author from Microsoft UK