As digital banking becomes more commonplace and integrated into daily life, it also means more and more connections and communication between an ever-growing number of platforms. And if those lines of communication are slow, prone to error, or inefficient, it can mean stumbling blocks on the way to innovation for financial institutions. These pain points also result in poor experiences for customers. Improving how digital banking systems communicate is where middleware comes in.
In this month’s episode of Bank Director's FinXTech Xchange, Narmi Co-Founder Nikhil Lakhanpal joins David Wexler, CEO of middleware provider ModusBox, and Tim Heilman, Chief Innovation Officer of Choice Bank to talk over how middleware has streamlined processes and allowed for a reimagining of growth.
For many, middleware remains a nebulous concept – unaware even if their financial institution could benefit from a middleware solution. That’s why it’s key for financial institutions to fully understand what middleware is, what it does, and when it’s a worthy investment. David, Tim, and Nikhil even share a number of real-life use cases where middleware made a drastic improvement for financial institutions and their customers.
“There's a common misconception that the APIs being provided by the core vendors are the middleware, but actually that's not actually true,” explains David Wexler, ”APIs are the best practice in the industry for building applications and connecting systems together, but you also need tools and technology to help actually manage those connections. Because if all you do is connect hundreds and hundreds of applications together via APIs, you're not in any better position than you were before.” David and ModusBox’s mission is to drive the ability of financial institutions to leverage those APIs to connect new applications, thus introducing new experiences.
Nikhil describes middleware as a “wrapper” for all the various systems a bank or credit union has in place that allows them to reduce their reliance on their core. “No more are you saying, ‘Hey, we need to go direct to the core’; you have this wrapper which empowers you to do a lot more. If you want to switch out one of those systems, you're not going to experience downtime across all the other front-end systems that have integrated with your wrapper because they're dependent on the wrapper itself, not the core.”
Finally, middleware allows for greater control by financial institutions over their data and their overall system. Tim remembers when Choice Bank opted for middleware: “We just couldn’t be held in a situation where we had to rely on some third party to be able to control our technological destiny.”
“We just couldn’t be held in a situation where we had to rely on some third party to be able to control our technological destiny.” -Tim Heilman
The challenge smaller banks and credit unions have when juggling multiple vendor relationships is familiar to Nikhil Lakhanpal: “As a financial institution, especially sub-$50 or sub-$20 billion in assets, you have a lot of vendors and you have a lot of areas where your customer's and your internal data sits. You have a lot of use cases for that data. It can be very, very overwhelming.” Adding yet another layer of software to the mix might seem counterintuitive, but as Nikhil explains, middleware is just what many financial institutions need to take over the juggling process.
“It's a topic that on the surface I think can appear very complex, but when you really drill into it, it's actually not,” Nikhil says. “As an example, Choice Bank has a core provider and they also have a lot of third party integrations. Then you might have a third party solution, in this case, Narmi, which wants to leverage the core provider and the third party integrations to create a superior customer experience. And then you inject what we call a middleware solution, such as ModusBox and David's team to do all that connectivity.”
What’s more, middleware can also be an invaluable resource for managing data, as Choice Bank CIO Tim Heilman noted: “We've been in a decentralized world for a very long time; even the core has multiple sets of data. It’s supposed to be centralized, but in fact, it's sitting in multiple different places in different formats. You have to start exchanging that data from one set to another in the most modern and effortless possible way,” says Tim. “It's really the foundation of what everything is built on now.”
If a financial institution is bogged down with laggy connectivity and gaps in communication, too much of their time and energy will be focused on managing those issues instead of establishing and nurturing banking relationships. “Banks and credit unions are technology consumers,” Nikhil highlights. “They won’t have more technical staff than a software vendor does. But that’s how it should be for a bank; you want to be selling loans, closing business, doing what you’re good at to help the economy grow.”
Successful application of middleware to connect all the different systems into something cohesive means that banks and credit unions can spend time doing what they do best: providing their communities with reliable financial solutions.
Technological evolution never stops, and that means neither can bank and credit union innovation. But if their time is eaten up by an inefficient back-end system – and sometimes front-end system, too – innovation is going to stagnate. “You need to be able to bring in new technologies,” David says. “You can't wait 12 to 18 months to even start your project. That's not an option anymore, not if we want to digitize access for consumers. So the question has to become: how do we do projects faster?”
Once again, a middleware strategy provides a solution. By smoothing out connectivity, banks and credit unions can roll out new products, services, and software much faster and without the outages that too often come with updates. “Imagine,” Nikhil posits, “with the same amount of FTS and the same budget, you could consolidate a 24-month project roadmap into 12 months.”
Everyone knows that more and more people are accessing their finances and performing banking transactions digitally, and that branch visits are on the decline. Tim has noticed this trend in cities across the U.S. and beyond. “The data shows people are not coming to the bank anymore as much as they used to,” he says. “And so we have to think about where our customers are at or are going, not where they were a long time ago. They still care about the brand. They still care about doing the things that they need to do. You just simply have to be where people are at.” Leveraging middleware means an enhanced user experience with real-time updates that allows customers and members to bank anytime, anywhere.
As Choice Bank expands into the digital sphere and reaches more people, Tim knows that listening to what people want and getting it to them is the real foundation of modern banking. “We're not in the invention business, we're not predicting what great new product is going to be out there. We're simply listening to the market, listening to our customers and then building based on that.”