A Target Operating Model for Partner Integration in the Financial Industry

The financial industry is now open. Incumbents are innovating their offerings by integrating with innovative players in an embedded finance perspective. However, integration practices still carry heavy burdens that hinder the ability to fully exploit the opportunities of this new business model.

In this article, we will explore the main challenges to overcome in this scenario and will present a detailed operating model to streamline partner integrations.

Challenges of the Open Finance Era

The Open Finance era is presenting a new chapter for the financial industry, promising increased innovation, enhanced customer experiences, and improved operational efficiencies. However, with these opportunities come significant challenges that financial institutions must address to stay competitive. 

Maximize Performances

One of the primary concerns is minimizing processing time, especially when interacting with core systems. Interacting with various systems built on different technologies and performing data integrations from different sources may cause delays that can significantly impact user experience and operational efficiency.

Reduce Time-to-market

Another critical challenge is simplifying the integration with different distributors to fully leverage partnership strategies. Currently, it can take between six to nine months to integrate a new partner. This lengthy process involves customizing offers and financial products, often working directly within monolithic legacy systems, configuring new APIs, and managing access—sometimes even communicating via email. Such outdated methods can hinder the speed and efficiency of partner onboarding and collaboration.

Optimize IT Processes

IT departments are often organized in silos, with systems communicating through lengthy batch processes. This leads to data duplication across legacy systems, unclear service availability, and API accessibility issues. These inefficiencies create difficulties in evolving and customizing offerings, distributing them through new B2B and B2C channels, and ultimately resulting in resource wastage.

The Evolution Towards Composable Architectures

To address these challenges, the industry is moving towards composable architectures. This evolution can be traced back to the early 2000s when businesses focused on single projects, often developing monolithic applications for specific business functionalities. Around 2010s, the shift towards microservices began, with single services executing individual technical functions. Today, the concept of composability combines these approaches: starting with subsets of microservices to compose applications that perform specific functionalities. These applications can be easily customized and replicated by modifying individual microservices or the interaction flow between them.

To fully realize the benefits of composable architectures, businesses must invest in robust orchestration and integration tools. These tools can help manage the interactions between different microservices, ensuring that they work together seamlessly to deliver the desired business outcomes. Additionally, adopting a standardized approach to service development and deployment can further enhance the efficiency and effectiveness of composable architectures.

Sample Target Operating Model for Partner Integration

System Decoupling

A critical step in this model is system decoupling, which involves aggregating data from core systems and third-party providers to ensure continuous data accessibility. By creating a data layer, businesses can decouple the master record from channel requirements, integrating various systems to guarantee real-time data access.

System decoupling not only improves data accessibility but also enhances data consistency and integrity. By centralizing data management, businesses can ensure that all systems have access to the same accurate and up-to-date information, reducing the risk of data discrepancies and errors.

Furthermore, implementing a data layer enables better data governance and security. By controlling data access through a centralized layer, businesses can enforce consistent data policies and ensure that sensitive information is protected. This approach also facilitates compliance with regulatory requirements, as businesses can more easily track and audit data usage across different systems.

Application Composition

Next is the layer of composable applications. Each application component performs a specific feature within a particular domain and interacts with the data layer appropriately. This modular approach allows for greater flexibility and reusability of IT components, such as claims management, quotation, and policy issuing.

Application composition enables businesses to build and deploy new functionalities more quickly and efficiently. By leveraging pre-built components, businesses can reduce development time and costs, accelerating time-to-market for new products and services. This approach also enhances the scalability and maintainability of applications, as individual components can be updated or replaced without affecting the entire system.

Moreover, composable applications promote better collaboration between IT and business teams. By providing a clear and modular structure, these applications enable business teams to understand and contribute to the development process, ensuring that IT solutions align with business needs and goals.

Service Orchestration

Service orchestration follows, where information and functions from distinct domains are aggregated and prepared for access via partners’ touchpoints. This orchestration ensures that the business needs of direct or channel partners are met efficiently by calling the relevant business functionalities.

Service orchestration plays a crucial role in ensuring the seamless integration of different services and systems. By coordinating the interactions between various components, orchestration tools can optimize the flow of information and processes, ensuring that partners have access to the necessary functionalities in a timely and efficient manner.

Additionally, service orchestration enhances the scalability and flexibility of IT systems. By managing the interactions between different services, orchestration tools can dynamically adjust to changing workloads and requirements, ensuring that systems can scale and adapt as needed.

API Exposition

Finally, API exposition empowers self-service integration through a customizable partner portal. This step defines the interface’s form towards the specific channel offering those services, facilitating seamless integration and interaction.

API exposition provides a standardized and consistent way for partners to access and interact with business services. By exposing APIs through a customizable portal, businesses can simplify the integration process, enabling partners to easily discover and consume the services they need.

Moreover, API exposition promotes better security and governance. By controlling access to APIs through a centralized portal, businesses can enforce consistent security policies and ensure that only authorized partners have access to sensitive information. This approach also facilitates monitoring and auditing of API usage, helping businesses to maintain compliance with regulatory requirements.

A Use Case: Integrating Embedded Insurance Partners

Imagine a scenario involving an Insurance Carrier launching a new direct Home Insurance channel. The dedicated applications of the new portal would call services for customer, payment, and quotation through the orchestrator, interacting with the data layer to provide real-time data. 

Now, consider integrating a new partner, such as a bank. A new orchestrator would be configured to call customer, quotation, and issuance services, exposing APIs to the bank, which already has its quotation portal. In this case, filters in the BFF (Backend for Frontend) would call only a subset of products. 

Finally, for a new retail distributor, different filters might be applied, but the same orchestrator and application packages would be used. If the partner lacks a portal, the platform can configure a dedicated frontend, with a micro-frontend approach to avoid unnecessary duplication.

This use case illustrates the flexibility and scalability of a composable architecture. By leveraging modular components and standardized integration frameworks, businesses can quickly and efficiently onboard new partners, adapting to their specific requirements and ensuring seamless connectivity. This approach also enhances the reusability of IT assets, reducing development time and costs and enabling faster time-to-market for new products and services.

Benefits of a Composable Approach

In summary, adopting a composable approach yields significant benefits. Companies have seen improved performance across channels, with reduced response times for both non-dispositive and dispositive operations, such as quicker quotation processes and aggregated customer information retrieval. Integration with the distributor network has also improved, allowing for efficient onboarding and offering customization. Lastly, IT delivery processes have become more efficient, benefiting from reusable starter kits and no-code development for new applications.

By embracing composable architectures and optimizing integration and IT processes, businesses can navigate the complexities of the Open Finance era, driving innovation, and enhancing operational efficiency.