The evolution of banking systems of engagement

Digital banking needs to evolve to meet the new needs of finance, but how has digital banking changed, and whats next?
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Ben Goldin

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The industry spends a huge amount of time discussing the next killer features that will define digital banking. We often forget that behind the scenes, the banking systems of engagement that are required to support this change have also needed to undergo massive change to make any of this possible.

We are on the cusp of the third generation of digital banking technology – the transition to headless digital banking – yet the tools that make it possible rarely make headlines in the same way as the features they enable.

Before the industry can step confidently into the future, it’s important to understand how digital banking systems of engagement have evolved, and why. Collectively there needs to be a greater understanding of the layers of architecture in a successful digital bank.

Before we look at the promise of ‘headless digital banking’ as the new 3rd generation of technology we should understand:

  • What is System of Engagement compared to a System of Record
  • How has building SoE’s evolved – and why
  • What this means for how banks can change what and how they can buy from vendors.

What is a System of Engagement

A typical modern digital bank today is composed of several different systems, each providing its unique and focused value and working together as a holistic, integrated architecture.  These systems could be grouped into two main categories – System(s) of Record and System of Engagement. 

These two groups were introduced by renowned organizational theorist, management consultant and author Geoffrey Moore in 2011 in his “Systems of Engagement and the Future of Enterprise IT” white paper. 

In essence, the difference between these two types of systems is that Systems of Record are focused and optimised for Business Processes and Transactions, whilst Systems of Engagement are optimised for User Interactions,

The ‘System(s) of Engagement’ in banks and FI’s provide user-centric functionality required to provide bank customers with mobile and web banking experience. These are the capabilities that support and power the digital experience. 

They are the infrastructure underpinning the experiences that customers touch every time they login.

On the contrary, Core Banking systems, such as Mambu, SaaSCada, Tuum, Temenos and others are ‘System of Record’,  built to enable the processing of banking products & financial transactions, hence processing-centric.

How have systems of Engagement in banks evolved?

When digital banking first started – the first generation of technology – most of the screens were rendered server-side. As such, all the functionality was bundled into a single monolith and so the term System of Engagement didn’t need further definition – it was for all intents and purposes, a single thing. Functionality was simple and ‘web’ was the only channel.

Though most businesses have moved at least some way from the outright monolith, beyond the engineering teams the appreciation of layers of abstraction and the impact they have in enabling success is generally very poorly understood. Bank executives, like a race car driver, need to know more about the specific functions of their car even if they couldn’t build it themselves.

What is commonly poorly understood is that the The ‘System of Engagement’ has evolved in most organisations to be split into the Presentation Tier (mobile/web application) and the Services it uses. The primary driver for this evolution was supporting web and native mobile applications – two different presentation mediums that often relied on the same underlying functionality. Think of the separation into these two layers to service mobile apps as the second generation of digital banking technology.

The majority of banks and digital banking vendors loiter partway between between first and second generation, often without even knowing this.

The demands of the world have become even more complex and a simple single layer of abstraction will fail to meet the needs of banking today. The world has changed beyond a simple web & mobile reality, accelerating to a point where change is constant and business models change as quickly as the device touchpoints of yesterday. Take embedded finance. The digital experiences are critically important, often share the majority of components with a bank, but are deployed in wholly different ways, in different orders and in different customer journeys – yet the DNA and underlying capabilities are the same.

Here are some examples of very recent changes that have raised the demands on how flexible supporting technology needs to be:

  • Channel explosion: Simple web and mobile have exploded beyond omni-channel, to embedded capabilities and cross geography deployment 
  • Platforming banking: organisations now consume and expose capabilities externally as business models change
  • The new constant is change: The speed and complexity of change continued to accelerate and all facets of a banks technology need to be engineered to accommodate change as the defacto state


If the presentation tier and services are too tightly coupled, it cripples the ability to quickly make the changes that are so critical in today’s fast-moving environment. Banks and businesses creating financial experiences need to be able to repurpose capabilities, and dispose of the irrelevant without conducting open-org surgery each time.

A modern ‘headless’ architecture needs to provide a library of independent capabilities, decoupled not just from the presentation tier, but from each other as well. 

The 3 Generations of Digital Banking 

the 3 generations of digital banking

Radical changes to vendor solutions

There are attributes of more complex and decoupled architectures, both positive and negative, which I’ll explore in another article. Perhaps the most interesting aspect (certainly for Plumery) is the opportunity this paradigm provides for the vendor landscape.

Many Digital Banking Solutions, as a product of now outdated architectural principles, bundle the services layer together with an out-of-the-box UI. Technologies that generationally sit somewhere between 1st & 2nd generations illustrated earlier. This ‘bundling’ often has the effect of making the product relatively fast to launch, but ends up being cumbersome to evolve or change – ultimately meaning that evolution and the creation of differentiating capabilities is difficult or impossible. A terminal flaw in today’s fast-moving environment!

‘Headless’ providers promise a far more flexible pick-and-choose approach to how customers can build their digital experiences, selecting discrete capabilities and mixing with their own innovation in a manner that suits them, rather than adopting an ill-fitting solution with someone else’s UI. And more importantly, enables the path of seamless and continuous improvement and evolution.

Next Week I’ll explore the specifics of how ‘headless’ will enable new possibilities for speed and innovation, how businesses can use the approach, which organisations it’s suited for, and its relevance to new business models like embedded finance.

Image by Freepik.

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