2025 Plumery. All rights reserved.
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 required to support this change have also needed to undergo massive transformation 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 like 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 third generation of technology, we should understand:
- What is a System of Engagement compared to a System of Record?
- How has building Systems of Engagement evolved, and why?
- What does this mean for how banks can change what and how they buy from vendors?
What is a System of Engagement
A typical modern digital bank today is composed of several different systems, each providing unique value and working together in an integrated architecture. These systems can be grouped into two main categories: Systems of Record and Systems of Engagement.
Renowned organisational theorist Geoffrey Moore introduced these concepts in his 2011 white paper, “Systems of Engagement and the Future of Enterprise IT.” Systems of Record are optimised for business processes and transactions, while Systems of Engagement are optimised for user interactions, providing the user-centric functionality that powers mobile and web banking experiences.
Core banking systems, such as Mambu, SaaSCada, Tuum, and Temenos, are Systems of Record, focused on processing banking products and financial transactions. On the other hand, Systems of Engagement underpin the customer experiences that users interact with each time they log in.
How have systems of Engagement in banks evolved?
When digital banking first started—the first generation of technology—most screens were rendered server-side. As such, all functionality was bundled into a single monolithic system, so the term System of Engagement didn’t need further definition; it was, for all intents and purposes, a single entity. Functionality was simple, and the ‘web’ was the only channel.
Though most businesses have moved away from outright monolithic systems, beyond engineering teams, the understanding of abstraction layers and their impact on success is generally poor. Bank executives, like race car drivers, need to understand the specific functions of their system, even if they couldn’t build it themselves.
What is commonly poorly understood is that 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 the need to support both web and native mobile applications—two different presentation mediums that often rely on the same underlying functionality. This separation into two layers to service mobile apps represents the second generation of digital banking technology.
The majority of banks and digital banking vendors are stuck between the first and second generations of digital banking technology, often without even realising it.
The demands of the world have become even more complex, and a simple single layer of abstraction fails to meet the needs of modern banking. The world has evolved beyond a simple web and mobile reality, accelerating to a point where change is constant and business models evolve as quickly as the device touchpoints of yesterday. Take embedded finance: digital experiences are critically important, often sharing the majority of components with a bank but deployed in entirely different ways, orders, and customer journeys—yet the underlying capabilities and DNA remain the same.
Here are some examples of recent changes that have raised the demands on how flexible supporting technology needs to be:
- Channel Explosion: Simple web and mobile have evolved beyond omni-channel to include embedded capabilities and cross-geography deployment.
- Platforming Banking: Organisations now consume and expose capabilities externally as business models change.
- Constant Change: The speed and complexity of change continue to accelerate, requiring all facets of a bank’s technology to be engineered to accommodate change as the default state.
If the presentation tier and services are too tightly coupled, it cripples the ability to quickly make changes, which is crucial in today’s fast-moving environment. Banks and businesses creating financial experiences need to repurpose capabilities and dispose of the irrelevant without conducting major overhauls each time.
A modern ‘headless’ architecture should provide a library of independent capabilities, decoupled not just from the presentation tier but from each other as well.
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, based on outdated architectural principles, bundle the services layer with an out-of-the-box UI. These solutions, typically between the 1st and 2nd generations, are quick to launch but cumbersome to evolve, hindering the creation of differentiating capabilities. This is a terminal flaw in today’s fast-moving environment.
‘Headless’ providers promise a more flexible, pick-and-choose approach, allowing customers to build their digital experiences by selecting discrete capabilities and integrating their own innovations, rather than adopting an ill-fitting solution. This approach enables seamless, continuous improvement and evolution.
