Core Modernization for Embedded Finance: The Technology Imperative for Banks

As embedded finance rapidly reshapes the financial services landscape, banks face a pivotal challenge: how to deliver seamless, scalable, and partner-centric financial products within the digital journeys of non-banking platforms. The answer lies in core modernization. For technology and operations leaders, modernizing the bank’s core is not just a technical upgrade—it is the foundation for unlocking the full potential of embedded finance at scale.

The Legacy Barrier: Why Traditional Cores Hold Banks Back

Legacy core banking systems were built for a different era—one defined by standardized products, slow release cycles, and direct customer relationships. These monolithic platforms are often rigid, siloed, and costly to change. They struggle to:

• Expose banking capabilities via APIs for rapid partner integration
• Support real-time data access and decisioning
• Scale to handle high transaction volumes and multi-tenancy
• Enable the product agility required by today’s digital ecosystems

As a result, banks relying on legacy cores find themselves unable to move at the speed of digital-native fintechs or meet the expectations of non-financial partners who demand rapid integration and continuous product evolution. The inability to efficiently onboard new partners, iterate products, or support diverse technology stacks is a critical barrier to embedded finance success.

The Power of Modern, Cloud-Native, API-Driven Architectures

To compete and thrive in the embedded finance era, banks must embrace core modernization—transitioning to modular, cloud-native, and API-first architectures. This new technology foundation delivers:

• Rapid Partner Onboarding: Standardized, secure APIs allow banks to connect with multiple partners efficiently, reducing integration times from months to weeks or even days.
• Product Agility: Decoupled, composable architectures make it possible to launch, iterate, and scale new products quickly, responding to market feedback and partner needs in real time.
• Operational Efficiency: Automation, real-time data streaming, and best-of-breed SaaS components lower operating costs and free up resources for innovation.
• Scalability and Resilience: Cloud-native platforms can handle high transaction volumes, support multi-tenancy, and ensure robust performance as the embedded finance business grows.
• Enhanced Security and Compliance: Modern platforms are built with security, data privacy, and regulatory requirements in mind, supporting safe expansion into new markets and use cases.

A Practical Playbook for Core Modernization

Modernizing the core is a complex, high-stakes journey—but with a disciplined approach, banks can mitigate risks and accelerate value realization. A proven four-step playbook includes:

1. Confirm Your Ambitions
   • Align on the case for change: Articulate how core modernization will enable embedded finance growth, improve agility, and unlock new revenue streams.
   • Assess readiness: Evaluate organizational, cultural, and technical readiness, including risk, compliance, and migration complexity.
2. Mobilize the Program
   • Build the right team: Assemble cross-functional teams with business, technology, and partner management expertise.
   • Design the target architecture: Embrace coreless, modular principles; select best-of-breed vendors; and define the API and data strategy.
   • Develop a roadmap: Prioritize quick wins and iterative releases, avoiding big-bang approaches that delay value realization.
3. Prove the Platform
   • Launch a pathfinder: Deliver a customer-facing MVP to demonstrate new capabilities, gather feedback, and build organizational confidence.
   • Manage coexistence: Run new and legacy systems in parallel, using automation and robust migration strategies to minimize risk.
4. Scale Progressively
   • Expand capabilities: Accelerate the rollout of new features, partners, and customer segments, leveraging feedback loops for continuous improvement.
   • Decommission legacy: Gradually migrate products and customers, decommissioning old systems to realize cost and efficiency gains.
   • Sustain change: Embed new skills, operating models, and metrics to ensure ongoing agility and innovation.

Common Pitfalls and How to Avoid Them

• Lack of Leadership Alignment: Without a clear, organization-wide commitment, modernization efforts stall. Secure buy-in early and maintain momentum through transparent communication.
• Overly Ambitious Scope: Attempting to replace everything at once increases risk. Focus on iterative, value-driven releases.
• Neglecting Partner and Customer Needs: Core modernization should be guided by the requirements of embedded finance partners and end-users, not just internal IT priorities.
• Underestimating Migration Complexity: Data migration and coexistence require careful planning, automation, and robust testing.
• Failure to Build New Capabilities: Success depends on new skills—API management, partner onboarding, agile delivery—not just new technology.

Modernization in Action: Real-World Impact

• SME Banking at Scale: A new commercial SME bank was launched in just nine months, orchestrating 22 fintech partners on a cloud-native, API-driven platform. The result: fully automated operations, rapid partner integration, and the ability to serve 350,000 SMEs with tailored, embedded finance solutions.
• Platform Joint Ventures: Strategic partnerships have enabled banks to deliver both banking and non-banking services—such as food delivery and travel booking—on scalable, modern platforms, accelerating time-to-market and driving business growth.

Why Core Modernization Is the Foundation for Embedded Finance

The future of embedded finance belongs to those who can move at speed, scale efficiently, and adapt to the needs of diverse partners and customers. Legacy core systems are no longer fit for this purpose. By embracing core modernization—cloud-native, API-first, and modular—banks can unlock the agility, scalability, and innovation required to lead in the embedded finance era.

With a clear strategy, disciplined execution, and the right partners, banks can transform their core, differentiate their embedded finance offerings, and capture the full value of this rapidly expanding market.

Ready to modernize your core and scale embedded finance? Publicis Sapient stands ready to guide you on this journey.