The balancing act between modular design and the advantages of an integrated platform

Introduction 

These days, commercial lending is increasingly burdened by overcomplexity. The lending architecture of many modern financial institutions now resembles a patchwork quilt; multiple systems from disparate vendors haphazardly-stitched together. Some are custom-built to work only with one other specific third-party or boast variant data models operating side-by-side. Other integrations are custom-built and require significant manual effort to run smoothly.  

While this approach can deliver an architecture tailored to specific needs, it comes at a cost. Namely, higher maintenance efforts, increased operational risk, and slower collaboration between teams. 

At present, the finance industry is poised between two distinct lending models: modular architecture and integrated platforms. Let’s break down some of the key distinctions between them, their advantages and disadvantages, and discuss how combining the two approaches can mean the best of both worlds. 

What is modular architecture? 

In layman’s terms, modular architecture is a way of digitally simplifying the complex, many-stage lending journey by breaking down the convoluted process into independent software components.  

These components can be quickly configured and modified depending on the changing needs of the enterprise. It’s like assembling a statue out of Lego-bricks, where lenders or banks can choose the bricks they require and adapt to their specific situation.  

Some of these modules might include: 

• Loan origination systems 
• Credit underwriting/scorings
• Account/loan servicing 
• Payment processing 
• Collections 
• Compliance 

This approach replaces outdated, rigid core banking systems (monoliths) with a flexible, “plug-and-play” ecosystem that offers significant benefits.  

Advantages of a modular strategy 

The simplicity of this system means that lenders can select the best-of-breed component for each function and tailor them to commercial loan products. Institutions can select components that fit their existing architecture and business priorities, without committing to a full-scale and costly transformation from day one. Furthermore, specific modules (say, an underwriting engine during a busy season) can be scaled independently to handle increased load, rather than scaling the entire platform.

​​​SAP Fioneer’s lending platform embraces this principle. Fioneer Credit Workplace (CWP) is core-agnostic, modular, and cloud-native. It can integrate seamlessly into existing architectures, supporting incremental modernization while minimizing disruption. 

What are integrated platforms? 

​By contrast, integrated platforms take the opposite approach. These are digital systems where all the core lending and even finance functions rely on a shared core. 

Instead of a structure of Lego bricks, it’s like a statue carved from a block of fine marble — a single cohesive platform which is integrated front to back. Its single code base and unified data model make it robust, sturdy, and sophisticated, yes; but also tricky to modify. As the entire system is typically sourced from one vendor, replacing one part means replacing the whole platform. Or opting for a modular approach.

But what are some of the advantages that integrated platforms can offer? 

The power of integration 

Because origination, underwriting, and servicing are built on a unified data model, the platform delivers end-to-end reliability and data integrity. Components can then be enabled or disabled without breaking consistency. This, in turn, eliminates the need for complex interface programming, or the risk of data mismatch between separate systems.  

Their cohesive structure also often simplifies system deployment and management. In turn this eliminates silos and enables a more seamless workflow across the lending journey. This also increases the speed and efficiency of the lending process and reduces the manual burden on workers. 

​​​SAP Fioneer’s unique position in the market makes this possible. Integrated from Origination back to the FI/General Ledger, ensures that the lending solutions run natively on one technical foundation. 
Benefits include: 

• Efficiency and Automation: Shared processes and interfaces boost productivity and reduce manual work. 
• Lower TCO: Fewer systems, fewer interfaces, and streamlined support from one vendor mean reduced complexity and cost. 
• Live Reporting: Real-time lending data enables faster, smarter decisions. 
• AI Enablement: Operational and financial data in the platform enable rich real-time analytics and advanced AI capabilities.  

So, is there a way financial enterprises can combine both approaches and work in perfect harmony? 

The best of both worlds 

The future of lending doesn’t require choosing between modularity and integration. It’s about striking the right balance that respects the exosting architecture: modular design for tailored solutions and integrated platforms for efficiency, automation, and strategic advantage. 

The ideal approach is to adopt a ‘Hybrid Architecture’ or ‘Composable Banking’ solution. This involves harnessing the advantages of a harmonized data model and robust foundation with flexible modular components. 

The foundation should ideally be designed from the ground up to deal purely with non-differentiating functions that demand high stability, reliability, and security. This might include the general ledger, account servicing, historical data archival, and high-volume, and critical compliance reporting functions.  

With this foundation in place, the other business functions which require more adaptability can be grafted onto the main system and swapped out and adjusted when needed. Some examples are new loan origination systems (LOS), underwriting or risk scoring engines, digital customer portals, payment gateways, or analytics tools.

By pursuing this more open strategy, enterprises can avoid tying themselves into finicky contracts with specific vendors, and optimize and upgrade their system in increments, without the expense and hassle of a sweeping upgrade. Of course, achieving this is incumbent upon the tools used. And that’s where we come in. 

Are you ready to explore how SAP Fioneer’s lending platform can help you achieve this balance and identify the best way forward? Discover how our modular, integrated solutions can accelerate your digital transformation and position your institution for long-term success. Get in touch with our experts today.