PYMNTS MonitorEdge May 2024

Why Banks Are Starting to Care About MACH Architecture

Financial institutions (FIs) can’t meet the evolving needs of digital-first customers with traditional solutions and infrastructure. 

That’s why the finance industry must continually modernize the banking experience — and its relatively monolithic core architecture — to adapt to technological, behavioral and market disruptions.

With the news Wednesday (June 12) that JPMorgan has joined the MACH Alliance, a not-for-profit industry body dedicated to advocating for open, best-of-breed technology ecosystems, embracing MACH principles is on the agenda for FIs looking to leverage composability to compete in the digital ecosystem.

“At J.P. Morgan Payments, we continue to deliver new solutions and enhance our capabilities as we build a modern payments business globally … The movement toward MACH is an exciting transformation and we look forward to helping our clients accelerate innovation to better deliver more seamless and secure experiences for their end customers in a rapidly evolving landscape,” said Kate Walton, chief commercial officer, merchant payments at J.P. Morgan Payments in a statement.

By embracing composable banking built atop MACH architecture principles — Microservices, API-first, Cloud-native, and Headless — FIs can not only meet but exceed the changing demands of digital-first customers by offering agility, scalability and innovation.

Composable banking, as the name implies, uses components instead of monolithic mainframes to deliver financial services. Observers increasingly believe it will shape opportunities within both digital banking and next-generation financial services. 

Read more: Experts Say Composable Banking Builds Better Digital Customer Experiences

Embracing the MACH Opportunity in Financial Services

By adopting Microservices, API-first, Cloud-native, and Headless (MACH) principles, FIs can transform their operations, delivering superior customer experiences, achieving operational efficiency and maintaining a competitive edge. 

“It’s becoming an imperative to improve the operational efficiency at these legacy banks and be more responsive to client needs and industry trends,” Galileo Head of Product Strategy Michael Haney told PYMNTS, explaining that the new generation of platforms is being based on MACH principles.

That’s because today’s financial services customers are digital natives, accustomed to seamless, instant and personalized experiences. They expect the same level of service from their banks and financial institutions as they do from leading tech companies. This shift necessitates a fundamental transformation in how financial services are delivered.

“Banks still play the role they’ve always played, but as we become digital, as we become mobile, and as the banks become branchless, the relationship becomes centered in the technology and the capabilities — not always the individuals, the bankers that knew you,” Shaunt Sarkissian, founder and CEO of AI-ID, told PYMNTS.

The traditional monolithic architecture, characterized by large, interdependent systems, is ill-suited for this new reality. These systems are often slow to adapt, difficult to scale and prone to outages.

But what exactly does embracing a MACH architecture entail?

Read more: How APIs Bridge Modern and Legacy B2B Payment Architectures

Unlocking Microservices, API-first, Cloud-native and Headless Architecture

For a better understanding of MACH, let’s take a look at the features embedded in the acronym.

Microservices architecture breaks down a monolithic application into smaller, loosely coupled services, each responsible for a specific business function. This modular approach allows teams to develop, test and deploy microservices independently, enabling faster release cycles and reducing time-to-market. Adopting microservices means being able to quickly adapt to regulatory changes, launch new products and integrate with FinTech innovations without overhauling entire systems.

As Form3 U.S. CEO Dave Scola told PYMNTS, “creaking, older legacy platforms” are struggling to adapt to new demands.

In an API-first approach, APIs are designed and developed before the actual application. This ensures that all services can communicate seamlessly and allows for easy integration with third-party systems.

“One of the biggest things that organizations are looking for is, ‘How can I use my current infrastructure and the partnerships that I have?’” said Aaron Le Hew, director of invoice-to-cash at Esker, in a conversation with PYMNTS posted May 23.

Adopting a cloud-native approach enables financial institutions to deploy updates and new features rapidly, responding to customer needs in real-time. 

“Historically, it was just banks competing with banks. But increasingly, FinTechs and other disruptive entrants are leveraging solutions … innovations and competitive offerings … which can be costly and complex for banks to quickly stand up,”  William Artingstall, global co-head of cross-border payments and receivables at Citi, told PYMNTS.

Headless architecture decouples the front-end presentation layer from the back-end services, allowing a bank to offer a mobile app with a user interface optimized for quick transactions, while simultaneously providing a detailed, interactive web portal for in-depth financial planning.

Ultimately, implementing MACH architecture is not merely a technological upgrade; it is a strategic imperative for financial institutions aiming to thrive in the digital-first era. The journey to MACH may be challenging and require an internal culture shift, but the rewards — a more agile, scalable and innovative organization — are well worth the effort.