The broader opportunity that digital banking represents for younger, underserved communities in Southeast Asia (SEA) is quickly being recognized. Going fully digital represents new opportunities for end-users in the region, but will also require significant transformation of their core banking infrastructure.
In Southeast Asia, several countries have begun issuing digital banking licences which would require fundamental changes to their banking core. The latest Singapore entrant is digital-only Trust Bank, which is making use of the Vault Core banking platform from Thought Machine. The objective is to enable Trust Bank to rapidly scale up its core banking transformation, after the fully-digital bank launched operations this past September. Practically overnight, Trust had obtained over Trust Bank Hits 100,000 Customer Milestone 10 Days After Launch – Fintech Singapore. Since then, its customer base quickly surged to 300,000 users in just two months.
If it was a traditional financial institute, Trust Bank might have concerns of keeping up with the sudden upsurge in new customers. Would a traditional bank’s legacy core banking systems be able to keep up with having to suddenly scale, to accommodate so many new digital customers? But as a newly minted digital-only bank, Trust does not have to worry about archaic systems inhibiting its growth.
In fact, one of the benefits of digital-first infrastructure is being able to adapt to emerging developments in the digitised financial services space. Scaling up services on its platform to meet sudden surges in customer adoption is another benefit of digital banking, which is why mission-critical core banking systems can be more easily onboarded.
Unlike legacy systems, a modern solution like Vault Core is configurable for a variety of bank sizes, not just large-scale institutions undergoing core transformations. Smaller scale banks, fintech startups, digitalised core banking solutions can be configured for their existing needs – or to help them ramp up for new digital offers.
Scaling core banking with cloud-native solutions
Tie-ups like Trust Bank’s and Thought Machine’s will be emblematic of the multicore partnerships that will emerge in the Asia Pacific region over the next three years, according to research by IDC and Thought Machine. The digitalisation of core banking systems will happen gradually over time, but will make room for banks to have more varied choices in how their transformation strategies and risk profiles offer clients higher degrees of satisfaction.
Besides Thought Machine, other software-as-a-solution (SaaS) core banking solution providers active in the region include Finastra, Mambu, Temenos, OneConnect.
Besides Trust Bank, Thought Machine has also been a key partner in digitising other Asian banks such as GXS Bank, the Malaysian digital bank consortium that includes Grab and Singtel; HD Bank, one of Vietnam’s largest retail banks with over 10 million customers; Union Digital, the digital version of Philippines’ Union Bank; and Al Rajhi Bank, enabling Shariah-compliant Islamic fintech products. Thought Machine is well-versed with all manner of clients ranging from big-name lenders like Morgan Stanley, JPMorgan and Standard Chartered to emerging neobanks like Atom Bank and Curve.
Temenos with its partners like Microsoft and Rad Hat is transforming core banking at a number of Australian and Chinese incumbent and challenger banks including the Bank of Shanghai, Bank of Queensland, Bank SinoPac and Beyond Bank, but also enabling a lot of banks to move digital quicker in smaller Southeast Asian economies, including ACLEDA and Woori Bank in Cambodia; Baiduri Bank in Brunei; CB Bank in Myanmar; Hattha Bank, the fifth-largest commercial bank in Thailand; Green Link Digital Bank in Singapore; KAF Consortium in Malaysia; Military Commercial Joint Stock Bank (MB), Sacombank, Saigon-Hanoi Bank and the Maritime Commercial Joint Stock Bank (MSB) in Vietnam; Temenos also powers a number of Taiwan and Hong Kong financial institutions.
Rounding out the major cloud-native core banking solutions providers in Southeast Asia is Mambu, enabling the UNO digital bank that was live-tested in the Philippines recently; the Rize and Be U Shariah-compliant, Malaysian digital banking platforms from Al Rajhi Bank and Malaysia-based Bank Islam, respectively; Vietnamese digital bank, Timo; as well as Bank INA and Bank Jago in Indonesia, to name a few.
The growth of this space has been gradual, but steady over the last few years, as more niche providers have joined the fray. This includes China-headquartered Sunline, with international offices in Hong Kong and Malaysia, and a core transformation project with Thailand’s Bank of Ayudhya. There is also OneConnect Financial Technology, a subsidiary of China’s Ping An Group, that is offering its all-in-one OneCosmo omni-banking platform across Southeast Asia.
Meanwhile, Alibaba’s fintech arm Ant Financial has launched its own platform, aptly called the Distributed Core Banking Platform (DCBP) which is intended to help banks and other institutions modernise their business models to be more personalised and customer-oriented.
Nonetheless, the research highlights how incumbent banks are still reluctant to fully abandon legacy core systems, with three-quarters of them saying they have pushed back plans to completely overhaul their cores. A multicore approach will allow incumbents to slowly modernise legacy systems, allowing them to continue running operations parallel to a transformation strategy.
One of the key considerations of modernisation is that newer platforms will be cloud-native, which is expected to be a big innovation mover for banking in the region. A recent IDC Financial Insights report, Banking Cloud Trends in Asia/Pacific in 2022: Cloud Becomes Truly Business-Critical, noted that while the financial services sector has been slow to embrace cloud migrations before this (for similar reasons of not entirely abandoning existing legacy architecture), 92% of banks studied in the Asia Pacific said they are planning to hike up their cloud expenditure in 2022 – compared to 86% in 2020, when both the pandemic and digitalisation frenzies were in full swing.
So there is a noticeable trend towards cloud acceleration for Asia Pacific banks, indicative that regional financial houses are more ready to adopt cloud-based digital-native core systems for the myriad benefits they bring to the table over the monolithic core, such as faster innovation cycles, flexibility in options, a more open sandbox to develop in, as well as future-proofing banking operations for the long haul.
As a matter of fact, a 2021 study conducted by digital consulting house Publicis Sapient together with Google Cloud of 250 senior banking leaders globally, uncovered that the cloud-based applications that banks are currently running are predominantly for core banking systems or other back-office applications. The same report pointed out that while a region like North America is still hesitant to majorly adopt cloud computing, 82% of Asia Pacific banks are looking forward to making a greater cloud commitment by 2025.
