Banks and financial institutions in Southeast Asia are facing a choice; either accept that the future of banking is digital and embrace new technologies, or keep working towards goals that may have been set decades ago, using complex, outdated and expensive legacy systems. With fierce competition from innovative fintechs and challenger banks, incumbent banks are at real risk of being left behind if they don’t innovate and digitise.

The COVID-19 pandemic has added another level of urgency onto the need for banks and financial institutions to embrace digital banking, with cash transactions declining significantly and consumers becoming much more reliant on online transactions for their shopping and banking. Organisations without an online presence will face a fast and furious demise unless they can offer the digital products and services their customers have now come to expect.

We explore how challenger banks can achieve success in Southeast Asia

So, even while economies are suffering and business remains uncertain due to the ongoing pandemic, banks and financial institutions need to move forward with their digital strategies to ensure they’re not left behind when the world eventually settles into the ‘new normal’.

Across the Southeast Asia region in particular, the financial services industry has been experiencing a period of intense, transformative change, as mobile and API technologies mature and become more reliable, and banks, fintechs and challengers begin to realise the size, scale and potential of the Asian market – a market well known for its high mobile and internet penetration, and low levels of financial inclusion. The COVID-19 pandemic has, if anything, accelerated this rate of change even further.

One organisation that has not let the pandemic get in its way is DigiBankASIA, a Singapore-based fintech which has announced it is launching a new full spectrum digital bank, UNO. DigiBankASIA selected the Philippines for UNO’s initial rollout due to the fact that approximately 70% of the population does not have a bank account (considered ‘unbanked’), despite a very high penetration rate of both mobile phones and internet usage. UNO’s innovative app utilises AI, APIs and cloud technology to allow customers to save, borrow, transact, protect and invest all in one place, in a highly personalised customer experience. UNO, built on Mambu’s cloud-native banking platform, plans to address a number of unmet needs in the Philippines, particularly the low levels of financial inclusion and consumer credit.

Digital ‘speed boats’ take off

While nimble fintechs and challengers have been quick to make their moves in this exciting region, many legacy banks have been slow or reluctant to change, insisting on maintaining the status quo and shutting down any talk of digitisation.

What these reluctant legacy banks fail to realise, however, is that they don’t need to drop everything they’ve always done and change their entire way of doing things to capitalise on the digital revolution: it can be as quick and painless as launching a small-scale, low-cost, digital spinoff – a ‘speed boat’ – that they can send out to navigate the rapidly evolving market.

The speed boat needs to be driven by new thinking, new processes and, ideally, new leadership in order to forge its own identity. It also needs to operate much more like an agile fintech than like a traditional bank.

APIs in particular are destined to play a significant role in the digital evolution of the banking and financial services industry. While banks have historically spent enormous sums of money on developing custom software and bespoke technology systems, by embracing APIs they can quickly and easily access new technologies offered by fintechs, including artificial intelligence, data analytics and cloud, all on a Software-as-a-Service basis. This is not only more cost effective, it also enables the bank to be more responsive to changing market conditions and customer demand, while also being able to focus more resources on fine-tuning their core business.

TNEX, the digital bank created by leading Vietnamese bank MSB, is a great example of a ‘speed boat’ in action. TNEX leverages all of the advantages of MSB – like trust, security, customer loyalty, data, sector knowledge and brand awareness – but has the agility, speed and flexibility of a fintech. Built to service the young and “digitally curious” population of Vietnam, TNEX leverages AI to personalise each customer’s experience, and has taken lessons from e-commerce in how it measures success, including metrics like digital traction, cost of acquisition and customer lifetime value, rather than traditional revenue-based metrics. TNEX was built on Mambu’s composable banking platform, reaping the benefits of third-party APIs to offer customers a superior, personalised banking experience.

Collaborate for success

To truly succeed in this digital age, banks and financial institutions need to accept that it isn’t possible for one organisation to be the best at everything. Rather, banks need to cultivate a collection of trusted collaborators and partners to work with, with each organisation bringing their particular expertise to the party.Challenger banks are leading the way in terms of collaboration, and tend to work with a carefully selected group of fintechs that provide best-for-purpose solutions in a range of functions, leaving the bank itself free to focus on providing the best service it possibly can.

We expect digital banking to expand quickly, as we move past COVID

This is a strategy that legacy banks need to emulate if they are to remain competitive. Embracing APIs, which allow banks to collaborate with third parties like fintechs or other technology providers, will keep the legacy banks in the game, enabling them to connect with technology that delivers all of the functionality that the challenger banks are offering.

Breaking down years-old barriers between organisations that may be considered competitors is no easy task, and there is a significant culture-change piece attached. It is crucial that leadership is on board with the collaboration strategy, and can encourage and instigate successful partnerships with a range of high-performing cloud and technology partners.

When banks think and operate more like fintechs – leveraging technology like APIs and collaborating with the right organisations – they can streamline operations, automate processes and significantly reduce the overall cost of doing business. With this strategy, banks and financial institutions across Southeast Asia will ultimately succeed in the post-COVID era.

Article contributed by Myles Bertrand, Managing Director, APAC, Mambu

About the author

Myles has been building and enhancing financial technology businesses in APAC for over 20 years. He leads the Mambu APAC team and supports Mambu’s partners in their efforts to serve the organisation’s growing regional customer base. He is responsible for leading growth and driving execution for Mambu in APAC.

Myles is an experienced senior leader with a broad range of experience and skills including business development, customer relationship management, product management and risk management. He has over 20 years of experience in software solutions with key strengths in payments and transaction banking. Myles has a proven capability to deliver improved customer outcomes through developing product and customer focused solutions. He has worked across several industries, including banking, retail, wealth, insurance, telecommunications and sport.