Reimagining banking in APAC with composable architecture

Historically, financial services companies have lagged behind industries like retail and e-commerce in delivering outstanding customer experiences. However, in recent years, banks have been closing this gap by investing heavily in digital transformation and innovation.

The financial services sector allocates over $650 billion each year to technology investments, as reported by Gartner. The key question remains: how much of this spending genuinely fosters digital transformation and delivers customer experiences that other industries would envy? Working with customers across the APAC region there is a huge appetite for digital transformation due to the enormous benefits that financial institutions (FIs) can reap but this is also coupled with a huge slice of trepidation due to the sheer scale and complexity that comes with a core banking replacement.

We are in the midst of a significant transformational era, driven by technologies such as generative AI, open banking, and cloud, among others. However, to fully leverage these technologies and secure a competitive edge, it's crucial to reassess the foundation of banking IT infrastructures - i.e. the core banking systems. Modern systems are necessary for traditional financial institutions to effectively compete with the more flexible and agile neo-banks and digital-only banks, ensuring their continued relevance in the industry.

Unfortunately, for many, their IT landscapes are littered with generations of systems, many ancient and operating in barely connected silos, making change difficult if not impossible. To make matters worse, this complex patchwork of knitted systems only takes one misplaced stich or an attack by a bad actor, for the whole patchwork to unravel. Regrettably, such instances have occurred within the APAC region, affecting not just profitability, and reputation but also providing an advantage to financial institutions with newer, more robust platforms. These institutions can swiftly develop and launch new products and services to meet customer demands, further intensifying the competition.

Technology can help. Composable banking has tremendous potential to deliver the flexibility needed. While it is not necessarily a new methodology, it is rapidly emerging as a transformative force in the APAC region because of the speed and agility which it can provide. It helps FIs build new products and services quickly and easily by bringing together pre-built modular components that fit together seamlessly, satisfying customer needs, and enabling the agility needed to access new markets.

Bank regulators in developing APAC markets are increasingly embracing digitally driven models that prioritize a cloud-first approach and leverage the fintech ecosystem. They are also encouraging competition and innovation, as evidenced by the rollout of digital licenses across the region. Malaysia granted licenses to five applicants. The Philippines has also issued licenses to several entities to enhance financial inclusion. In Bangladesh, the central bank approved eight firms for digital bank licenses. Against this backdrop, established banks could compete more effectively with core platforms based on composable banking principles.

Across the APAC region, while there are noticeable differences in the maturity and access to financial services there is a common shift towards digital-first, mobile-friendly, and seamless experiences, driven by the younger demographic. Financial institutions with agile core banking systems and open, composable architectures are likely to emerge as leaders. Just a few years ago, cloud adoption was uncommon in the APAC region. However, due to substantial investments in security by cloud providers and changing regulatory positions, many regions are now adopting a cloud-first approach.

Investment in new technology will deliver incremental benefits to an organization. However, I don't believe this is enough to truly deliver the impact and change an FI needs. To be truly transformative and squeeze every drop out of new and emerging technologies you must have an explicit strategy. Without a clear plan you are effectively just spinning technology plates that are destined to fall without continual and ever-increasing technology budgets. In a situation where most FIs are under increasing pressure to deliver transformational change that will differentiate them in an extremely competitive environment, a piecemeal approach to technology investment is not sufficient.

The question is not whether you are spending enough but whether you are spending it on the right areas and in the right way?

Is composable banking just another passing fad? Something that will be replaced by the "next, new thing"? No, it isn't. Composable banking is transformative and here to stay. Why? Because of customer expectations. Customers want smooth and personalized experiences; they want more from their banks. Having the ability not just to manage simple transactions but the opportunity to shop, get a mortgage, insure, invest, plan for their future all from the palm of their hand while on the move and is likely to become table stakes rather than a nice to have. And following a composable strategy could give you access to a myriad of ecosystem partners, and the ability to integrate them quickly and seamlessly.

Composable banking is a long-term trend. However, if your organization relies on a legacy core, you may find yourself juggling technology demands and budget constraints, rather than achieving transformative innovation.

For more information about the benefits of composable banking please refer to our whitepaper here.

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