Wlliam Dale,

Digital transformation is the buzzword of the decade in the banking and financial services industry across the globe, and Southeast Asia is right in the thick of it.

The most pressing issue today is that the legacy core technology for many Asean banks has been in service for two decades, or even longer, and is coming to the end of its lifecycle. This has, understandably, made banks across the region nervous as they examine their options for what comes next. It should come as no surprise that many of these banks are seeking out ways to extend the life of their legacy technology.

Most banks have invested significant resources into their legacy core banking systems and have been relying on them for decades, so transitioning to digital can seem like a risky and potentially dangerous move. However, while there is certainly still value in retaining legacy banking systems in the short-term, as new cloud-based banking technology becomes more mainstream it is only a matter of time before every bank needs to think about transitioning to a next-gen core.

Digital transformation is about becoming more customer-centric

Digital transformation can mean many things to different people, however at its core it is about using new technologies to become more customer-centric and drive immediate value for the organisation and its shareholders. 

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There are many options when it comes to digital transformation, and to make things even more confusing you don’t need to choose only one! Some of the options being taken by banks in Asean include:

• Continue with legacy core, ie. 'do nothing'

With most Asean banks dealing with a 20+ year old legacy core, continuing with this technology for the long-term is simply not sustainable. These old systems are expensive to maintain and very slow to change or update, meaning new products can take years to launch and system updates can have significant consequences in downtime for customers. Customers today increasingly expect everything to be at their fingertips, with quick and seamless integration with other services – which is just not possible with legacy technology.

So, while continuing with legacy core as part of a shorter-term strategy is a viable option, it is vital to have a roadmap for how and when the legacy core will be retired.

• Fully replace legacy core with digital core, i.e. 'rip and replace'

While this option may sound simple, in reality it can be high risk and expensive. In ASEAN in particular the risk – financial, technical, and reputational – is often deemed too great.

• Incremental replacement of legacy core, i.e. ‘multicore approach’

This option is decidedly lower risk than a full rip and replace approach and enables banks to adopt digital core banking incrementally over time. However, it must be acknowledged that it is very easy to do this option badly. Historically, integrating multiple core banking systems has been considered difficult and expensive, but by utilising a next-gen digital core banking platform in the cloud, these days banks are able to connect multiple core systems more easily, and extend the value of their legacy core for longer.

• Launch a greenfield operation, i.e. ‘digital speedboat’

Another popular option being taken by a number of established Asean banks is launching a brand-new digital bank off the back of an existing bank - utilising the security, financial stability and reputation of the ‘old’ bank, but launching with new technology, new leadership and a new brand. This is a very effective method of testing the waters and seeing what the market appetite is like for digital, and also offers opportunities for collaboration with other tech-enabled service providers. 

The future of banking in Asean is digital

Whichever approach a bank takes, the benefits of digital transformation for banks, shareholders and consumers generally outweigh any risks. Digital banking is, at its heart, customer-centric – providing customers with lower cost, more accessible, hyper-personalised financial services that they genuinely want and need. 

It is a very exciting time for the financial services industry in Asean, with a number of regulators poised to make announcements about new digital banking licences in the coming months, and new innovations hitting the market every day. As Asean banks continue to better understand the value in the fintech ecosystem, we believe we will see even greater progress on digital transformation in the region.

The writer is commercial director at Mambu Asia Pacific.