• Digital-only banks follow a fresh approach unhindered by legacy technology, which gives them an edge over traditional, incumbent players
• Collaboration is at the centre of digital banks’ operations, particularly with technology
• A modern banking platform is essential to overcome the digital age’s unique challenges

The rise of digital-only banks is transforming the financial services landscape in Asia Pacific, where regulators have of late been issuing licences that allow new virtual banks and fintech consortia to operate alongside of incumbent banks.

These new players appear to have some advantages over their more traditional counterparts. Andrew Beatty, senior vice president and head of global banking solutions at FIS, identified some of these strengths: “They are unencumbered by costly branch networks, legacy technology stacks and outmoded thinking. Digital-only banks offer a fresh approach to banking with a total focus on the customer experience.”

The tipping point for change

A closer look at these digital banks reveals that many are also doing things differently. He elaborated: “Often, they don’t run their own core technology, but rather rely on partners or third parties – sometimes even other banks. Ironically, this age of increased competition is also one of greater collaboration.”

Beatty feels that there is an enormous opportunity for banks, whether neo or incumbent, to revisit first principles and core competencies as they confront the hard decision to redefine their core technology stack.

A big part of the challenge has been about gaining the agility and flexibility needed to meet rising customer expectations, as well as competitive pressures and regulatory demands. From the technology perspective, this may require a new sustainable, modern banking platform that is built on a new core infrastructure that can function across channels, devices, in real-time that enables the bank to become more agile and customer-centric.

Foundation of a modern banking platform

Beatty explained: “A modern banking platform must be able to meet the unique challenges and opportunities of the digital age. And it means building on a number of key foundational elements. For instance, it entails core elements that can be exposed via application program interfaces (APIs) to be consumed by the bank and third parties, in order to support new business models and respond to evolving customer needs quickly and easily.”

A cloud and open architecture-based core infrastructure platform that supports APIs and microservices is especially critical in this new digital landscape. And that also means enabling the bank to add new components and include third-party vendors as required to create unique digital offerings that add real customer value and aid retention.

Another important foundation is for key platform components to be self-contained and developed individually accordingly to open standards.

“You can maintain and change anything where and when you want to, without affecting other core components,” he elaborated.

Banks can also leverage technologies that utilise “moment in time” data that is live, and able to deliver continuous customer engagement. The foundation for this is event-based architecture (EBA) and event streaming. With an EBA approach in the technology stack, banks can deliver digital experiences tailored to their customers’ interactions (events) as they occur.

Certainty of success in core banking transformation

However, detractors of core banking transformation will be quick to point out that it is a highly fraught undertaking and will cite the many high-profile projects that have failed despite the abundance of support, effort and resources dedicated to them.

Beatty believes that the answer to these concerns revolves around ensuring solution certainty and delivery certainty, and that invariably means “looking very hard for the proven track record of whatever and whoever it is that you are evaluating and selecting,” he remarked.