• Cloud-based solutions fast-track the growth of digital banks
• Banks need a transition plan from the existing legacy infrastructure to next generation solutions to meet the evolving regulations and target new business segments
• Cloud-based solutions, digital banking and open banking will continue to be the key driving forces in 2022

The financial services industry has witnessed a digital acceleration during the pandemic. Banks had to rapidly adapt to digital and remote mode of operations, a surge in contactless, real-time payment volumes and a spurt in cybercrimes. Meanwhile, the competitive landscape continues to evolve with speed as agile and nimble fintech and big tech companies gain foothold and new challenger banks enter the market. These industry changes are forcing banks to rethink and transform their technology infrastructure to survive and thrive in the future.

Becker shared that increased digital adoption and the growth of challenger banks put the focus on the existing cost base, current legacy monolithic infrastructure and the support and costs needed in maintaining these. “Cloud-based solutions give you that flexibility and a lot more cost effectiveness, plus it ramps up the ability to grow the business to a wider audience and target market than there was before,” he said.

He added that to capture the large unbanked business opportunity and related transactions, banks need to have a three to five-year vision and upscale transaction volumes and systems to support it.

Here is the edited transcript of the interview:

Neeti Aggarwal (NA): The financial industry is seeing a lot of digital acceleration. What do you see as the most important emerging technology trends of the financial services in the last 12 months, especially as an aftermath of the pandemic?

Cloud based-solutions fast-track the growth of digital banks

David Becker (DB):  It's been an incredible, amazing and frustrating time for us all, living through the pandemic, but in the context of the financial markets, the innovation and the adoption of next generation solutions and technology, it's been a rocket boost. In the last 12 months, what's really driving the business has been a real adoption of cloud-based solutions for financial institutions across Asia Pacific (APAC) and that includes what has emerged as a lot of new entrants into the market. Now what's referred to as neobanks or challenger banks, that are effectively digital banks that are challenging the status quo of the larger financial institutions. But equally, those large banks are also adapting to the new reality of major trends in the market, about accessing more clients, more users and cloud-based solutions, of which Temenos leads, is a way to really fast-track that growth. I'd say the key trend has been, even a mega trend, is the adoption of software as a service (SaaS) and banking as a service (BaaS). It continues to drive our business and that of our clients through this year and certainly into 2022.

NA: We're seeing a lot more of challenger banks coming in and we're also seeing some of the existing banks taking that plunge towards moving their systems to cloud. The challenger banks are cloud native, they're born on cloud, while these traditional banks, they are shifting their systems to cloud. What kind of difference is there in the technology when you shift your legacy to cloud versus when you have new competitors that are coming as cloud native? How do these banks shift gears to compete with those new players?

DB: In terms of cloud native, we, as a company, are very cloud agnostic, so we partner with multiple cloud providers. We have a global and regional relationship with Huawei, equally we work with Microsoft or work with Alibaba, with Google Cloud as well. The biggest trend and the biggest advantage is it just opens up a wider opportunity to grow their business transactions by virtue of the digital banks obviously, targeting a next generation of people that are unbanked right now. And the same with the existing large banks, they're also looking at that as a growth driver for them. The cloud provides that access and solution. Equally, the front end of this is the digital banking experience. With the current environment we're living in, you're not going out to the branches, you're not doing banking across the counter, it's all internet-based digital banking. That trend is driving the growth of neobank, new licensed digital banks, but equally the existing large banks. And with that, comes the requirement to look at their existing cost base, their legacy infrastructure, but you could argue it is monolithic in terms of the size and operation, and the support that is involved in maintaining that and related costs. Whereas cloud-based solutions give you that flexibility and a lot more cost effectiveness, plus it ramps up the ability to grow the business to a wider audience and target market than there was before.

NA: Banks talk about the various challenges they face as well. There are security and privacy concerns as well for some of the banks that are not so willing to put their mission critical systems on cloud. How do you address that challenge?

DB: It's got to be compliant. It's got to fit the regulatory requirements, but equally with that, they're looking at what is going to create new business model, new revenue streams. And that's what's driving the business right now. I think when you have invested so heavily you got to have that transition plan, how do you transform from an existing infrastructure, but invested quite heavily and has probably got a five or 10-year depreciation to next generation solution. The beauty with us as a company is we have provided both. We have that core infrastructure that's built into their workflow. But we can also migrate them over to the next generation solutions that we already have in the market. What we have right now is for immediate delivery. There’s an actual transition point here to support them in that plan to transform their business.

Transition plan from existing legacy infrastructure to next generation solutions

NA: The industry is clearly seeing a big shift towards real-time payments. A lot of countries have already adopted that. For cross-border payments we are seeing ISO 20022 that is imminent now. What challenges do you see these pose to banks with regard to their technology and how they need to build up their own technology to be able to address these challenges?

DB: It's an absolute necessity, a prerequisite to whether it's data privacy-related issues or regulatory systems of individual countries on cross-border. What is encouraging though, is you're seeing the regulators cooperating very much across region now knowing that they want to draw the attention of all the banking businesses. For example, in APAC, a healthy competition between Singapore and Hong Kong is still there, between the two regulators as well, the Hong Kong Monetary Authority and the Monetary Authority of Singapore. At the same time, they are looking to encourage that flow and cross-border activities. It's more a question of how to plan for the right system solution, the right software solutions for your business. And what we're finding is that, again, cloud-based solutions provide that flexibility around BaaS, SaaS model of supporting what you're doing now with your existing client base for where you expect the growth to come from. The scalability is very much built into those solutions. The future is therefore in terms of planning and forecasting what's going on in the market to be compliant with the changing regulations. The systems that we have and supported with our clients right now encompass, and take into account that they have their full compliance to the regulatory reporting requirements.

NA: There will also be data granularity with these new messaging standards. Share with us your thoughts on how the banks need to rethink their data, their data architecture and their data capabilities to be able to utilise this data more effectively.

DB: The banks obviously have their own policies and requirements related to data privacy and data protection, which we fully recognise and appreciate. Some of the common challenges and opportunities are to ensure compliance to the regulatory guidelines, but also that allows to grow and scale up business as they add more clients and more transaction volume. It's that ability to maintain a robust, resilient business. And again it's got to be so that the growth, the number of volume of transactions, you have today, the system in place, need to be able to scale out to support expected growth. Every player, financial house in the market, right now is looking ahead to that level of growth, particularly in that digital open banking space. The size of the opportunity is wide open. To be able to capture that unbanked, large business opportunity and related transactions come from it. This means you've got to have a three and five-year vision here and plan to work adding clients on scale and therefore upscaling your transaction volumes and a system to support it.

NA: The data could be utilised to improve your resilience as well as your cybersecurity preparedness. Any thoughts on that, things that you would advocate in terms of futuristic technology to focus on this?

DB: We recently undertook a global study with the Economist Intelligence Unit, addressing the cyber security and related threats in terms of complexity and severity. What came out is that definitely that banks’ focus is on ensuring they have their cyber security in place but equally, it's an absolute requirement from the regulator. It’s probably one of the biggest risk factors. Related to that part of the concern is when you talk about end-of-life systems or legacy systems, there's got to be that transition plan from what has been used in terms of infrastructure support now to next generation. I think part of this is related to the cloud, that you've got to be sure that the service you're using and related to the Temenos therefore, has that guarantee level of coverage on security risks with cybersecurity. So that ensures that they're compliant to their own corporate standards but also to the regulators. I think it's a multi-level cybersecurity that's required right now – authentication, authorisation, access, around credit, control areas as well. It's probably a multi factor. But it's certainly, again, turning back to this study we did, it showed that this was very much one of the biggest concerns of banks globally, and including the neobanks. Part of the issuing of digital licences by the regulators, they need to check the box here, both that the new business they're going into, they have the right credentials to ensure against any cyber risks, but also, that they're using proven and trusted solutions. Hence why we are signing up the number of new players in the space than neobanks, because we have that off-the-shelf solution that is a guarantee of compliance to the new licence programme.

Cloud-based solutions, digital banking and open banking are key driving forces

NA: Please share with us some of your notable case studies in Asia where banks were able to implement that kind of technology, which will take them ahead probably in the next two decades or so.

DB: We've seen new business come to us in the form of new clients or existing clients. I have a few examples. We have a new global deal with Societe Generale, which is a next generation solution for their payments and cash management across Europe, Middle East and APAC. We rolled out already with them in India, and we're looking forward to a similar rollout in China. 

On the neobank side, we signed with WeLab in Hong Kong, a very innovative, aggressive new digital bank and it is targeting both the Hong Kong market and the mainland market as well. And then we also announced quite a significant deal in Australia with Virgin Money. We are seeing a lot of new opportunities across the region. There are a lot of new digital licences being issued.

NA: What are your expectations for 2022, especially with regard to the geopolitical landscape, how we are seeing it evolving and their impact on the technology trends?

DB: I think everyone's focused on the recovery, post pandemic, globally and arguably the part of the world we're living in, so broader APAC and South Asia, is likely to be a key driver. But the outlook is really positive in the next year. Even with this pandemic, businesses in particular, the financial markets have adapted very well to working from central mode. The same applies to the adoption of cloud-based solutions, digital banking, open banking, are going to be the driving force into the next year and continue to be a key driver for our clients, as much as for our own business. I think that's true across the region, whether it's Japan through Greater China, South Asia, ASEAN, and the Australian market. I believe next year we are going to see quite a turnaround in the level of market activity, as we hopefully, gradually come out of the pandemic or certainly learn to live where we are with Covid-19 right now.