Banking leaders agree: banks that want to succeed into the 21st century are already undergoing rapid digital transformation. Digitalisation is a must to overcome the inefficiencies of outmoded legacy infrastructure, to keep up with the surging customer demand for new services, and to be mobile- and digital-first.

In countries like Malaysia, dedicated digital banking plays are coming to maturity, prompting even more demand for transformation amongst incumbent banks. But as more and more banks embrace digital transformation, banking leaders are in agreement that digital differentiation is just as core to offer the breadth of product diversity, that appeals to the right customer at the right time, and is distributed to them via the right channel.

Or so the leadership of premier banks in Malaysia were discussing at the IDC & Backbase Leadership Banking Insights Forum 2023. Engagement banking pioneer Backbase has been teaming with global market intelligence firm IDC to showcase a number of insights-driven forums for banking transformation executives in the Philippines, Indonesia, Thailand, and Malaysia.

As detailed in the IDC Infobrief sponsored by Backbase, “Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach toward Sustainable Digital Banking Architecture”, with the expanse of options in front of them — including whether to develop new solutions in-house or to purchase off-the-shelf and plug and play into existing infrastructure — banks are faced with the unenviable task of selecting from these many approaches what is the right fit for their institution — bearing in mind that any misaligned choice could result in costly overhauls and repeat expenditure (both money and time) to revamp failed transformation efforts.

“Transformation is nothing more than process, and the ability to shrink a process,”

stated industry expert Cyrus Daruwala, the Managing Director of Global Financial Services at IDC, during his Malaysian keynote address entitled “Accelerating a future-proof & customer-centric digital banking architecture”.

Digital Changemaking and Customer-focused Digital Differentiation

Cyrus asked gathered attendees of some of the largest banks operating in Malaysia, what they wished to be remembered for, highlighting how digital transformation of much of the banking industry in the Asia Pacific had been carried out piecemeal over the years.

Instead of talking about outdated transformation ideas, Cyrus drew attention to the digital economy instead, and clarified that bank digitalisation was essentially shrinking down cumbersome processes such as opening a bank account or dispensing a loan application — slashing customer wait times and inefficiencies in the process.

“The way to think through about digital economy is more about people, less about banking,”

he commented.

He lamented how nothing big had changed at the major international bank he worked at for 12 years, and emphasised that to properly align digital banking architecture with the various new services that were being introduced, effective change management had to be carried out at least incrementally and with an overall plan — to ensure as smooth a transition into the digital economy as possible.

“Most people are into ‘I will build, I will build’, but that is possible if you have a platform to build from,”

he suggested.

Cyrus highlighted findings from IDC’s End-user Survey Group that showed that consumers in Malaysia were well-versed with terms like e-commerce and e-accounts, and together with high mobile penetration in the country were ready for multi-faceted digital initiatives from their financial service providers.

With data showing that half of digital transformation projects (50%) in Malaysia are not geared towards showing a return on equity (ROE), a gauge of how efficiently a bank is aiming towards profitability, Cyrus urged banking executives to be the changemaker within their organisations that prioritised change and customer-centric digital differentiation, saying,

“You don’t have the skillset to be able to do an entire core banking or retail banking or engagement banking yourself. You have to adopt a platform like a Backbase, partners like Thought Machine and Mambu.”

He added that banks can show true ROE from platform architecture, with data indicating how taking a hybrid adopt and build approach to core systems, platforms, cloud, and digital channels could see ROE within 11 months. This was in contrast to a purely ‘build’ internally (20 months) or ‘buy’ technology (16 months) approach.

Seamlessly Connecting Customers and Stakeholders

Riddhi Dutta, Regional Vice President, Asia, for Backbase, concurred with Cyrus that we are indeed in a “platform era”. Even most consumers are acclimatised to using digital platforms in the daily lives such as Netflix, Amazon and Shopify, and in his keynote “Engagement Banking: Transforming CX in the digital real-world”, Riddhi emphasised the importance of platform architecture for incumbents and digital banks, where “stakeholders can be connected seamlessly”.

He mentioned how for banks and incumbent banks in particular, they have the opportunity to do something similar.

“Moving away from accounts, payments, cards, transactions, to be a preferred financial platform of your customers. Not the bank where your customer wants to just open an account and take a loan from, but more so, to embed yourself in the daily life of your customer,”

he said.

He went on how comprehending and capitalising on the customer lifecycle was crucial, in an era where consumers are demanding more and more personalised services that deepen relationships, drive customer engagement, and deliver a meaningful experience in a unified and integrated manner when a customer needs it — not a traditional structure with banks pushing their own monolithic experience.

Riddhi outlined the challenges of delivering differentiated features, “digital everything”, omnichannel experiences and innovative financial technology — but banks experience far more below-the-line headaches including delivery processes, infrastructure, technical debt, third-party integrations, maintenance/upgrades, finding the right talent with the right skills, security, and compliance.

Riddhi pointed out there are a lot of unmet needs to deliver customer-centric banking products, and that banks need to identify the segments in their value propositions that need to be addressed, and create segment-based value propositions that are tailored to individual gaps.

Only 14% of banks have made sustained performance improvements, he added, and that out-of-the-box application adoption needs to be balanced with the right amount of custom app development, to ensure speedy development journeys as well as enabling development freedom for internal talent to create the right tools that are tailored to their platform’s needs.

Banks need to focus on “hollowing out the core and moving business logic to the engagement layer” to optimise the efficiencies of their platforms. And that’s where engagement banking comes in.

Whereas digital banking is branchless and decentralised, and core banking is fragmented, siloed, and expensive to modernise — engagement banking involves banks moving to a unified, customer-centric platform, comingling engagement orchestration services that streamline and architect every journey and process around the customer.

Riddhi compared offering digital differentiation to donuts — all have the same base, it’s the different toppings that will make up a well-defined service offering. And those would encompass both Software-as-a-Service (SaaS) as well as cloud-based offerings.

“Engagement platforms are built to be fast, dynamic, and flexible so that while you hollow out the core and reduce dependency on the core, the engagement banking platform can do the heavy lifting for orchestrating the customer journeys and help you differentiate as a bank,”

he concluded.

“Core banking is a must-have and a hygiene but it does not help you differentiate between how you operate from other banks.

Meeting Evolving Digital Banking, Transformation, and Differentiation

The Malaysia leg of the IDC & Backbase Leadership Banking Insights Forum 2023 also featured a thought-proving panel discussion that contrasted digital banking vs incumbent banking, and how the challenge for digibanks is differentiation; the challenge for incumbents is catching on the digital front to fintech-savvy challenger banks.

The final session, “Dream Big: Delivering the Art of the Possible with Engagement Banking”, was a live demo that looked at evolving digital banking needs and expectations of consumers and business owners within a mobile app ecosystem.

The demonstration showcased how the Backbase platform can create valuable experiences centered around what the consumer wants in an app, including savings, lifestyle, and financial wellness features. .

Security and cyber hygiene were also highlighted, with Riddhi pointing out mobile app ecosystems with embedded offerings were homogenous spaces for banks to grow into next — using the “reusable building blocks” of APIs for everything from payments to authentication to security, across both traditional retail and business banking as well as new opportunity propositions such those presented by the gig economy.

“No implementation is a silver bullet,”

Riddhi made clear, with IDC’s Cyrus adding that,

“A solution never fails but implementations fail. If you have the right platform, your bases are covered. Anytime you go into a new initiative, it needs to be platformised.”