Accelerating Customer-Centric Digital Transformation in Malaysian Banks
by Johanan Devanesan August 30, 2023The digital transformation journey of banks, particularly in the Asia-Pacific (APAC) region, has been a hot topic of discussion for years.
Backbase, a global leader in engagement banking, has recently revealed the release of an IDC Infobrief that sheds light that a staggering 70% of digital transformation projects for banks in the APAC region have failed.
A Regional Perspective on Digital Transformation
The IDC Infobrief titled “Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach Towards Sustainable Digital Banking Architecture,” draws from a wealth of insights, based on data from 125 banks and 316 Chief Information Officers (CIOs) in APAC.
With survey data from several APAC economies including Malaysia’s burgeoning banking industry, the report dives deep into the critical issues that shape the strategic approach of financial institutions in the region.
It highlights the challenges that banks face in maintaining their legacy systems while also capitalising on growth opportunities. The report stresses the banks’ concerns about the potential risks and operational disruptions associated with system migrations in their digital transformation journey.
The In-House Development Dilemma
Ashish Kakar
According to Ashish Kakar, Senior Director of Research, APAC of IDC, although banks have been pursuing digital transformation since the early 2000s, they remain at an early stage. They have failed to realise the full benefits and potential of delivering compelling digital customer engagements.
Ashish states,
“Building in-house has been a de-facto strategy by banks, but it’s no longer feasible to deliver to the pace and scale that is required to be competitive.”
The complexity that comes with managing a myriad of data layers, channels, and features in both legacy and modern systems is where in-house strategies break down.
The Rise of Digital Banks and The Need for Speed
Amid the increasing momentum of almost 50 digital banks emerging in Asia, the report argues that to be successful, it’s critical for traditional banks to accelerate their time to market with a robust architecture that differentiates them in terms of customer experience.
The Infobrief finds that despite 65% of mid-to-large-sized banks in APAC opting to build their digital engagement platforms in-house, 70% of these projects have failed due to costly and lengthy in-house efforts. When the CIOs were asked whether they could develop a brand-new product from scratch within three to six months, they unanimously agreed that it was not possible.
Source: Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach Towards Sustainable Digital Banking Architecture, IDC Infobrief
A Shift Towards Collaborative Strategies
IDC’s research suggests that there is an increasing preference among banks for a hybrid adopt-and-build approach. This enables banks to go to market quickly by leveraging pre-built assets, microservices, and workflows on an end-to-end banking platform engine.
This approach facilitates customisation and differentiation of banks’ customer experience and expedites their digital engagement maturity with minimal risks.
Source: Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach Towards Sustainable Digital Banking Architecture, IDC Infobrief
The Staggering Cost of In-House Development
The report reveals that a whopping 80% of in-house digital engagement platforms with budgets over US$10 million have not yielded the desired return on equity (ROE) in digital initiatives. This indicates that for APAC banks, achieving sustainable digital transformation requires complex development processes and high scalability, which often come with associated risks and high costs.
Adopt and Build: The Winning Approach
According to IDC’s analysis, collaborative partnerships are 40% faster to market compared to in-house development. The research also found that the average cost of building a platform was 2.3 times higher than those enabled through adopt-and-build collaborations.
As markets emerge from the impact of the COVID-19 pandemic, there is a noticeable shift towards collaborative strategies in digital transformation projects.
Source: Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach Towards Sustainable Digital Banking Architecture, IDC Infobrief
Future Proofing Banks Digital Transformation in Malaysia
Bank Negara Malaysia has issued guidelines to strengthen data regulations and payment systems, indicating a concerted effort to build a robust digital backbone for the financial sector. The Malaysian government has approved five digital banks that are expected to be operational within the next 12 to 24 months.
This highlights a significant shift in strategy, prioritising partnerships and collaborative approaches over traditional in-house developments to manage risk and enhance time-to-market capabilities.
Riddhi Dutta
Riddhi Dutta, Regional Vice President, Asia of Backbase concludes,
“Financial technology is one of the key technologies contributing to the growth of the digital economy – a fast-growing sector in Malaysia projected to reach 25.5% of the gross domestic product (GDP) by 2025.”
The IDC Infobrief demonstrates that to thrive in the age of digital transformation, banks, particularly in the APAC region, must eschew traditional in-house approaches in favour of more nimble and collaborative strategies.
As the industry landscape evolves, the adaptability and speed of execution will undoubtedly be the critical differentiators in delivering a compelling customer experience in digital banking.
