Southeast Asian banks view digital transformation as high risk, and while they understand the value of digital core banking, they are seeking a lower risk approach to digital transformation to extend the life of their legacy technology and mitigate any potential damage, either financial or reputational. This was the key finding of new research from IDC Financial Insights, published today.

This latest IDC white paper, sponsored by Mambu, Leveraging Digital Core Banking Systems: Next-Level Banking [Doc #AP15027X], January 2022, features data gleaned from interviews with a number of Southeast Asian banking executives focusing on how they view the future of core banking within their organisations, and how they plan to capitalise on the opportunities that digital banking can deliver.

The report found that the key challenge for established banks in the SEA region, many of which have core banking systems that are more than 20 years old, is to deliver on the promise of digital transformation without exhausting their financial resources or risking their reputation. A solution to this conundrum is what IDC has dubbed the ‘multicore’ banking model, which enables banks to adopt digital core banking incrementally over time, with vastly reduced financial, technical, and reputational risks.

Steve Shipley, Adjunct CIO at IDC Financial Insights, said, “Our research for this white paper identified several recurring themes from our interviewees, most notably how risk averse Southeast Asian banks are, and how much they value the ongoing role of legacy core banking technology. However, banks in the Asia Pacific region are also embracing digital transformation, using a new banking model – multicore – which can enable effective and lower-risk transformation into future-ready digital banks.”

Myles Bertrand, Managing Director APAC at Mambu, added, ”Historically, integrating multiple core banking systems has been considered much too expensive and far too difficult, so banks would attempt ‘big bang’, or ‘rip-and-replace’ core banking projects even though they were highly risky and often failed. But in today’s market, digital core banking based on strong frameworks for orchestration, microservices, and APIs - like Mambu’s platform - can now enable easier connection of multiple core systems, reducing the risk of replacing legacy core and extending its value longer term.”

“The multicore model values the role of legacy core banking into the future - whether that’s just for a few months or years, or even as long as another decade. However, it’s important to stress that, even with this multicore approach, plans do need to be in place for an eventual migration from legacy to fully digital core,” continued Shipley. “While there are a number of digital core players have developed strong technical platforms for building a bank from the ground up, Mambu is able to offer a composable banking approach which allows for the flexible assembly of independent components and systems to fit the precise needs of each bank, and significantly reduce the risk of migration.”

Concluded Bertrand, “Banks used to be built to last, but now they need to be built for change. With open banking, new technologies and changing regulations, it is now easier than ever for consumers to switch banking providers, making the customer experience the most important factor in any banks’ offerings. Without embracing digital banking technologies, incumbent banks just won’t be able to compete with digital banks that can offer the hyper-personalised and customer-centric experiences that their customers now expect.”

Download the IDC Financial Insights white paper ‘Leveraging Digital Core Banking Systems’ here.