According to the UK-headquartered Thought Machine, approximately 95% of banks in Asia are using “second and third generation” banking technology, severely limiting their ability to innovate, while increasing their costs - and with the average age of core banking technology in Asia at 20 or more years, the “imposed technology gap for infrastructure is increasing banks Cost-to-Income (C/I) ratios by 3% - 5%” and ”limited ability to automate processes and decisioning adds another 4% - 7% to the C/I ratio”.
The IDC sponsored report by Thought Machine - Digital Core — Now Is the Time - says banks that are not ready to migrate to "fourth generation organic digital core technologies" are unlikely to meet their digitalisation objectives and will become vulnerable to acquisition by more digitally advanced banks in the next two to four years.
“The major reasons banks are hesitant to replace and upgrade their core banking infrastructure to the fourth generation includes newly replaced core systems, resource constraints, and an (incorrect) assumption that digitalisation is fulfilled by the adoption of internet and mobile banking,” says Thought Machine.
“And while many banks are hesitating, the report highlights that several dynamic mid-sized banks are moving quickly in adopting fourth generation core banking systems. These banks will experience true digital transformation, increased business productivity, adaptation without disruption and easy integration to external and internal systems.
“Acceleration in digital transformation, opportunities to monetise IT assets, partnerships with challenger banks and fintechs, cost effectiveness of migrating to organic digital core platforms and risk of acquisition are the key drivers for banks across the region to replace their core banking today.”
Thought Machine’s Singapore-based managing director APAC, Nick Wilde, described what he called the “innovation-fuelled” banking sector’s changes.
“The Asian banking sector is experiencing rapid and radical innovation. Technology is at the core of that innovation, especially cloud platforms, allowing new digital banks to be built with cloud technology from the ground up, providing reduced costs, increased flexibility and product innovation,” Wilde said.
“That is putting pressure on incumbent banks, weighed down by outdated technology and rigid silos, to find solutions to help them stay in the game.
“Thought Machine enables financial institutions, neo banks and challengers in Asia to rethink core banking offerings, serve new market segments and bring hyper-personalised products to market with agility and scalability.”
Michael Araneta, Associate Vice President, IDC Financial Insights said, “Financial service institutions need to prioritise core banking technology migration discussions, so that other initiatives like digital innovation, customer-centric offerings and personalisation can truly take centre stage in their future strategy.”