Digital banking is set to have a transformative year in Asia, as the wider financial services industry prepares itself for rapid shifts in regulation and new entrants. Banks will be forced to make tough choices on their business models, says Finastra.

With pressures from open banking frameworks and new banking licenses being issued in Hong Kong and Singapore, banks need to make a choice on their business models beginning from 2020. Either they improve their value chain via innovation or become commodity players by knuckling down and concentrating on particular focus areas, says Wissam Khoury, Senior Vice President and General Manager for the Middle East and Africa, and the Asia Pacific.

«Fintech partnerships will be key to staying relevant and enhancing the customer experience for the decade ahead», said Khoury, who was speaking at a media event on Thursday. These collaborations will guarantee both the industry experience and trustworthiness of traditional banks as well as the agility and innovation of fintechs.

Different Profitability Profiles

Traditional banks, due to their long operating history and systemic importance to a country, often focus on sustaining profitability rather than taking risks in serving «low-margin» customers. That means they could lose some customers to new entrants if they are not «customer-centric» enough.

In contrast, challenger banks are fixated on customer acquisition and often operate like Internet companies in their early days (think the likes of Amazon or Google), meaning they do not talk about profitability before a five-year mark, notes Khoury. However, they often lack the reach that traditional banks have.

Data Intelligence Is Key

Another main difference between challenger banks and incumbents are their use of data. Challenger banks and fintechs thrive on data to give them the edge in understanding their customer segment and coming up with relevant financial products. On the other hand, banks remain behind the curve even as they sit on huge amounts of customer data. However, that is set to change, as data intelligence becomes a key competitive differentiator. 

For every $100 billion assets that a bank has, it can achieve as much as $300 million in revenue growth by personalizing its customer interactions, according to Boston Consulting Group.

Connecting Layer

Due to this market gap where these two vastly different players exist, Finastra sees itself as the connecting layer between the two through its «fusionfabric.cloud» platform. It is a scalable and collaborative development platform that allows banks to use or integrate fintech solutions worldwide, said Khoury. On the other side, the platform provides fintechs the reach they need. 

 «We tell the banks: don't rip and replay your (IT) systems. Get exposure through our marketplace and build the layer you want, so you can talk to the world.»