Cracking the Code to Digital Banking Success
By Arvind Swami
“We live in a time of great change. Thanks to technology, the rate of change around us continues to accelerate,” said Jim Whitehurst, president of IBM. Although today’s banking landscape in Asia-Pacific is proving slow to change, the springboards that could redefine banking are quickly emerging.
One such springboard is regulators issuing digital banking licenses in the region. The Hong Kong Monetary Authority, for example, gave out eight virtual banking licenses last year. Awardees include Ant SME Services (Hong Kong) Limited, Ping An OneConnect Company Limited, Tencent’s Infinium Limited, and Xiaomi’s Insight Fintech HK Limited.
Depending on the country, the licenses would allow non-banking entities to conduct banking activities such as taking deposits from retail customers and giving out loans to businesses. Since such firms are not required to have physical branches, they are also called online-only, virtual, or neo-banks. Examples of virtual banks in the region that are already in operation include Tencent’s WeBank in China, and Kakao Bank in South Korea.
These new entrants, together with fintech startups, have raised customers’ expectations of banking services. Recent research from independent research firm Forrester found that 77% of Asia-Pacific banking customers prefer to interact with their financial services providers on digital channels, especially in mobile-first countries such as Mainland China, India, Indonesia, and Thailand. Nearly three-quarters of them also believed that they should be able to accomplish any financial task on a mobile device.
As incumbent banks in Asia-Pacific are finding ways to address those changes head-on, they also need to look at their IT infrastructure, which supports and enables their business models. This is because the IT infrastructure handles the most demanding compute transactions such as trading stocks, bonds, currencies, or derivatives, or allowing retail customers to make purchases using a smartphone app.
Simplifying IT to drive better business outcomes
Established banks today are running on core systems that are often inflexible, expensive to maintain, and difficult to integrate with customer channels. Moreover, while integration is necessary, it is not sufficient to be able to create the technology platform flexibility necessary to lower operating costs, adapt to changes quickly, and optimize customer engagement. To overcome these challenges, banks in Asia-Pacific are working to transform their often monolithic, rigid, legacy IT architecture to a more open architecture that provides the agility to deliver dynamic business needs. This enables them to:
1. Optimize operations by streamlining processes
Since a single customer record can have various finance-related transactions associated with it, banking systems based on application programming interfaces (APIs) can better service multiple activities associated with a single customer record.
Banks can further improve operational efficiency by deploying an API integration tool, which connects externally facing APIs with the internal banking APIs and systems of record. It transforms and directs incoming API requests to the appropriate endpoint within the IT environment, allowing changes to the back-office without impacting customer engagement services.
Additionally, banks can leverage microservices to expose individual functions, facilitating new service implementation as well as existing service updates. A microservices-based architecture can help banks better integrate their services into their partners’ platforms to deliver more services to customers.
Since microservices can be reused, they also flexibly support and maintain production services by removing single points of failure in end-to-end flows. To reap the full benefits from microservices, they should be coupled with containers, which enable the portability of decisioning systems, across hybrid cloud environments.
2. Consistently deliver good customer experience in a standardized way despite changes in the business
Banks were initially built based on the branch office model, and were later supported by call centers and digital channels. These changes call for the IT architecture to be enhanced so that IT can effectively support new business models. However, there might be cases where IT architects missed integrating IT enhancements or new channels with existing operations, leading to data silos.
This is where standard operating protocols, which can be critical for processing within the back office, can help. They are able to provide a foundation for a uniform system blueprint that gathers more detailed and consistent customer data that can be more easily combined across different transactions and banking channels.
Since banks do not have the luxury of shutting down operations to rebuild, applying consistent standards across the board helps to more easily modify processing while still running and maintaining established levels of customer support. API implementation and reuse from shared catalogs can help to enforce adherence to standards and accelerate delivery.
3. Support business agility through continuous delivery
As change is the only constant, banks need to be able to rapidly develop and modify servicing logic, business rules, and predictive models to adapt to changing customer demands, comply with new regulations, and respond to new competitive offerings. A modern, microservices-based architecture can help banks gain that agility by enabling them to adopt continuous integration and continuous delivery (CI/CD) so that they can build, deploy and manage apps quickly.
Open source will be key to transforming the back-office
Thailand’s Kasikorn Bank (KBank) is one bank that has benefited from enterprise open source. It tasked its tech arm, Kasikorn Business-Technology Group (KBTG), to update and optimize its IT infrastructure to ensure that its mobile banking app continued to be feature-rich, user-friendly, and reliable even as the user base grew.
Coupling open-source tech deployment with DevOps and agile methodologies, KTBG achieved the speed and scale KBank needed, such that it can now handle 5,000 transactions per second. The open, modern IT architecture also enabled KBank to easily connect with its business partners’ systems to deliver more features on its mobile banking app, and provided a responsive, reliable application environment that reduced application development time from one month to two weeks.
All in all, the changes that are reshaping the financial services industry offer established banks in Asia-Pacific opportunities to adopt technology that can increase their competitiveness and agility.
In response to this, banks in the region have enhanced many of their customer-facing front-end operations with digital solutions. However, the front-office experience only makes up a small part of the entire process. Most of the servicing happens on the back end, often using numerous manual touchpoints that are rarely exposed to customers.
Above all, modern banks need to simplify IT and break down barriers between the customer engagement and back-office teams. With a stable yet flexible platform that can scale and adapt, banks can deliver a streamlined and frictionless customer experience that meets their expectations, therefore cracking the code to becoming successful digital banks that can compete effectively with new entrants.
About the Author
Arvind leads the financial services vertical for Red Hat in Asia Pacific. In this role Arvind works with financial institutions in the region on innovative solutions to help them become more agile and respond to customer needs faster, leveraging open source technologies.
Header image by Erol Ahmed on Unsplash