Thursday, 18 July 2024

95% of banks in Asia are running on outdated core banking technology

5 min read

By Thought Machine

Cloud native core banking technology provider Thought Machine's new study reveals that 95% of banks in Asia Pacific are still running on second or third generation banking technology, driving up costs and limiting their ability to innovate and keep up with their more digitally-advanced competitors

  • New research reveals vast majority of Asia’s banks are operating on previous-generation technology, severely limiting their ability to innovate
  • Thought Machine enables banks across APAC to move away from legacy platforms and adopt fourth generation core banking technology with its cloud native core banking platform Vault
  • Thought Machine hiring across three continents, with Australia and Japan expansion planned for 2020

Thought Machine, the cloud native core banking technology firm with its APAC headquarters in Singapore, continues to make investments to help address an innovation gap in the Asian banking market and is one that needs to be filled, if banks which have not upgraded to the latest core banking systems are to remain competitive.

Approximately 95% of banks in Asia are using second and third generation banking technology, severely limiting their ability to innovate, while increasing their costs, according to an IDC sponsored report by Thought Machine entitled, Digital Core — Now Is the Time. 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%. Limited ability to automate processes and decisioning adds another 4% - 7% to the C/I ratio.

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.

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 the innovation-fuelled 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. 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,” he added.

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.”

The IDC InfoBrief was sponsored by Thought Machine, a cloud-native core banking firm with its APAC headquarters in Singapore.

Cloud Native Core Banking

Thought Machine’s Vault is a next generation, cloud native, core banking platform. It does not contain a single line of legacy or pre-cloud code, enabling traditional banks to transform and adopt modern, cloud native systems. Its scalable, secure, and flexible API-driven solution unlocks the banking industry's ability to innovate and offer customised products and personalised customer experiences, while ensuring security, cost effectiveness and virtually zero downtime.

Vault is designed to support financial institutions and technology companies across the spectrum - from tier one global banks, to smaller regional banks, greenfield offerings as well as fintech players who offer banking capabilities.

With Vault, Thought Machine gives innovation back to its customers. Banks can now implement core banking on their own terms and configure any type of retail banking product easily and quickly, without relying on external vendors for those changes.

Empowering bank-based product innovation

Founded by entrepreneur and current CEO Paul Taylor in 2014, Thought Machine is headquartered in London. It opened its Asia Pacific Regional Office in Singapore in 2019 with the aim of partnering with banks across the region, enabling them to move away from legacy platforms.

Thought Machine plans to expand to Australia, Japan, and North America in 2020. The company is looking to hire across three continents and reach 500 staff by the end of 2020. Thought Machine’s customers include Lloyds Bank, SEB, Standard Chartered and Atom Bank.

Providing limitless core banking, the in-house developed Vault recently expanded its product compatibility to include all four leading cloud platforms - Google Cloud Platform, Amazon Web Services, Microsoft Azure, and IBM Cloud. It is compatible to run on multiple infrastructure options: SaaS, Private or Public Cloud, Hybrid Cloud and even on premise. The new SaaS offering brings further flexibility for banks wishing to operate single or multiple products on Vault’s secure microservices architecture, without the overhead of software management and updates.

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