Sunday, July 21, 2024

Build Strategy for Banking Platforms Resulted in 70% of Failed Digital Transformation for Banks in APAC

Build Strategy for Banking Platforms Resulted in 70% of Failed Digital Transformation for Banks in APAC

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Backbase, the global pioneer of Engagement Banking, announced the release of the APAC-focused Infobrief, “Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach Towards Sustainable Digital Banking Architecture.” Developed by global market intelligence firm IDC, and commissioned by Backbase,  the in-depth report draws insights from 125 banks and 316 CIOs in APAC, including the Philippine market, and offers a regional perspective on digital transformation. The Infobrief challenges the long-standing default approach of building in-house solutions for digital engagement banking platforms, and finds that 65% of mid- to large-sized banks in APAC have opted to build their engagement banking platforms in-house to achieve digital transformation; however, 70% of these projects have failed due to costly and lengthy in-house efforts.

In the Philippines, the government recognizes the crucial need to speed up innovative digital transformation, especially in the banking sector.  With the central bank poised to reopen the window for digital bank license applications, this could catalyze incumbent banks to expedite their reassessment and strengthen their digital offerings for both consumers and business owners. This demands a recalibration of technology strategy to elevate digital experiences, amplify satisfaction levels, and broaden the scope of digital services for these banks to remain competitive in the evolving landscape.

“In the Philippines, we see some of the established banks being the first movers in embracing the adopt and build strategy. BDO and BPI are the top 3 banks in the country by asset size and they have partnered with Backbase to innovate customer-centric digital banking on our Engagement Banking Platform as early as 2020 and 2016 respectively,” said Riddhi Dutta, Regional Vice President, Asia of Backbase.

According to the Infobrief, a staggering 80% of digital engagement platforms built in-house with budgets over USD10M face underperformance and have not yielded the desired ROE in their digital initiatives.

“Building in-house has been a de-facto strategy by banks, but it’s no longer feasible to deliver to the pace and scale that is required to be competitive. The complexities that come with the extensive amount of data layers, channels, features, upstream and downstream integration that needs to support legacy and modern systems to manage and orchestrate sophisticatedly is where in-house implementation breaks apart,” said Ashish Kakar, Senior Director of Research, APAC of IDC.

The Shortfalls in Digital Experiences

Despite having embarked on digital transformation since the 2000s, many banks in APAC remain at an early stage, failing to fully capitalize on its  benefits and deliver compelling digital customer engagements.

The IDC Infobrief highlights a crucial disconnect between banks and their customers, where most banking products and offerings are deemed “me-too” and limited.

In a matrix gleaned from the Infobrief, the Philippines is categorized as a ‘Legacy’ quadrant alongside India and Malaysia. However, when compared to the other two countries, the pace of digital transformation progress in the Philippines is expected to be comparatively slower. Countries in this quadrant are characterized by their adherence to the traditional IT approaches, with IT primarily serving as a cost center rather than a transformation differentiator.

Customers’ challenges in digital experience include accessing multiple services through disparate interfaces, dealing with the lack of a unified view of their portfolios, and enduring lengthy onboarding processes. The demand for instantaneous approvals and streamlined digital processes remains unmet, while personalized experiences, segmentation, and relevant promotions based on customers’ lifestyles, life moments, and goals continue to elude them. Additionally, backend operations suffer due to the lack of intelligent assistance in contact centers, leaving customers repeating information to different service officers due to the absence of a 360-degree unified customer view. This is a result of banks focusing on locking in a high amount of resources getting banking platforms into shape instead of prioritizing the creation of differentiated upstream customer journeys and experience.

“Over 150 modern and forward-looking banks have adopted and built on top of Backbase’s Engagement Banking Platform to accelerate their go-to-market visions and prioritize innovating differentiated digital customer engagement and experiences. A true platform comes with all the hygiene requirements from market fit, to security and regulatory compliance, to being versatile and customizable to support each bank’s unique customer needs. The platform is a composable fabric providing modularity and re-usable data and journeys for banks to help banks futureproof at scale,” Dutta continued.

A Shift in Mindset: Embracing “Adopt and Build” for Accelerated Growth

The analysis in the IDC Infobrief finds the “Adopt and Build” approach a pragmatic solution for banks to accelerate their go-to-market efforts, differentiating where it matters instead of reinventing the wheel by building from scratch. By adopting a collaborative platform and building upon it, banks can achieve 40% faster time-to-market, where digital engagement banking platforms can be launched within 11 months, as compared to the traditional 20 months with a full “build” approach. In addition, “Adopt and Build” had proven to be 2.3 times more cost-effective than the traditional in-house “build” option.

Across six key metrics—market fit and differentiation, legacy risk, build risk, time to market, modernize talent & IT skillset, and regulatory compliance, the “Adopt and Build” approach was rated highest and had shown tangible advantages in comparison to the “Build” and “Buy” approaches.

The IDC Infobrief is the first of two consultative guides commissioned by Backbase to provide pragmatic guidance for banks to evaluate a more effective platform strategy that can drive accelerated and differentiated digital customer engagement.

To download the IDC Infobrief, commissioned by Backbase –  “Accelerating Customer-Centric Transformation by Balancing Build and Buy – A Collaborative Approach Towards Sustainable Digital Banking Architecture,” #AP241480IB June 2023,  click here.