The silver lining is that even traditional banking/financial services can be digitalized at the back end to cater to old-school customers…

With the number of fintechs in South-east Asia (SEA) expected to double by 2027, the region is poised to become a global and regional hub for financial innovation and services.  

One driving force in this growth is Banking-as-a-Service (BaaS) which is enabling  more convenient, efficient, and relevant banking solutions, according to Mathias Faure, Chief Technology Officer, Audax.

Faure believes that BaaS can bridge the gap between traditional banking (or traditional financial services being retained by digital banks) and the digital present, to improve the quality of life for South-east Asians, among whom over 400m people are still unbanked. He tells DigiconAsia.net readers more about this phase of Industry 4.0 (4IR) — Finance 4.0.

DigiconAsia: How has the financial services landscape evolved alongside the advancement of technology since the start of Industry 4.0 in the mid-2010s?

Mathias Faure (MF): The integration of Industry 4.0 technologies in the financial services industry has led to the latest phase of evolution we call Finance 4.0.

This phase sees financial institutions embrace cutting-edge technologies to enhance customer experiences, improve operational efficiency, and drive innovation. In turn, the increased automation, data-driven decision-making, and interconnected systems through technologies like AI, the Internet of Things (IoT), and quantum computing mean that the finserv sector can offer more personalized customer experiences, streamlined processes, and improved risk management and security through predictive analysis.

Mathias Faure, Chief Technology Officer, Audax

  

Going forward, we expect to see more rapid advancements in these technologies, and a surge of investments from incumbent banks and financial institutions, all of which are driven by the need to stay competitive and to meet the evolving demands of customers in a digital-first world.

DigiconAsia: How can the traditional operations that banks retain amid deep digitalization rewire the legacy services to remain relevant?

MF: To stay competitive, traditional banking services must adopt a two-fold approach.

Firstly, they should leverage economies of scale by adopting comprehensive solutions that address their specific needs. Banks are not tech companies, and attempting to develop all-encompassing tech solutions in-house can be inefficient and costly. Instead, they should collaborate with fintechs to access innovative solutions that provide agility and technological advancements. These partnerships can enhance digital offerings and deliver superior customer experiences, opening new revenue streams and market opportunities.

Secondly, banks need to focus on reducing customer acquisition costs by leveraging digital platforms and partnerships. By embracing open banking initiatives that facilitate data sharing with third-party providers through application programming interfaces (APIs), banks can unlock opportunities for new and innovative products and services. This fosters the development of personalized financial products and solutions, enhancing customer engagement, transparency, and trust.

Through strategic partnerships and digital integration, banks can drive growth and remain at the forefront of modern banking.

DigiconAsia: How are digital-banking tech solution providers and fintechs helping traditional banks empower non-banking entities to offer innovative and customizable products and services?

MF: These solution providers/fintechs areempowering traditional banks to enable non-banking entities by offering innovative and customizable products and services. Most notably, this can be done through white-label solutions that provide the advanced technology and expertise that banks and FIs can integrate into their existing infrastructure without incurring technical debt or churn. 

This partnership model allows non-banking entities to leverage the existing banking infrastructure, compliance, and customer base of traditional banks, enabling them to offer a wide range of innovative financial products and services tailored to their customers’ needs.

DigiconAsia: Do you foresee the gap between “traditional banks” and “natively digital banks” fading into oblivion soon? 

MF: Both types of banks undoubtedly have their unique strengths and weaknesses, and are equally shaped by the environments in which they operate. In digitally advanced cultures, the gap will only continue to narrow.

In markets where we can clearly see a greater disparity between those who are adequately served and those who are already being underserved by traditional financial services, the appeal of fintechs — including neobanks — is understandable. Here, the imperative for traditional banks to innovate is even greater, but the structural support required may be lacking. 

Loyalty to traditional banks may wane over time, especially with newer generations like Generation X becoming more open to switching to digital alternatives that offer better services and convenience. While traditional banks (and the traditional services offered by heavily digitalized banks) may not disappear entirely, their dominance will likely diminish unless they embrace innovation and adapt to the changing landscape. 

DigiconAsia: Are fintechs helping traditional banks and services stay “traditional” a little longer simply delaying the inevitable? Or are there still cyber or other benefits to remaining semi-digitalized for now?

MF: While fintechs are increasingly disrupting the traditional banking industry, there are advantages to traditional banks maintaining a semi-digitalized approach:

  • Traditional banks have a longstanding reputation for stability, trust, and extensive customer reach — this established presence gives them a competitive edge.
  • Coupled with their deep-rooted regulatory knowledge and experience, which is crucial in navigating the complex regulatory landscape of the financial industry, traditional banks can develop compliant and secure digital services, offering customers the convenience of digital banking without compromises in security.
  • Traditional banks (and traditional services retained by digitalized banks) can yet integrate fintech solutions into their operations, to combine the reliability of their existing infrastructure with the agility and innovation of fintechs.

In essence, traditional banks are uniquely positioned to leverage their established reputation and regulatory expertise while integrating fintech solutions to better serve the modern customer. By striking the right balance between tradition and innovation, traditional banks can still embrace digital transformation while staying true to their core values in the digital age.

DigiconAsia thanks Mathias for sharing his professional insights on BaaS.