Digital Banking Survey 2023: Southeast Asia landscape

survey
  • Publication
  • August 03, 2023

In PwC’s Digital Banking Survey 2023, we elicited viewpoints and perspectives on the most pressing issues and questions around digitalisation for banks across Southeast Asia, highlighting the state of the current playing field through prominent digital banking trends and key areas of focus for digitalisation.

To help our clients gain a better understanding of the playing field, we surveyed more than 30 leading banks across Southeast Asia to understand their approach towards digital banking.

Key survey takeaways

  • Approach to digital banking
    Digital transformation is about more than just revamping technology architecture and infrastructure. There are a number of downstream impacts that need to be considered for banks to successfully design the right strategy to drive their strategic digital transformation agenda.
  • Digital banking growth barriers
    While most banks feel that there is a significant risk of disruption to both existing business as well as business models, a majority of our respondents are actively undergoing transformation to stay relevant and competitive. While it is imperative for banks to accelerate their digital transformation efforts, it is even more important to be cognisant of potential risk and ensure that necessary guardrails are in place to drive implementation and transformation success.
  • Digital bank technology architecture
    Although banks are actively engaging with innovative vendors and cloud technologies, banks need to decouple and modularise their legacy monolithic technology stacks in order to ensure compatibility with newer technologies. Industry leaders should focus on building robust integration capabilities and decoupling business logic away from applications to ensure that applications can be upgraded or replaced with ease.
  • People and skills
    The key skill gaps we observed are those with blurred lines between business acumen and technical depth. In order to effectively bridge the skills gap, it is critical for banks to strike the right balance between upskilling, hiring and engaging third parties, and ensuring they are able to execute on their transformation agenda while keeping their operating costs in check.
Approach to digital banking

1. Approach to digital banking

Drivers of digitalisation in Southeast Asia

The results of our survey indicated that the primary driver for digitalisation among banks in Southeast Asia is to improve the customer banking experience (68%). Respondents indicated the need to increase operational efficiency (56%) across front, middle, and back office functions as the second largest driver, which is indicative of their intent to drive down operational costs. Furthermore, survey respondents indicated that through digitalisation, they hope to reach out to more banked customers (41%). Overall, this suggests that banks, through digitalisation hope to increase profitability by driving up revenue and reducing operational costs.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Enabling financial success through digitalisation

In terms of financial objectives, survey respondents stated that they aim to lower their cost-to-income ratio (74%), their cost of customer acquisition (71%), and achieve top-line growth (68%) through digitalisation. Responses to this question further indicated a desire to increase digital customer engagement and drive higher profitability.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Approaching digitalisation through re-imagined customer engagement

In terms of the approach to digitalisation, a majority of respondents indicated that they had begun to digitalise front-end customer channels (82%). In addition to this, banks also reported that digitising operations (68%) and creating partner ecosystems (68%) were ongoing priorities in their digital transformation approach. These responses reinforce our earlier findings that banks are focusing on customer engagement and delivering strong customer experiences while trying to drive operational efficiency.

Although a majority of banks are looking to drive digital transformation and have a number of ongoing initiatives across their organisations, more than 80% of respondents reported that they have not yet successfully achieved their digitalisation goals, despite over 70% of respondents indicating they have a clear digital strategy.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Key takeaways

Banks are increasing their digital transformation efforts in order to become more profitable. They are looking to drive engagement with their customers, enhance customer experience and improve operational efficiency across front-to-back office functions. However, most banks have not yet achieved their digitalisation goals despite having digital strategies in place, indicating potential gaps between their strategy and execution.

Digital banking growth barriers

2. Digital banking growth barriers

Mitigating against fintech disruption

With the growing number of fintechs in the financial services industry, the majority of respondents anticipate a moderate level of disruption in the near future. More than 65% of our respondents feel there is a moderate to significant risk of disruption by fintech and technology companies in financial services. As players continue to innovate and business models are revamped, it is crucial for banks to stay ahead of the competition and improve customer experience by prioritising digital transformation.

In order to fend off challenges from neobanks and digital banks, survey respondents indicated that they are modernising their technology architecture and infrastructure (50%), and establishing partnerships with fintechs and digital platforms (50%) as their primary means to accelerating digital transformation. Banks are also focusing on driving transformation through digitally revamping operations and driving straight-through-processing (47%). We see a number of respondents engaging actively in transformation initiatives across the board by creating more modular and scalable architectures so they can focus on innovating and driving differentiated product propositions by leveraging cutting-edge vendor applications and partnering with the right platforms.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Outlook for branch banking in the digital era

As consumers become increasingly digitally enabled and self-served, and as digitalisation continues to advance, 48% of surveyed bank respondents expect to see a reduction to their number of branches. That said, 42% of surveyed bank respondents expect no changes to their number of branches. This indicates that even though majority of banks do anticipate that consumers would continue going digital for their banking services, some banks still see the need for a physical presence, suggesting that branches will continue to play a role in the future, albeit a different one.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Implementation failure and cyber threats are key digitalisation deterrents

That said, the results of our survey indicated that the primary concern among respondents regarding digitalisation is the potential risk of ineffective implementation (62%). In addition, respondents also expressed concerns over emerging cyber threats (59%) and developing an appropriate digitalisation strategy (36%). It is important to exercise caution when undertaking transformation initiatives, but equally critical is the need for players to press on with their digital transformation journey.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Key takeaways

While a vast majority of respondents feel there is a significant risk of disruption to existing business models and ways of working, they are cautious about taking the wrong steps. It is crucial for banks to clearly articulate their differentiated customer propositions while building the right strategy and robust governance framework to ensure effective execution of their transformation agenda.

Digital bank technology architecture

3. Digital bank technology architecture

Embracing innovative technology

As part of their digital transformation efforts, banks are increasingly adopting new technologies. Currently, the key areas where banks leverage vendor technologies include onboarding and Electronic Know Your Customer (61%), front end channels (61%) and payments engines (19%). Moving forward, survey responses indicate that most banks are exploring vendor capabilities for Customer Relationship Management (38%), credit decisioning tools (35%), and external data feeds (32%).

Growing cloud adoption

Overall, it appears that banks are making progress in building their cloud capabilities. More than half of surveyed banks (60%) have mature cloud capabilities or are in the process of building their cloud capabilities, while 30% of respondents are in the initial stages of planning and exploring cloud technology. This is a positive indicator in that banks are transitioning applications and workloads to the cloud to drive improved scalability and business resilience.

As part of their digital transformation efforts, banks are increasingly adopting new technologies. Currently, the key areas where banks leverage vendor technologies include onboarding and Electronic Know Your Customer (61%), front end channels (61%) and payments engines (19%). Moving forward, survey responses indicate that most banks are exploring vendor capabilities for Customer Relationship Management (38%), credit decisioning tools (35%), and external data feeds (32%).

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Monolithic core banking applications make digitalisation difficult

While our survey does indicate that banks are exploring building innovative technology stacks, we have also observed a number of constraints that are hindering the digitisation efforts of banks. The primary constraint identified by respondents is the prevalence of legacy core banking applications (59%), which in a number of cases are difficult to be integrated with. Furthermore, we see that although banks have ambitious targets of driving their digital transformation agenda, they face a big skills gap in addressing the execution of their digital agenda.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Key takeaways

To address the inflexibility of monolithic legacy applications, it is imperative for banks to have the necessary enterprise architecture governance frameworks and operating models in place to ensure that their technology landscape is properly managed. The modernization of core systems and infrastructure is a complex and time-consuming process, but it is essential for banks to take an agile approach to meet the evolving needs of their customers while ensuring their employee training programs are aligned towards building necessary skill sets to innovate.

People and skills

4. People and skills

Skill-sets that are lacking

The results of our survey indicated that the top skill gaps faced by respondents' organisations are in the areas of data analytics / data science (67%), business analysis (48%) and enterprise architecture (37%). We see these key skills gaps in areas where there are blurred lines between business and technical skill sets.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Bridging the skill gaps

Although a majority of respondents feel there are significant skills gaps, we find that banks are divided in their approach to bridging this gap. 53% of respondents plan to address their existing skills gap by upskilling, reskilling and relocating, while the remaining 47% will focus on hiring, engaging consultants and outsourcing.

Source: PwC's Digital Banking Survey 2023 - Southeast Asia landscape

Despite the focus on developing the skills of their existing workforce, 52% of survey respondents have also indicated that they are looking to grow their employee headcount in the next 3-5 years, while 29% will retain the proportion of their workforce. This suggests that on top of bridging the skill gaps in their existing workforce, banks still see the need for additional resources and talent to support their digitisation efforts to remain competitive in the market.

Key takeaways

Despite the significant efforts and investment in modernising and transforming their technology landscapes, a large majority of banks expect their headcount to grow or stay at current levels. This indicates that even in 3-5 years, banks will not have unlocked sufficient efficiency gains to reduce their workforce, the largest part of their operating expenditure. Banks will need to strike the right balance between hiring, upskilling and engaging third parties to realise their digital transformation ambitions. It is also crucial for banks to build the right internal skill sets and organisational structure to ensure the ability to meet their transformation goals.

Conclusion

Our digital banking survey recognizes the need for digital transformation to remain competitive and relevant. However, there are several challenges that banks must overcome to successfully implement their digital transformation agenda. It is essential for banks to approach digital transformation holistically, taking into account the downstream impacts that need to be considered for a successful transformation strategy.

One of the main barriers to growth is the potential risk of disruption to both existing businesses and business models. Banks must ensure that necessary guardrails are in place to drive implementation and transformation success while accelerating their digital transformation efforts. Additionally, banks need to decouple and modularize their legacy monolithic technology stacks to ensure compatibility with newer technologies. Industry leaders should focus on building robust integration capabilities and decoupling business logic away from applications to facilitate ease of application upgrades or replacement.

Finally, the survey highlights the critical role of people and skills in the successful execution of digital transformation efforts. Banks need to bridge the skill gaps between business acumen and technical depth by striking the right balance between upskilling, hiring and engaging third parties while keeping their operating costs in check.

Overall, the survey demonstrates that digital transformation is not just about technology, but also about people and processes. Successful digital transformation requires a holistic approach that addresses these challenges to drive transformational success in the digital banking industry.

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John Dovaston

John Dovaston

Financial Services Consulting Leader, South East Asia Consulting, PwC Indonesia

Jonathan Sharp

Jonathan Sharp

Financial Services Strategy and Operations Leader, South East Asia Consulting, PwC Thailand

Andrew Taggart

Andrew Taggart

Clients and Markets Leader, South East Asia Consulting, PwC Singapore

Tel: +65 9734 0662

Mansi Singh

Mansi Singh

Financial Services Strategy and Operations Partner, South East Asia Consulting, PwC Singapore

Rimko Nurral

Rimko Nurral

Financial Services Strategy and Operations Partner, South East Asia Consulting, PwC Indonesia

Neha Mani

Neha Mani

Financial Services Strategy and Operations Director, South East Asia Consulting, PwC Malaysia

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