Collaboration Will Make or Break Challenger Banks

From the rise of disruptive challenger banks like China’s WeBank, Timo in Vietnam and YouTrip in Singapore, to the new digital banking licenses announced by Hong Kong and Singapore this year, Asia’s banking landscape is evolving apace.

Many of the new players are focusing on niche areas. Indeed, this is their initial strength. But the test will be whether they can also extend themselves and build a sustainable and profitable collection of solutions. To do this, new banks will need to make their offerings on a digital platform that gives them the agility to evolve, collaborate, and diversify their services over time.

In the banking business model of the future, an ecosystem of easy-to-access financial products will be built out of complementary services from adjacent markets, such as e-commerce – bundled in various ways on proprietary and partner platforms.

The ideal challenger bank scenario is to connect to both producers and consumers in two ways: first, through banking-as-a-service (developing via APIs so services can be adopted by external third parties); and second, by integrating banking services into other apps. With the ability of big technology companies to enter the banking sector, challenger banks must consider how to adopt cloud, mobile, and APIs to deliver ultra-competitive offerings.

Be API-rich and Cloud-ready

While API-enabled architecture will give challenger banks the capacity to rapidly design, launch, service, and scale a modern banking portfolio, it is essential to ensure the breadth and depth of the APIs

available. Rich and broad API offerings indicate a strategy of building one core product while drawing on a platform to provide a more complete suite of services from external providers. Ensuring the core

system is cloud-based or cloud-ready is also a driver for growth at scale, along with easy diversification of product offerings and the assurance of ongoing software and security updates.

This comes at a time when open APIs are increasingly being adopted across the banking industry in Asia. Singapore is often considered the pace-setter for harnessing APIs in data monetization, primarily owing to the maturity of its open API and data infrastructure. Meanwhile, in Hong Kong, the 20 retail banks participating in the HKMA’s Open API Framework - which have made over 500 Open APIs available since January 2019 - were set to launch Phase II by the end of October. Known as 'Customer Acquisition,' Phase II is when the participating banks can process applications for banking products and services, allowing online submissions and application of credit cards, loans, or other bank products. This date is also when fintechs can onboard customers using data that exists on bank records.

Earlier in the year, Jetco launched Hong Kong’s first Open API exchange platform. This provided access to over 200 APIs from 13 banks and connected banks to third-party service providers and app developers under a single platform, enabling them to collaborate and co-develop new products and services.

The Real Challenge

A common misconception of what challenger bank technology should look like is that it must be cutting-edge. While it’s popular to think that solutions need to be progressive, there should be a balance between going all-in with the latest innovations and selecting solutions with deep domain capabilities.

A challenger bank should see itself as a technology company with a banking license. The real challenge is to build and enable an agile, future-proof business. So, core banking systems for challenger banks need to be collaborative and open by nature. As well as offering a rapid route to market and growth, they should provide speed and efficiency, streamlined processes, modern, lean architecture, and the adaptability to be tailored around specific use cases.

Any end-to-end core banking solution for a challenger bank should have several key attributes as hygiene factors: high straight-through-processing levels, frictionless processing, workflow-driven development, scalability, and seamless maintenance and servicing. To take it to the next level, the solution also needs to be open and adaptable, operating a digital stack that is real-time and vertically integrated. This will enable the provision of the right services over the right channel at the right time.

Future Success

Once the usurpers, competition is mounting for challenger banks.  Non-bank players like Uber – which this week announced the launch of its Uber Money division – are seeking to take market share in areas like loans and payments, while challenger banks’ own success has led to many incumbent banks stepping up their digital game to counter the threat.

Adopting a collaborative platform for open innovation will help future-proof challenger banks. Flexibility and control, as well as the ability to efficiently integrate with a range of third parties, will result in a lower total cost of ownership as banks will be able to out-innovate their competition with a constant expansion of financial products and services. Building in the readiness and speed to deliver third-party applications through open platform architecture will be crucial for the new breed of disruptor challenger banks emerging in Asia.

Martin Haering, chief marketing officer, Finastra, wrote this article.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CDOTrends.