Benefits of ‘multicore’ approach in banks’ digital transformation

PETALING JAYA: While Southeast Asian banks understand the value of digital core banking, they view digital transformation as high risk, and are seeking a lower-risk approach in order to extend the life of their legacy technology and mitigate potential damage, according to new research from IDC Financial Insights, published in its white paper, “Leveraging Digital Core Banking Systems: Next-Level Banking, January 2022”.

The new IDC white paper, sponsored by SaaS cloud banking platform Mambu, features data gleaned from interviews with a number of Southeast Asian banking executives focusing on how they view the future of core banking within their organisations, and how they plan to capitalise on the opportunities that digital banking can deliver.

The report found that the key challenge for established banks in Southeast Asia, many of which have core banking systems that are more than 20 years old, is to deliver on the promise of digital transformation without exhausting their financial resources or risking their reputation. A solution to this conundrum is what IDC has dubbed the “multicore” banking model, which enables banks to adopt digital core banking incrementally over time, with vastly reduced financial, technical, and reputational risks.

IDC Financial Insights adjunct CIO Steve Shipley said its research for this white paper identified several recurring themes from interviewees, most notably how risk averse Southeast Asian banks are, and how much they value the ongoing role of legacy core banking technology.

“However, banks in the Asia-Pacific (Apac) region are also embracing digital transformation, using a new banking model – multicore – which can enable effective and lower-risk transformation into future-ready digital banks,” he said in a statement in Singapore yesterday.

Mambu managing director Apac Myles Bertrand said, historically, integrating multiple core banking systems have been considered much too expensive and far too difficult, so banks would attempt “big bang”, or “rip-and-replace” core banking projects even though they were highly risky and often failed. But in today’s market, digital core banking based on strong frameworks for orchestration, microservices, and APIs can now enable easier connection of multiple core systems, reducing the risk of replacing legacy core and extending its value longer term.

Shipley said: “The multicore model values the role of legacy core banking into the future – whether that’s just for a few months or years, or even as long as another decade. However, it’s important to stress that, even with this multicore approach, plans do need to be in place for an eventual migration from legacy to fully digital core.”

Bertrand noted: “Banks used to be built to last, but now they need to be built for change. With open banking, new technologies and changing regulations, it is now easier than ever for consumers to switch banking providers, making the customer experience the most important factor in any banks’ offerings. Without embracing digital banking technologies, incumbent banks just won’t be able to compete with digital banks that can offer the hyper-personalised and customer-centric experiences that their customers now expect.”