Digital transaction volume in some of the leading banks is approaching 90% of total transactions, fuelled in part by high-frequency, low-value payments. These market demands have brought to the fore the deficiencies in current core technology, particularly when banks have built modern applications on top of legacy systems.

Burdened by inefficient, slower monolithic legacy systems, high costs, and an inability to meet evolving business needs, banks are struggling to keep up. Meanwhile, new digital-only banks in Asia Pacific such as Mox Bank, Trust Bank, and TNEX, among others founded on cloud-native, next-generation cores, are forging ahead.

Adoption of modern technologies

Banks are  increasingly focusing on reassessing and modernising core systems and back-end architecture. Over 50% of banks in Asia Pacific are transitioning to microservices architecture for modular, agile, and open capabilities. The need for scalability is also driving increased cloud adoption.

Core modernisation strategies vary depending on existing systems, the extent of legacy customisation, transformation complexity, and risk appetite. A complete core banking replacement is challenging and risky, but effective in meeting future needs.

Several banks in Southeast Asia, such as BIDV, LienVietPostBank, Vietnam International Bank (VIB), and SME Bank have recently replaced their ageing core banking systems with new systems. Elsewhere, banks such as JP Morgan Chase in the US, and Mashreq Bank in the Middle East are also replacing core systems, while Santander Bank in Europe is moving its core systems to cloud.

Most large banks in Asia Pacific prefer to implement core systems on-premise due to data privacy, security, concentration risk, and regulatory concerns. As banks replace core systems, these institutions must plan for cloud-native capabilities for future scalability, flexibility, growth, and a competitive edge.

For large institutions with deep legacy systems and complex integrations, a complete core banking replacement is more challenging. Some banks prefer to modernise rather than replace by hollowing out the core to create a lean system, reducing processing load and extending operational viability. This approach includes extracting specific large applications such as payments or lending to reduce processing load and enable modern functionalities externally.

Strategies vary, but it is increasingly urgent for banks to rethink core systems and technological foundation as an integral part of their digital transformation projects.