Article
Emerging markets have seen a rapid shift to digital banking, accelerated by increasing use of online channels for various transactions and intensified during the COVID-19 pandemic.
However, despite high levels of digital adoption, there is a lag in converting customer interest into actual sales for banks and other financial institutions due to the complexity and cost of traditional transformation.
In an increasingly digital future, banks will need to move fast to close the gap or see customers move to fintech disruptors or faster-moving competitors. New, out-of-the-box solutions could be the answer.
Closing the digital gap
According to a report by McKinsey, 70% of urban banked respondents expressed an openness to using digital channels for services beyond transactions, but only 20-30 % of respondents reported that they have purchased a banking product—for example, a savings account, loan, or credit card—via a mobile app or online. The challenge for banks is that consumer appetite for digital products has raced ahead of their ability to deliver the digital experiences that these customers expect. Legacy banking systems are complex, expensive to change and slow to replace. What’s more, in today’s digital world, change is not a one-and-done activity. The ability to adapt is now a key capability – with consumer preferences, regulatory conditions and economic incentives constantly shifting, banks need to be able to test, launch and revise products on a regular basis to keep up. Banks face the task of rethinking their systems for a world of constant change. This requires a new approach to banking in infrastructure. Enter ‘banking as a service’ – a new model for banking technology. Banking as a service solutions offer a new route forward for banks to compete and scale in the modern digital marketplace. These comprehensive, integrated banking platforms sit as a digital layer on top of legacy systems, providing a range of banking services and functions in a ready-to-use format. Designed to be rapidly deployable, scalable, and customizable, they change the traditional calculations around digital transformation. In this paper, we’ll explore how the competitive and regulatory dynamics of emerging markets are changing the technology needs for banks, and how they can meet these in a rapidly evolving world.
Digital Banking Suite
The Fioneer Digital Banking Suite is the next evolution of our Omnichannel Banking solution. It enables growing banks to provide market-leading digital experiences and expand revenue streams with agility.
Catering for retail, SME and corporate customers, it brings an extensive library of pre-configured functions, with business-level product configuration and AI-based personalization and automation. All of this on a modular, cloud-agnostic and integration-ready platform.
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The challenges and opportunities of digital banking
The digital banking prize is clearly there for the taking, but making the shift
to a fully digital service offering is challenging.
Competitive dynamics
In emerging markets around the world, domestic banks are locked in fierce competitive dynamics, competing for market share and service quality. However, their ability to innovate and compete is largely constrained by existing local infrastructure, as well as compliance with local regulation.
In many regions today, resources are under pressure. Banks face escalating costs due to higher inflation figures and borrowing rates. Higher interest rates affect both the cost of deposits and other funding sources for banks, causing these costs to rise, while the fair value of investments in fixed-rate securities declines with rising interest rates. All of this puts more pressure on transformational projects to deliver rapid, reliable ROI.
In this context, the idea of a full core system change is a hard sell – and the risk of a rip-and-replace is too high.
Rapid demographic development
Emerging markets tend to be highly diverse and prone to rapid government-driven change. For example, Brazil’s Pix payment system is now used by 130 million consumers, while Vietnam has an official policy aiming for 50% of all transactions from banks to be done online, while SME loans can also be completed digitally.
Keeping up with the rapid changes in these markets requires banks to not just digitize, but to build with change in mind.
Instead of a market where banks could revise their service mix once a decade, they are now being forced to adopt new channels and products every year . Without a flexible core system or connectivity layer, this can lead to spiraling costs, slower innovation, culminating in a potential loss of customers and market share.
What do emerging markets need from digital banking?
SMEs are a famously diverse and changeable demographic – these entities face a unique set of challenges, from access to credit to integrating into the digital economy. The challenge for institutions is that technological changes often hit SMEs first, given their reduced cost to change and higher incentive to adapt to changing trends.
Banks serving these SMEs need to be able to adopt innovative strategies and products, while also balancing compliance with domestic regulatory environments and intense competition from both local and global players.
This has led to a different approach to banking technology from emerging markets banks when it comes to transformation. Legacy systems have worked off a ‘one size fits all’ approach, with broad brush functionality and limited flexibility. Any changes to these systems required extensive technical teams to revise and then maintain the functionality to suit customer needs.
Modern solutions are more collaborative, with vendors and banks taking on distinct roles. These platforms focus on providing a foundational technology layer on which banks can then iterate and launch their own services, using their own smaller, more agile development teams, based on the changing needs of their customers and market environment.
Digital Banking Product Brochure
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Key innovation areas for digital delivery
- Digital Onboarding
- Cost Reduction
- Revenue and Retention
- Product Agility
- Ecosystem Banking
Digital-native business audiences increasingly expect not just a digital banking experience, but one tailored to their needs and experiences. This reflects the growing customer preference for digital banking experiences over traditional branch banking.
- For ambitious sales organizations, a digital experience enables banks to expand their customer acquisition and growth strategies to a wider audience, reducing time to onboard and increasing convenience for businesses.
- This requires a platform that can adapt to different customer segments, product types and sales cycles to deliver a personalized experience at each stage.
The shift to digital banking enables a more efficient approach to customer servicing, one that moves away from traditional branch service, significantly reducing operational costs.
- Diverting traffic away from higher-cost branches and reducing the frequency of call center interactions, banks can pass on savings to SME customers through lower fees and better interest rates.
- Managing customers at scale requires a centralized customer insight system that can guarantee a consistent service across all interactions, spreading service among a smaller, data enabled team.
Digital platforms increase the scope for revenue through targeted cross selling and reducing time-to-value for value-add products.
- A key example is business loans – by shortening time to loan for commercial borrowers, banks can raise conversion rates on their most profitable products.
- With more customer data available, banks can offer targeted products and services through digital channels to enhance customer lifetime-value and increase retention.
Emerging market SMEs are subject to rapid developments and require banking services that can keep pace. The right banking platforms should enable faster time-to-market for new products and services with open integration potential and room for innovation.
- When selecting a banking platform, there is a balance between ‘out of the box’ features and future flexibility. While it can be tempting to choose the most feature-rich platform, the long term value of a solution is based on its ability to drive future products and development.
- Banks who choose feature-rich, non-flexible platforms risk being stuck with functionalities that don’t suit their customers and limiting future launches either through long lead times or high cost of development.
Digital banking opens the door to integration with other digital financial services, from insurance to third-party apps.
- Banking data sits at the core of many of these solutions – by engaging with the wider fintech ecosystem through open API platforms, banks can collaborate with fintech companies to offer a broader range of services, from advanced analytics to alternative lending options.
- This requires a platform that integrates easily with new partners, without the need to build a custom API for every new product.
Regional focus
Latin America (LATAM)
Latin America remains one of the globe’s most dynamic and promising regions, with recent currency movements and sound economic policies producing a fertile ground for growth in countries such as Brazil, Mexico and Chile. For LATAM, local banks need to focus on offering robust digital banking solutions that align with the region’s diverse economic landscape and digital transformation trends, especially among younger generations.
- Advanced Payment Systems: Integration with local and regional payment networks to facilitate easy and secure transactions.
- Digital Onboarding and KYC: Simplified customer onboarding processes that comply with local regulations while ensuring a seamless user experience.
- Mobile Banking: A strong focus on mobile banking capabilities to cater to the high mobile penetration in the region.
- Multi-Currency Support: Given the economic volatility in some LATAM countries, banks should offer multi-currency accounts and transactions.
Asia-Pacific and Japan (APJ)
Digital banking is growing rapidly in Asia Pacific and Japan thanks to the young and digitally-savvy populations of the region, as well as the higher numbers of unbanked and underbanked consumers. Accordingly, the emphasis should be on innovation and integration with the rapidly evolving digital ecosystem.
- Digital Wallet Integration: Seamless integration with popular digital wallets and mobile payment systems prevalent in the region.
- E-commerce Partnerships: Collaboration with e-commerce platforms to offer integrated payment and financing solutions.
- Cross-Border Payments: Efficient and cost-effective cross-border payment solutions to support the region’s significant international trade and remittance flows.
- Financial Inclusion Programs: Initiatives aimed at extending banking services to the unbanked and underbanked populations, leveraging technology to reach remote areas.
- SME Support Services: Tailored banking products and services for SMEs, including digital loans and merchant services, to support the region’s vast small and medium-sized enterprise sector.
Customer success stories
Banco Atlantida, Honduras
Banco Atlantida implemented SAP’s digital banking platform to revamp its retail and corporate digital channels. The project improved operational efficiency, time-to-market, and customer experiences. The rollout enabled Banco Atlantida to deliver consistent omnichannel experiences across its regional footprint. By integrating analytics, the bank can now use customer insights to drive personalization, boosting engagement across digital channels.
360°
customer view
across channels
50%
increase in digital
channel logins
Reduced
IT costs by consolidating
systems
VP Bank, Vietnam
VP Bank deployed SAP’s Omnichannel Retail Banking solution to transform its digital capabilities. The implementation took just 6 months, delivering online and mobile banking across web and apps. The project enabled VP Bank to rapidly deliver an end-to-end digital experience, expanding their scope for customer engagement while positioning the bank for future innovation.
3+ million
active users on the
new digital banking platform
50%
increase in customer
activeness on digital channels
Faster
time-to-market for new
innovations like digital wallet
Evolving in a digital world with SAP Fioneer
As global markets and business and consumer needs continue to evolve, banking sits at a crossroads. Embrace evolution, or fall behind the fintechs and tech giants who are taking on an ever larger share of the financial customer relationship. SAP Fioneer Digital Banking suite is a banking software as a service solution designed to give institutions everything they need to compete in a digital first world.
- Built for Business: No-code/low-code configuration allows business users to make amendments at a user level without costly system development, backed up by feature-rich bi-directional communication.
- Workflow Automation: Pre-configured, highly automated workflows for operations like onboarding and KYC to streamline your back-office functionality
- Advanced Segmentation and Personalization: Dynamically tailor experiences, offers, and interfaces for different customer segments.
- Competitive Pricing: Accessibly priced for smaller institutions and challengers, with a robust feature set.
- Multi-entity Support: Manages multiple entities, brands, and business lines within one platform, enhancing organizational consistency and process transparency.
- Scalability and Reliability: Supports thousands of transactions per second with a global and local solution library.
- Core-Banking Agnostic: Compatible with any core banking platform or third-party service with an API-friendly architecture.
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