How Much Does It Cost to Build a Digital Bank in ASEAN?

Profitability is a pressing concern for emerging digital banks in the ASEAN region due to a gloomy economic forecast and a shrinking liquidity pool. Digital banking is still in its early stages in ASEAN, with new digital banks launching or preparing to launch in Singapore, Indonesia, Malaysia, and the Philippines. While reaching the underbanked population is a primary objective, lending has emerged as a potential path to success and profitability, as seen in digital banks outside the region, particularly in Hong Kong.

CEOs of ASEAN digital banks face common obstacles in the current economic environment. One significant challenge is the high cost of establishing a digital bank in the region, despite the absence of traditional banking infrastructure. Constructing a new digital bank in the Asia-Pacific region can cost between US$20 million and US$45 million, with technology and software licenses constituting a substantial 17% of the total build costs.

While ASEAN regulators have made progress in issuing digital banking licenses, acquiring further software-as-a-service (SaaS) and technology licenses can be a stumbling block. Digital entrants need to assess their needs and determine the regulatory compliance and value proposition of each license. They must also consider whether customization is necessary or if the solution can be built in-house given enough time and development resources.

Staff expenses account for the majority of costs at 45%, and effective talent management is crucial for ASEAN digital banks to achieve their objectives and stay competitive. To attract top talent, these banks must establish themselves as appealing employers, utilize technology for optimized recruitment processes, and provide continuous training and development opportunities.

Vendor costs are another critical aspect for ASEAN digital banks, with approximately US$3.5 million to US$7 million allocated to them out of the total costs. While vendors are not typically considered critical infrastructure for traditional banks, they play a significant role in digital banks, from core banking infrastructure to integrating Banking-as-a-Service (BaaS) digital banking services into third-party platforms. Minimizing vendor costs is identified as a key strategy for profitability, alongside developing distinctive propositions and introducing unique product differentiators to deliver personalized customer experiences.

Innovation is emphasized as the key to delivering value in the form of products and services for digital bank customers. Foundational infrastructure must be modular to facilitate quick product testing and launches while ensuring secure data exchange with ecosystem partners. ASEAN digital banks are advised to focus on reducing costs, delivering personalized experiences, and differentiating themselves from traditional financial services and competing digital banks to drive profitability.

Source: fintechnews.sg

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