Digital strategy for banks to lead the game in neobank era

During the seminar series jointly organised by FPT IS and Temenos last week, nearly 100 participants, including IT centre directors and more than 20 major banks in Hanoi and Ho Chi Minh City, showed great attention towards the trends and strategies in the neobank era, with regards to business and technical optimisation.

Neobanks are fully digital banks on mobile devices – a trend that has been popular and proven successful in various countries around the world – that have started to draw attention in Vietnam and are becoming a key factor for banks’ business strategy.

Speaking at the seminar, Duong Dung Trieu, chairman of FPT IS said, “Neobanks bring about big changes and challenges, reshaping the way banks and financial companies provide services to the market. Currently, the banking industry is getting more and more competitive with the emergence of neobanks, established directly under major banks to approach traditional customer bases, such as Cake, Yolo, and Tnex. Fintech companies increased remarkably in their numbers, up 179 per cent, and revenue (up 77 per cent) in just three years.”

According to Duong Dung Trieu, innovating a business model with impressive methods to approach customers via digital channels is the first core issue that banks need to resolve

Representing the world’s leading open platform for composable banking, Swapnil Deshmukh, regional lead for Infinity Digital Banking at Temenos said, “Neobanks are a demonstration of digital transformation in the finance and banking industry. Customers are more conscious of their spending and financial health. They are also more conscious of climate change than ever. They prefer to bank with an institution that has targets to be carbon neutral or lends to organisations that support green businesses consciously. Also, banks would want to partner with fintechs and provide hyper-personalised experiences for their customers with meaningful products and services. Secondly, digital products, open cooperation with fintech partners, and an ecosystem developed on platforms such as Temenos are strategies to ensure success.”

Describing Temenos' approach in detail, Nicholas Edwards, head of Account Management at APAC Temenos, says: "Whether you are a neobank or an existing bank looking to compete more in the digital space, now more than ever, digital sales are one of the most important fronts for innovation in banking."

Edwards added, "Customers demand convenience in applying for products but it’s also one of the most regulated journeys in our industry. Additionally, the leaders in this space are continually evaluating and improving the customer journeys to reduce points of friction in the process. This requires agility in the digital engagement technologies whilst maintaining stable, packaged core banking systems. Gartner has published a concept called pace layers which supports innovation in complex environments.”

Edwards also says, “Temenos has more experience than any other vendor around the world in building first-class digital sales customer journeys on the digital banking platform, and our experience creates a huge amount of knowledge on how you can acquire more customers. Because the reality is that, if you get this wrong, you will lose that customer in a critical moment of truth."

Mohan Naidu, former director of TATA Consultancy Services and current managing director of FPT UK, shared his experience from the flourishing development of neobanks in the UK.

According to Mohan, until 2025, banks will not develop into something like fintechs or neobanks. But in 5-10 years, they will learn what fintechs can do, such as conduct digital transformation successfully and take advantage of the power of technologies.

Mohan suggests banks in Vietnam should take advantage of the opportunities by embedding fintech services in their operations, developing a richer service ecosystem, and establishing a platform providing banking products as services.

More importantly, there should be a more flexible and adaptable organisational structure, exploiting data in a better way to better understand the customers and deliver suitable products.

Opportunities to lead the game

The emergence of neobanks is seen as a big challenge, but on the other hand, one that offers enormous opportunities for traditional banks.

Representing major banks and fintech companies that are making dynamic developments in the market, leaders of VPBank, OCB, MSB, and Timo discussed their views on digital investment strategies and concerns in the current context.

The speakers all agreed that this is not confrontational but cooperative towards the goal of meeting the needs of the market.

Du Xuan Vu, deputy director of the Retail Division and director of Digital Banking at Orient Commercial JSB (OCB) said, “Neobanks affect the society like COVID-19, which means they will change society dramatically. At first, it seems that there are full of challenges, but actually there are also great opportunities."

Vu also emphasised, “People have the need to meet, while traditional banks have technologies, networks, resources, and institutions as their undeniable advantages. Nonetheless, neobanks are nothing more than a technology, which means traditional banks need to connect their available channels and resources in a better way. In order for traditional banks to thrive together with neobanks and fintechs, we need to optimise what we have, including platforms and assets, not just technologies”.

Mohan suggested, “To lead the game, traditional banks should think a different way and rebuild their technical platforms. Neobanks will not be a threat if traditional banks take their time to observe how they develop products, understand how they think about operations and customers, and digitalise in a better, more effective way and on a larger scale."

Meanwhile, Claude Spiese, senior consultant of Grant Thornton Vietnam said, “Companies like Timo develop the front-end part very well; however, traditional banks still are the pillar of the back-end part."

According to Nguyen Quoc Khanh, CTO at Vietnam Maritime Commercial JSB (MSB): “Neobank can be seen as a fomo phenomenon in securities. In the next 3-5 years, since things are changing very fast, neobanks will become something commonplace and traditional.”

Nguyen Hong Trung, director of Digital Factory at VPBank, the owner of neobank CAKE, asserted, “Neobanks are not just a challenge or an opportunity, but a driving force towards change that helps banks re-evaluate operations entirely based on such a model. But it is not just about the model, it's rather that banks need to specifically determine their development visions, instead of simply following the competitors' ways. Only when assessing the existing conditions, the availability of products, processes, and resources, banks will come up with the correct digital strategy."

Representatives of VPBank, OCB, MSB, and Timo, together with FPT IS and Temenos, discussed their views on digital investment strategies and concerns in the current context

Trieu from FPT IS said, his company had a 25-year journey alongside banks in Vietnam by building core systems and IT systems for a large number of major banks.

Up to now, FPT IS has been driving heavy investments in building a decent technology and business team.

"FPT IS is always ready to offer comprehensive consulting strategies to quick-win solutions including FPT.eSign, FPT.eContract, FPT AI/Chatbot, and RPA to help banks develop perfect customer experiences as fast as possible," Trieu said.

Temenos offers digital banking solutions at more than 1,000 financial services institutions around the world, leveraging its leading cloud-native digital platform, which offers composable banking services that can be configured, customised, and extended by partners or by the banks.

Temenos has strong global and regional experience – in Vietnam, Temenos has nearly 30 years of experience and over 20 clients. Temenos and FPT IS are both committed to delivering effective solutions for banks in the digital race.