Majority of Asian banks running archaic core banking tech: study

Outdated systems increase banks' cost-to-income ratio.

An overwhelming 95% of Asian banks are running on outmoded core banking technology, resulting in delays in innovation and rising costs, according to a study by cloud tech firm Thought Machine.

With the average age of core banking technology in Asia at 20 or more years, the imposed technology gap for infrastructure is increasing banks’ cost-to-income (C/I) ratios by 3-5%. Limited ability to automate processes and decisioning adds another 4-7% to the C/I ratio.

Lenders that are not ready to migrate to fourth-generation organic digital core technologies are at risk of not meeting their digitalisation goals and are left vulnerable to acquisition by more digitally advanced banks in the next two to four years, the report said.

Newly-replaced core systems, resource constraints, and an assumption that digitalisation is fulfilled by the adoption of internet and mobile banking appear to be the major reasons why banks are hesitant to upgrade their infrastructure. But whilst many are still hesitating, several mid-sized banks are quick in adopting fourth-generation core banking systems, the report said.

Acceleration in digital transformation, opportunities to monetise IT assets, partnerships with challenger banks and fintechs, cost effectiveness of migrating to organic digital core platforms and risk of acquisition are the key drivers for banks across the region to replace their core banking solutions.