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Backbase: Banks fail to achieve return on equity with in-house digital infra

A study conducted by the International Data Corp. (IDC) on behalf of Backbase, a provider of engagement banking platforms, has revealed that 80% of organizations in the Asia Pacific (APAC) that invested more than $10 million in developing in-house digital digital engagement platforms have failed to achieve the desired return on equity (ROE).

According to the infobrief jointly published by Backbase and IDC, a market intelligence firm, banks in APAC remain in the early stages of digital transformation even two decades after its initiation. Among mid- to large-sized banks in the region, 65% opted to develop their engagement banking platforms in-house.

The study was participated in by 125 banks and 316 CIOs across APAC, including the Philippines market. The IDC examined various digital transformation approaches, including establishing on-premise digital infrastructure and adopting an adopt-and-build strategy.

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“Building in-house has been a de-facto strategy by banks, but it’s no longer feasible to deliver to the pace and scale that is required to be competitive,”  said Ashish Kakar, Senior Director of Research, APAC of IDC. 

Customer experience

Kakar noted the challenges arising from managing extensive layers of data, channels, features, and upstream and downstream integrations required to support both legacy and modern systems. 

This complexity often leads to a breakdown in in-house implementation, causing disconnects between backend operations and the frontend customer experience, ultimately impacting business outcomes.

“Backend operations suffer due to the lack of intelligent assistance in contact centers, leaving customers repeating information to different service officers due to the absence of a 360-degree unified customer view,” Backbase said. “This is a result of banks focusing on locking in a high amount of resources to get banking platforms into shape instead of prioritizing the creation of differentiated upstream customer journeys and experiences.”

Adopt and Build

The analysis in the IDC Infobrief finds the “Adopt and Build” approach a pragmatic solution for banks to accelerate their go-to-market efforts, differentiating where it matters instead of reinventing the wheel by building from scratch. By adopting a collaborative platform and building upon it, banks can achieve 40% faster time-to-market, where digital engagement banking platforms can be launched within 11 months, as compared to the traditional 20 months with a full “build” approach. In addition, “Adopt and Build” had proven to be 2.3 times more cost-effective than the traditional in-house “build” option.

“In the Philippines, we see the established banks being the first movers in embracing the adopt and build strategy,” said Riddhi Dutta, regional VP, Asia of Backbase. “BPI and BDO are among the top 3 banks by asset size and they have partnered with us to build out digital banking on our Engagement Banking Platform as early as 2016 and 2020, respectively,” 

Across six key metrics market fit and differentiation, legacy risk, build risk, time to market, modernized talent & IT skillset, and regulatory compliance, the “Adopt and Build” approach was rated highest and had shown tangible advantages in comparison to the “Build” and “Buy” approaches. 

“Over 150 modern and forward-looking banks have adopted and built on top of Backbase’s Engagement Banking Platform to accelerate their go-to-market visions and prioritize innovating differentiated digital customer engagement and experiences,” Dutta said. “A true platform comes with all the hygiene requirements from market fit, to security and regulatory compliance, to being versatile and customizable to support each bank’s unique customer needs. The platform is a composable fabric providing modularity and re-usable data and journeys for banks to help banks futureproof at scale.”