The future of banking in Asia is composable

For many years, the West has been at the forefront of shaping the global banking industry, setting standards in terms of scale, growth, business models, and innovation. However, in recent times, Asia's banking sector has witnessed a remarkable transformation, propelled by swift technological progress, evolving consumer demands, and intricate regulatory environments.

The digital payments market in Asia has experienced an astounding annual growth rate exceeding 30 per cent. As banks grapple with the challenges of rapid transformation, the concept of composable banking has surfaced as a promising solution, providing the necessary flexibility, agility, and capability to offer tailored services to diverse customer segments.

Composable banking is a modular open-banking approach that allows banks to select and integrate various services from different providers, creating unique offerings with enhanced flexibility. This is achieved through the use of APIs (Application Programming Interfaces), which facilitate seamless communication and interoperability between these components.

In Asia, composable banking holds relevance due to the region's unique construct:

• Regulatory Fragmentation

Asia consists of multiple countries with varying regulatory frameworks, making it difficult for banks to operate across borders. Composable banking allows institutions to adapt quickly to different regulations by modifying specific components without overhauling entire systems.

• Technological Leapfrogging

Many Asian countries have skipped traditional banking stages and jumped directly to digital solutions. Composable banking enables banks to integrate cutting-edge technologies like AI, blockchain, and mobile payments more easily.

• Consumer Diversity

Asia is home to a wide range of consumer segments with different financial needs and preferences. Composable banking empowers banks to tailor their services to specific customer groups, enhancing personalization and relevance.

Composable Banking in Action

Several banks in Asia have already embraced composable banking, demonstrating its potential. DBS Bank in Singapore has leveraged composable architecture to create a unified customer experience across its various services. By integrating different modules, such as payments, lending, and wealth management, DBS has been able to offer personalized solutions and streamline its operations.

According to a survey conducted by Temenos, which included bank CEOs and senior executives from around the globe, nearly half (47 per cent) of the respondents anticipate that their financial institutions will evolve and adopt business models that go beyond the conventional banking approach. In India, Kotak Mahindra Bank has also implemented a composable banking platform that allows it to quickly launch new products and services. By breaking down its systems into modular components, the bank has been able to improve its time-to-market and respond more effectively to changing customer needs.

These examples showcase how composable banking is already being successfully implemented by forward-thinking institutions across Asia, enabling them to deliver personalized experiences, innovate rapidly, and adapt to the evolving needs of their customers.

Composable Banking and Financial Inclusion

One of the most significant opportunities for composable banking in Asia lies in its potential to promote financial inclusion. Despite rapid economic growth, a large portion of the population in many Asian countries remains unbanked or underbanked. Composable banking can help address this challenge by enabling financial institutions to create low-cost, accessible solutions tailored to the needs of these customer segments.

For example, a bank could integrate a mobile wallet module with a microfinance lending component to offer small loans to unbanked individuals through their smartphones. By leveraging composable architecture, banks can easily partner with local fintechs and social enterprises to develop innovative solutions that reach underserved communities.

The Future is Composable

As the banking industry in Asia continues to evolve, composable banking presents a compelling path forward. By embracing modularity, flexibility, and collaboration, financial institutions can better navigate the region's unique challenges and deliver personalized, inclusive services to their customers.

However, implementing composable banking requires a shift in mindset and a willingness to invest in the necessary technology and partnerships. Banks must prioritize API integration capabilities, collaborate with fintechs, and gradually introduce composable elements into their existing systems.

The benefits of composable banking – from improved agility and innovation to enhanced customer experiences and financial inclusion – make it a strategic imperative for Asian banks. As the region continues to lead the way in digital transformation, those institutions that embrace composability will be best positioned to thrive in the future of banking.