A Finastra research, conducted by East & Partners, reveals that fintech partnerships are a critical part of APAC banks’ strategies, with 87% – a higher proportion than any other region – planning to connect with an average of four fintechs in the next 12-18 months, and just 12% planning to build their own solutions in-house.
The study also found that the core motivations of APAC respondents to integrate fintech solutions are reducing operational costs (43%), deploying new technology with greater ease (47%), and leveraging technology expertise not available in-house (52%).
Digital transformation remains a priority, with APAC institutions investing an average of US$293.2 million in transformation in 2023, although this is behind the global average of US$367.6 million and substantially less than European banks, which are investing an average of US$886 million.
Over half of APAC respondents (54%) said they have digitalised their customer-facing processes in the last 18 months, which is slightly above the global average of 47% and only second behind Europe (73%).
“In an environment characterized by uncertainty, high inflation, fluctuating interest rates and recessionary risks, banks are under an increasing amount of pressure to drive operational costs down while continuing to improve how they serve their customers,” said Isabel Fernandez, EVP of Lending at Finastra.
Banks are using fintechs to enhance the customer experience – when searching for a new fintech partner to improve their customer offering, APAC banks are prioritising online portals/banking channels (52%), transparency across processes, such as providing the customer with real-time updates on onboarding progress (50%) and improving end-to-end connectivity and value-add services (45%).
Fernandez acknowledged that the survey demonstrates the recognition from banks that they cannot navigate these waters alone.
"They are instead opting to partner with fintechs, with a preference for plugging into a platform of integrated fintech solutions, to help them to adapt quickly while reducing costs. The research also shows that ESG is continuing to expand throughout a bank’s internal operations and external offerings."
Isabel Fernandez
Organisational ESG priorities vary globally – in APAC, the main priorities are securing longer-term funding internally (63%) and ensuring board and management alignment on sustainability initiatives (61%), whereas the top global priorities are reducing banks’ own carbon emissions (49%), followed by board and management alignment on sustainability initiatives (46%).
Appetite for green lending continues to soar – A fifth (20%) of APAC banks plan to increase their exposure to green lending in the next year, but this is set to accelerate quickly with 59% planning to do so in the next 12-18+ months.
"Major inflexion points in recent years have had, and are still having, a dramatic impact on how financial services is evolving,” said East & Partner Global Head of Markets Analysis, Martin Smith. He concluded that this is forcing institutions to reconsider how they manage risk, increase their agility, and fast-track innovation to evolve with new demands.
"We believe that despite the challenges facing global banks, the industry’s focus on collaboration and driving ESG initiatives forward, highlighted by the research, will ultimately have great benefits for financial institutions and their customers, today and in the future,” he added.
