Stiff competition combined with regulatory barriers, however, have led to the situation with digital banking services largely struggling to live up to the hype. This is the case even in markets such as Indonesia, where a sizable proportion of the population lacks access to mainstream financial services. In Singapore, regulators were very methodical in determining the level of risk exposure by digital banks as GXS and Maribank were only allowed to accept a maximum of SG$50 million in retail deposits in the first two years of operation. This meant that the digital banks had to be very selective in onboarding customers and caps had to be imposed on the amount of funds a single account could hold. The Monetary Authority of Singapore is gradually relaxing these limits and digital banks are beginning to accept larger deposits, but authorities still emphasize a high degree of caution. Digital banks in Indonesia have also experienced slowing growth in recent years. Allo Bank, a digital bank that has Indonesian eCommerce platform Bukalapak as one of its major shareholders, was only able to grow its loan portfolio by 2.5% in 2023.
It is against this backdrop that we see digital banking infrastructure providers enter the picture. As digital banks backed by deep-pocketed investors and large tech companies strive to race ahead of the pack, many are looking to improve their technology and infrastructure. Recently, Vilja Solutions, a Stockholm-based provider of cloud-based core banking platforms, set up its ASEAN headquarters and development centre in Kuala Lumpur, Malaysia. Vilja subsequently announced its expansion into Vietnam with local partnerships and plans for further initiatives focusing on multi-core banking capabilities and cloud adoption. GXS Bank also announced a partnership with Thoughtworks, a global technology consultancy, to expand its digital presence across the region. Thoughtworks has previously supported engineering teams at GXS Group as they built and launched digital banks in Singapore and Malaysia.
Thus, while digital banks in Southeast Asia have yet to showcase their full potential, what this means is that there is still a lot of upside waiting to be achieved as well as capital that is willing to go the distance to ensure that potential is realized. This will be music to the ears of digital banking infrastructure providers who are adventurous enough to explore the region’s potential and flexible enough to tailor their solutions to address the challenges unique to different Southeast Asian markets.