The 30 Year Reckoning: Why Southeast Asia's Banks Can No Longer Defer Core Banking Modernisation
- Sarah Huang
- Oct 15
- 18 min read
Updated: 2 days ago
Core Banking Modernisation, 15th October 2025, Phisit Sucharitsopit, Bangkok, Thailand
After three decades of deferral, tactical workarounds, and front-end cosmetics, Southeast Asia's banking sector has reached an inflection point. The core banking modernisation and the systems that power the region's financial infrastructure are, on average, more than 20 years old, at least two full technology generations behind the state of the art. According to Boston Consulting Group's June 2025 report, between 90 and 95 percent of banks in the region still operate on aging, on premises mainframe systems that were never designed for the digital first, API driven, real-time world we now inhabit. This is not a theoretical problem. It is a clear and present danger to competitiveness, regulatory compliance, and operational resilience. The recent penalty imposed on DBS Bank by the Monetary Authority of Singapore an additional capital requirement of S$1.6 billion following repeated service disruptions, serves as a stark reminder that the cost of inaction is no longer just opportunity lost, but capital destroyed. This article, written from the perspective of a technology leader with over 25 years of experience at the intersection of finance and enterprise IT, provides a comprehensive analysis of core banking modernisation in Southeast Asia. It examines the 30 year evolution of the region's banking technology, profiles the major Tier 1 bank transformations currently underway, maps the competitive landscape of incumbent vendors versus cloud native challengers, and offers a pragmatic framework for how banks can navigate this critical transition.
The era of tactical avoidance is over. The question is no longer whether to modernise, but how to do so in a way that balances risk, cost, and the imperative for speed. To understand the urgency of the current moment, we must first understand how we arrived here. The evolution of core banking technology in Southeast Asia over the past three decades can be divided into distinct phases, each characterised by different priorities, technologies, and strategic choices.
The 30Year Journey, from mainframes to microservices
The Mainframe Era (1995 – 2005), Building the foundations In the mid1990s, Southeast Asian banks were in the midst of a rapid expansion. The region's economies were booming, middle classes were growing, and the demand for banking services was exploding. The technology of choice was the mainframe centralised, monolithic systems that could handle high transaction volumes with reliability and security. During this period, the major global vendors like Oracle (FLEXCUBE), Temenos (T24), and Infosys (Finacle), all established their dominance in the region. These systems were powerful, but they were also tightly coupled, proprietary, and expensive to customise. Banks invested heavily in tailoring these platforms to meet local regulatory requirements, product structures, and operational workflows. The result was a generation of core banking systems that were highly customised, deeply embedded in the organisation, and extraordinarily difficult to change. The technical debt accumulated during this period would haunt the industry for decades to come.
The Digital Facade (2005 – 2015) Enhancing the Front End As the internet and mobile technologies matured, customer expectations began to shift. Consumers wanted the convenience of online banking, the accessibility of mobile apps, and the personalisation they experienced with leading digital platforms. Banks responded by investing heavily in front-end channels, internet banking, mobile apps, and customer relationship management (CRM) systems. However, these investments were largely cosmetic. The underlying core banking systems remained unchanged. Banks built elaborate middleware layers to bridge the gap between modern digital interfaces and legacy back-end systems. This approach allowed them to deliver a semblance of digital banking without undertaking the risky and expensive work of modernising the core. According to a 2021 BCG survey of 80 banks in Southeast Asia, 88 percent cited improving customer experience and customer journeys as their top digital transformation priority. Core banking modernisation, by contrast, was far down the list. This strategic choice prioritising the visible over the foundational created a dangerous illusion of progress.
The Fintech Wake Up Call (2015 – 2020), Competition Intensifies
The emergence of fintech startups and digital only banks in the mid 2010s fundamentally altered the competitive landscape. Companies like Grab Financial, GoTo Financial, and a wave of licensed digital banks in Singapore, Malaysia, and the Philippines demonstrated that it was possible to build a bank from scratch on modern, cloud native infrastructure and do so in a fraction of the time and cost of traditional institutions. These challengers were not burdened by legacy systems. They could launch new products in weeks, not months. They could scale elastically to meet demand. They could integrate seamlessly with third party ecosystems through APIs. And they could do all of this while maintaining a cost-to-income ratio that traditional banks could only dream of. The incumbent banks took notice. DBS Bank in Singapore began its comprehensive digital transformation in 2014, a multi year effort to re architect its technology stack and become, in the words of its leadership, "a technology company that happens to do banking." Other regional leaders, including OCBC, UOB, Maybank, and CIMB, launched similar initiatives. But even these efforts, while significant, often stopped short of a full core banking replacement. The risk was perceived as too high, the cost too great, and the organisational disruption too severe.
The Modernisation Imperative (2020-Present), No More Excuses The COVID19 pandemic accelerated digital adoption across the region by an estimated five to seven years. Overnight, branches closed, and digital channels became the primary and often only way for customers to interact with their banks. The limitations of legacy systems were laid bare. Banks struggled to scale their infrastructure, launch new digital products, and respond to rapidly changing customer needs. At the same time, regulators began to tighten their expectations for IT resilience. The Monetary Authority of Singapore (MAS) set a new standard in 2023 when it imposed a punitive capital requirement on DBS Bank following two major service disruptions. The regulator increased the bank's operational risk weighted assets by a factor of 1.8, adding approximately S$1.6 billion (US$1.2 billion) in additional capital. The message was clear: IT failures are no longer just operational issues; they are capital events.
In June 2025, Boston Consulting Group released a landmark report declaring core banking modernisation a "critical imperative" for Southeast Asian banks. The report found that 90 to 95 percent of banks in the region still rely on legacy core systems, with an average age of 20 years or more. Only 3 to 5 percent are cloud ready or optimised, and a mere 1 to 2 percent are fully cloud native. The era of deferral is over.
The question is no longer whether to modernise, but how.Why do I think modernisation can no longer wait? The case for core banking modernisation is multi faceted. It is driven by customer expectations, competitive pressure, revenue opportunities, and regulatory mandates. Each of these imperatives is significant on its own; together, they create an overwhelming strategic logic for action.
Today's banking customers have been trained by Amazon, Netflix, and Grab to expect personalised, on demand, frictionless experiences. They want to open an account in minutes, apply for a loan from their phone, and receive instant notifications for every transaction. They expect the bank to know them, anticipate their needs, and offer relevant products at the right moment.
Legacy core banking systems were not designed for this world. They were built for batch processing, not real time transactions. They were optimised for standardised products, not personalised offers. They were architected for stability, not agility.
To meet modern customer expectations, banks need core systems that offer configurability (the ability to create and modify products without custom coding), modularity (the ability to integrate with third party services through APIs), and flexibility (the ability to scale up or down based on demand). Legacy systems offer none of these capabilities.
The Challenger Advantage The rise of digital only banks and fintech platforms has fundamentally changed the competitive dynamics of the industry. These challengers are built on modern, cloud native core banking platforms from vendors like Mambu, Thought Machine, and 10x Banking. They can launch new products in days, not months. They can experiment, iterate, and pivot without the constraints of legacy infrastructure. Traditional banks, by contrast, are hamstrung by their core systems. A PwC survey of over 30 leading Southeast Asian banks found that 59 percent cited legacy core systems as the biggest barrier to digital transformation. This is not just a technology problem; it is a strategic vulnerability. Where do I think the revenue opportunities are? The ecosystem play the future of banking is not just about deposits and loans; it is about embedded finance, open banking, and ecosystem partnerships. Banks that can seamlessly integrate their services into e commerce platforms, ride hailing apps, and digital wallets will capture a disproportionate share of the value in the digital economy. But this requires a fundamentally different technology architecture. Legacy core banking systems are tightly coupled, monolithic platforms that support proprietary integration protocols. They were never designed to be part of a broader ecosystem. Modern, API-first core banking platforms, by contrast, are built for interoperability. They can expose banking services as modular, reusable components that can be consumed by any application, anywhere. The Resilience Mandate Regulators across Southeast Asia are raising the bar for IT resilience, cybersecurity, and operational risk management. The MAS penalty on DBS is just the most visible example of a broader trend. Banks are being held to higher standards, and the consequences of failure both financial and reputational are severe.
Modern core banking systems are designed with resilience in mind. They are built on cloud infrastructure that offers redundancy, failover, and disaster recovery capabilities that are simply not possible with on premises mainframes. They are architected with microservices that isolate failures and prevent cascading outages. And they are instrumented with real time monitoring and observability tools that allow banks to detect and respond to issues before they impact customers.
Incumbents vs. Challengers The core banking software market in Southeast Asia is at a critical juncture. The traditional vendors that have dominated the region for decades are facing an existential challenge from a new generation of cloud native platforms. Understanding this competitive landscape is essential for any bank considering a modernisation initiative.
The Incumbent Titans, Proven but Aging The traditional core banking vendors have deep roots in Southeast Asia. They have been the backbone of the region's financial infrastructure for decades, and they continue to hold the majority of market share.
The Cloud Native Challengers: Built for the Future
A new generation of core banking vendors has emerged over the past decade, built from the ground up for the cloud. These platforms are designed with modern architectural principles microservices, API-first, containerised, and cloud-agnostic. They represent a fundamentally different approach to core banking.
These challengers are gaining traction, particularly with digital only banks and progressive incumbents willing to take the risk of a platform migration. However, they face their own challenges. They lack the deep functional breadth of the incumbents, they have smaller partner ecosystems, and they have limited track records with large-scale, complex implementations.
The providers that have the type of people that know local context, and are engrained within the bank operations today, are those that win, the go to is local knowledge and a niche focus and here's my list, there are a number of regional vendors that have carved out niches in Southeast Asia.
Silverlake Axis, Strong presence in Malaysia and Thailand CIMB and OCBC case studies
OneConnect, backed by Ping An in in with VPBank partnership in Vietnam
Oradian, focused on emerging markets, with proven rapid implementation (3 month transformation for Esquire)
These vendors offer the advantage of local market knowledge, regulatory expertise, and often a more flexible, partnership oriented approach. However, smaller players typically lack the global scale and R&D investment of the larger players.
What about Market Dynamics? Is it a Bifurcated Future? The core banking software market in Asia Pacific is substantial and growing. According to market research, the region accounted for 25.1 percent of the global core banking software market in 2024, with a market size of approximately USD 4.3 billion in 2024 and projected to grow to USD 5.0 billion in 2025. China leads the market, with India and Japan showing robust growth.
The future is likely to be bifurcated. Incumbent vendors will continue to dominate the installed base of large, complex banks that are risk averse and heavily invested in their existing platforms. Cloud native challengers will capture the digital only banks and a subset of progressive incumbents willing to undertake a full platform migration. And regional specialists will serve niche markets and specific geographies. For banks, the choice of vendor is not just a technology decision; it is a strategic one that will shape their competitive position for the next decade.
Tier 1 Bank Transformation, Lessons we learnt from the front lines While the majority of Southeast Asian banks have yet to embark on full core banking modernisation, a handful of Tier 1 institutions have taken the plunge. Their experiences—both successes and struggles—offer valuable lessons for the rest of the industry. DBS is known to be the 'digital transformation pioneer'
DBS Bank is widely regarded as the digital transformation leader in Southeast Asia. The bank began its journey in 2014 with an ambitious goal: to become a "technology company that happens to do banking." This was not just a marketing slogan; it was a fundamental re imagining of the bank's identity and operating model.
The transformation involved a comprehensive overhaul of the bank's technology stack, including a migration from mainframe systems to cloud based infrastructure. In its Hong Kong operations, DBS implemented the Finacle core banking platform, a major undertaking that required the bank to reengineer its processes, retrain its staff, and manage the risks of a large scale system replacement.
The results have been impressive. DBS has become a benchmark for digital banking in the region, winning numerous awards and attracting a new generation of tech-savvy customers. However, the journey has not been without challenges. In 2023, the bank suffered two major service disruptions in quick succession, leading to the MAS penalty. This incident highlighted a critical lesson: digital transformation is not just about adopting new technology; it is about building resilience, redundancy, and operational discipline.
Payments Modernisation as a Stepping Stone
CIMB Bank (Malaysia) Disclaimer: I was a member of the board at CIMB Thailand, leading their Head of Retail transactional banking in my hayday, this opinion is strictly my own. CIMB Bank, one of Malaysia's largest financial institutions, has taken a more incremental approach. In May 2025, the bank announced a partnership with ACI Worldwide to modernise its payments platform. This is a significant step, but it is not a full core banking replacement. CIMB's strategy reflects a pragmatic recognition of the risks and complexities involved in core banking modernisation. By starting with payments, a critical but more contained domain, the bank can build capability, demonstrate value, and reduce risk before tackling the broader core. According to industry reports, CIMB is also engaged in multi year core upgrades and data platform modernisation initiatives. This phased approach is likely to become the norm for many banks in the region.
Maybank & RHB Bank, the long march..
Maybank and RHB Bank, also based in Malaysia, are similarly engaged in multiyear core system upgrade programs. Details of these initiatives are not widely publicised, reflecting the sensitive and complex nature of these projects. What is clear is that these banks are taking a cautious, risk-managed approach. They are not pursuing "big bang" replacements, but rather progressive modernisation strategies that allow them to hollow out legacy systems incrementally while introducing modern capabilities in parallel.
VP Bank (Vietnam) The Greenfield advantage VPBank in Vietnam represents a different model. In September 2025, the bank announced that it had partnered with OneConnect to build a new digital core banking system. This is not a replacement of an existing system, but rather a greenfield implementation to support the bank's digital banking ambitions. This approach offers significant advantages. Without the constraints of a legacy system, VPBank can adopt a modern, cloud native platform from the outset. However, it also requires the bank to build new operational processes, train staff on unfamiliar systems, and manage the integration between the new digital core and its existing infrastructure.
OCBC Bank (Singapore), Super regional challenge
OCBC Bank, another Singaporean giant, has been the subject of case studies by vendors like Silverlake Axis on core banking transformation. As a super- regional bank with operations across multiple countries, OCBC faces the additional complexity of managing different regulatory regimes, customer expectations, and operational models.
The bank's approach has been to standardise where possible while allowing for local customisation where necessary. This is a delicate balance, and one that requires sophisticated governance and a deep understanding of both technology and business.
The Speedboat Strategy, why I think it's a pragmatic path forward
One of the most compelling concepts to emerge from recent industry discussions, including the Money20/20 Middle East conference in October 2025 is the "speedboat strategy." This approach, championed by vendors like Vilja, Tuum and consultancies like Publicis Sapient, offers a pragmatic alternative to the traditional "big bang" core banking replacement.
Vilja, in particular, promotes this model as a practical and low risk path for banks to transition from legacy systems while still accelerating time-to-market. The company’s platform supports the creation of digital first entities that can operate independently yet remain fully integrated with the parent bank’s regulatory, risk, and data frameworks. The speedboat strategy allows banks to innovate quickly while maintaining compliance and business continuity. By launching new customer propositions or product lines on a modern core like Vilja’s, banks can test, scale, and refine digital offerings before rolling them back into their main operations.
The Core Concept, is it a Parallel Innovation? Yes!
The speedboat strategy involves creating a separate digital venture within a traditional bank, built on modern, cloud native infrastructure. This digital entity operates in parallel with the legacy core, serving specific customer segments (such as retail or SME) or specific product lines (such as digital- only accounts or instant lending). The key advantage of this approach is that it allows the bank to innovate rapidly without disrupting its existing operations. The speedboat can leverage the parent bank's brand equity, regulatory licenses, and balance sheet strength, while operating with the agility and speed of a fintech startup.
Is there such a thing as 'The Dual Core Challenge'
However, the speedboat strategy is not without its challenges. Operating two core banking systems in parallel, often referred to as a "dual core" model, can double IT overhead and complicate customer journey management. This is particularly acute in markets like Malaysia and Indonesia, where banks often operate both conventional and Islamic banking operations, each requiring its own core system. The key to making the dual core model work is to have a clear migration path. The speedboat should not be a permanent parallel system, but rather a stepping stone toward eventual consolidation. This requires careful planning, strong governance, and a willingness to make difficult decisions about which customers and products to migrate, and when.
Progressive Modernisation, Hollowing Out the Legacy
Another variant of the speedboat strategy is "progressive modernisation," which involves incrementally replacing components of the legacy core with modern, microservices based alternatives. This approach, advocated by vendors like Tuum, allows banks to de risk the transformation by breaking it into smaller, more manageable phases. For example, a bank might start by replacing its customer onboarding module with a modern, API-driven service. Once that is stable, it might move on to lending, then deposits, then payments, and so on. Over time, the legacy core is "hollowed out," with more and more functionality migrated to the new platform. This approach requires a high degree of technical sophistication and a clear architectural vision. It is not a shortcut, but it does offer a way to manage risk and demonstrate value incrementally.
The Fractional CTO Advantage: Navigating Modernisation with Expert Guidance
For most banks, core banking modernisation is a once-in-a-generation undertaking. It is a complex, high risk, multi year program that requires deep technical expertise, strong program management, and the ability to navigate organisational politics and change resistance.
The challenge is that most banks do not have this expertise in-house. Their IT teams are skilled at maintaining and operating existing systems, but they have limited experience with large-scale platform migrations, cloud native architectures, and modern software engineering practices.
This is where the fractional CTO model becomes invaluable. A fractional CTO—an experienced technology leader who works with the bank on a part time or project basis—can provide the strategic guidance, technical expertise, and execution discipline needed to navigate a core banking modernisation successfully.
What a Fractional CTO Brings
Types of Engagements and how they differ, between involvement and roles.
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The Cost Effectiveness Argument
Hiring a full time CTO or CIO with the expertise needed to lead a core banking modernisation is expensive and difficult. These individuals are in high demand, command premium salaries, and often require long-term commitments that may not align with the bank's needs.
A fractional CTO, by contrast, offers access to top tier expertise without the long term overhead. The bank pays only for the time and expertise it needs, when it needs it. This is particularly valuable in a rapidly evolving space where the bank's needs may change as the program progresses.
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At H&F Advisers, this is the model we champion. Our fractional CTOs, including myself, bring decades of experience at leading financial institutions and a deep understanding of the technical, organisational, and strategic challenges of core banking modernisation. We work alongside our clients' teams, providing the expertise and leadership needed to navigate this critical transition successfully.
The Time to Act is Now The 30 year journey of core banking technology in Southeast Asia has brought us to a critical juncture. The legacy systems that have powered the region's financial infrastructure for decades are no longer fit for purpose. They are expensive to maintain, difficult to change, and incapable of meeting the demands of a digital first, API driven, real-time economy. The data is unequivocal. 90 to 95 percent of banks in Southeast Asia still rely on legacy core systems, with an average age of 20 years or more. The cost of inaction is no longer just opportunity lost; it is capital destroyed, as the MAS penalty on DBS Bank so starkly demonstrates. The good news is that the path forward is becoming clearer. Progressive modernisation, speedboat strategies, and cloud-native platforms offer pragmatic alternatives to the risky "big bang" replacements of the past. The vendor landscape, while complex, offers a range of options to suit different risk appetites, budgets, and strategic priorities. But make no mistake: this is not a journey that can be undertaken lightly. It requires strong leadership, deep technical expertise, and the willingness to make difficult decisions. It requires a clear vision of the target state, a realistic assessment of the risks, and a disciplined approach to execution. For banks that are prepared to act, the rewards, in the form of increased agility, reduced costs, improved customer experiences, and enhanced resilience, will be immense. For those that continue to defer, the consequences will be severe. The 30-year reckoning is here. The time to act is now.
About the Author
Phisit bringing over 25 years of leadership across finance and technology, with deep expertise in core banking systems and enterprise IT. He has held senior positions at top-tier institutions including JPMorgan Chase, Standard Chartered, CIMB Thai, and Citigroup, and serves as an advisor to fintech ventures.
Phisit specialises in helping banks navigate the complex journey of core banking modernisation with clarity, pragmatism, and execution excellence.
Article References / Credits
References
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[3] FF News. (2025, October 8). Banks Embrace Core Banking Modernisation and Speedboat Strategies. Money20/20 Middle East. Retrieved from https://ffnews.com/fintech-tv/event/event-videos-2025/money20-20-middle-east/banks-embrace-core-banking-modernisation-and-speedboat-strategies/
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