Considerations for Building a New Bank

As digital banking continues to pick up steam across the world, and particularly in South-East Asia, new players will want to enter the field.

Challenger banks will be building from scratch, while established banks will be more focused on migrating to a new banking system that makes it easier to offer digital offerings.

The challenges both sides face are the same in many ways, along with the factors they need to focus on for success.

Here are the most crucial ones.

Deciding on a Type of Banking License

Deciding on a type of banking license essentially influences many elements down the line. There are nuances from region to region, but most new banks fall into two bands: Those with a full banking license and can provide all the traditional banking services, and those with an Electronic Money Institution license, and are only able to store money on devices or servers.

The type of license that works best for any particular bank depends largely on the amount of capital it has, along with the nature and breadth of products it plans to offer.

It can also depend on other factors. For example, Singapore opened digital banking licenses exclusively to companies that had been working in e-commerce and similar spaces for a minimum of three years.

Establishing the MVP and Regulations

The minimum viable product (MVP) refers to, in this case, the features that a new bank absolutely needs to go to market with in order to offer value.

For a new bank, this typically includes:

  • Basic current account or wallet
  • Debit card issuance
  • Payment feature
  • Transaction history, or a ledger

But, beyond this, a new bank also needs products that differentiate it and allow it to present innovative offerings to its market.

And the new bank also needs to juggle timely responses to customer needs with staying compliant with local regulations.

HSG’s  projects with clients across the world demonstrate this. In one instance, with ZA Bank, the first virtual bank in Hong Kong, there was a need to tailor the core architecture to the unique market and local regulations.

The product customization benefits of HiSun Banking Suite (HBS) made it possible to parameterize rich attributes for specific business needs, making it possible to achieve this.

More importantly, the core features for a bank, listed above, are all part of the HSG core banking system, so new banks who adopt it immediately have a sufficient framework for offering value to their markets.

Selecting a Platform

By far, one of the most crucial aspects of any new bank is the platform that supports it.

It’s divided into three categories:

  1. Front-end—the interface offered by the digital bank, what customers see when they log in to the app or the web portal.
  2. Back-end—the core banking system, including customers’ data and all the processes related to back-office functions.
  3. Middleware—also called the API-layer, and it’s what allows the new bank to communicate with third parties, so it can offer integrations and extensions to its services.

A common challenge with new banks in SEA is resolving unforeseen complexity between the back-end and external system integrations.

The HSG Solution Pack, especially the core banking system, allows these three elements to work together seamlessly, ensuring a lean and streamlined process from a business standpoint. In turn, the end-customer benefits from a fluid banking experience.

Project Duration and Implementation Approach

Two closely related aspects that are crucial for new banks are project duration and implementation approach.

For traditional banks migrating to a new core system, implementation will largely depend on considerations that are specific to the bank. That tends to involve the products and integrations that they’ll be porting over, along with the right migration strategy that fits their size and processes.

A new bank’s implementation approach also depends on several considerations. Some of the top ones involve the resources at its disposal, key local regulations, and the bank’s strategy for scaling.

In either case, the bank’s decision has a bearing on project duration.

In HSG, work with new banks that are launching against a tight schedule and risk assessment constraints, there’s been a trend of the agile core banking system being able to efficiently adapt to diverse needs. And that has had positive effects on project duration, including lessening it to meet critical deadlines and allow clients to seize new market opportunities.

Likewise, the rich experience within HSG’s team—spanning over 20 years per member with numerous projects in regions all over the globe—has routinely contributed to deciding on implementation approaches that fit the needs of banks facing all manner of challenges.

New banks face a slew of considerations from the time of conception, all the way through building and up to launch. When not given due attention, these considerations can quickly turn to challenges. But going over them carefully and choosing the right core banking system can be the single most effective stroke for positioning the bank for success.