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How to modernize an incumbent bank for the digital engagement banking generation

In order to keep up with neobanks and big tech challengers, financial institutions must embrace an agile mindset, focus on long-term viability, stay customer-obsessed, and understand that there is no single “correct” path to modernization.

Riddhi Dutta 150x150 - How to modernize an incumbent bank for the digital engagement banking generation Written by Riddhi Dutta, Regional Head for ASEAN & South Asia at Backbase
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Most traditional banks have had decades to build up their customer bases, implement thorough and rigorous processes, and solidify their market position. These advantages are considerable, and incumbent institutions have used them to dominate the market for years.

But customer expectations are on the move.

COVID-19 has fundamentally changed how consumers conduct their day-to-day banking, accelerating digital adoption rates and reducing time spent in-branch. Some banks now find themselves struggling to keep up with these evolving customer demands.

In order to compete with neobanks and tech challengers, financial institutions must learn to do four key things:

  • Embrace an agile mindset
  • Focus on the long-term viability
  • Stay customer-obsessed
  • Understand that there is no single “correct” path to modernization

Let’s explore each of these to understand what they mean for banks.

Embracing an agile mindset in the engagement banking era

Digital challengers are now in the driver seat of financial innovation, offering new value propositions and superior customer experiences. But that doesn’t mean that traditional banks should aim to fully emulate them. Rather, banks should ask themselves how they can get up to speed faster while retaining their hard-won customer base.

The answer? Agility, in terms of mindset, technologies, and operations.

According to the Backbase Fintech and Banking 2025 IDC report, 50% of tier 1 banks in the Asia-Pacific region have implemented agile frameworks. This allows them to drastically speed up their go-to-market times.

The Bank of the Philippines Island (BPI) is one example of this. BPI was guided by the belief that the future of banking lies in innovating faster than the market’s changing needs. In 2016, the bank’s leadership foresaw the need to develop foundational capabilities that would allow them to quickly respond to market changes. Now, the bank is able to roll out products and services that meet – and exceed – customer demand within weeks, rather than months. This has resulted in huge growth, even during COVID-19, with the bank seeing more than 100% growth in it’s digital customer base.

 

Noel Santiago, Chief Digital Officer at BPI shares how building foundation capabilities helped BPI. Watch the full insights here.

So, how can your bank increase its agility? For one thing, you can stop focusing on point solutions to short-term problems. Instead, ask yourself what problems you can see on the horizon and proactively strive to innovate beyond your bank’s current limitations. If traditional banks can do this, they will start taking large strides towards competing in the same league as challengers.

Want to learn more about shifting to an agile mindset? Speak to one of our consultants.

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Focusing on the long-term viability

What’s more important: the short-term or the long-term? The answer is obvious, but banks still aren’t getting it right.

While discussing long-term vision with senior bankers, one thing becomes clear: many banks are focusing on meeting immediate technological needs, and few look beyond that. As a result, their digital efforts tend to fall short. We’ve seen several banks who initially focus on siloed digital initiatives and eventually have to completely reevaluate their approach, wasting time and money in the process.

 

I shared why banks consider engaging a platform for its long-term plan. Watch the full conversation here.

Look at the example of Tien Phong Commercial Joint Stock Bank (TPBank). They realized it was crucial to find a way to stand out in the hyper-competitive financial landscape. To reach this goal, TPBank started utilizing out-of-the-box widgets and shifted to new architecture, but without affecting operations or causing service disruptions. These efforts have paid off in a huge way: in the Vietnam Awards 2021, TPBank was awarded both “Best Digital Bank” and “Best Process Automation Implementation.”

By moving away from legacy tech and systems, banks stand a far greater chance of establishing strong foundations to succeed in the engagement banking era. In doing so, they focus on their long-term viability, rather than their short-term comfort.

Stay customer-obsessed

Today, instant conveniences are no longer luxuries – they have become expectations. Traditional banks that don’t adapt will often have a hard time keeping up with their hard-won customer base.

In the Backbase 2025 IDC report, we explored the availability of services, fast turnaround times, and empathy as the top three factors in driving customer loyalty. Banks need to take heed and focus on enhancing the capabilities of their banking channels in order to meet these demands.

For instance, Übank, the digital-only bank powered by FE Credit and VPBank, made its app the starting point of every customer journey. The financial institution understood that customer engagement shouldn’t be limited to single transactions. Instead, banks that successfully embed themselves in the customer lifecycle will gain customers that stay with them for a lifetime.

 

Kalidas Ghose, Vice Chairman and CEO of FE Credit and Division Director of ÜBank,talks about being customer-obsessed and the customer lifecycle journey. Watch the full panel session here.

But how can you improve engagement in your financial institution? As we will next explore, there’s no single solution that can modernize your bank. All the examples in the world won’t help if you aren’t attentive to what your customers want and need. Listen to the customer and strive to proactively address their needs. This alone will take you a long way towards becoming customer-obsessed.

No single path to modernization in the digital engagement generation

So, with all these points considered, it’s clear that there is no single “correct” path to future-proof your bank. The new digital engagement era is filled with constant shifts and disruptions. Rather than focus on what the competition is doing better, traditional banks should notice the huge advantage they have: the trust they’ve gained from their loyal customers.

My advice? Truly listen to your customers, understand their needs, and build a value-driven roadmap that not only satisfies their expectations in the short term but which also quickly adapts to market changes in the long run.

Every bank is in a different stage in its digital transformation journey, but consider what your bank will look like in 2030. Don’t like what you see? Then make incremental changes today and see the difference it can make over time.

As a new generation of digitally savvy customers looks for their next financial services provider, it will be the incumbent banks that are able to build strong foundational capabilities and learn to be customer-obsessed that will succeed.

We can help with prioritization of your value-driven roadmap and show where you sit against competitors. Start the Engagement Banking Impact Scan now!

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