To keep you in the loop on what has transpired in the space before we begin, here are a few of our previous digital finance insight pieces:

• • A SEA of Transformation: Southeast Asia’s Digital Banking Landscape

• • Cloud-native Cores and Digital Banking Revolution

• • Neobanks’ New Normal: Dissecting the Failures and Setback

As the demand for secure digital experiences in financial services grew, financial institutions navigated through collaborative, regulatory, and product innovation efforts to bridge the gaps and solve consumer pain points across several areas:

Latching on to the Modern Infrastructure

Digitisation has driven ecosystem players to adopt advanced technology and upgrade their existing tech stacks. Several incumbents are collaborating with modern core banking providers to modernise their tech stack to create, test, and deliver engaging and customer-centric solutions on a large scale. Digital-first neobanks are actively forging alliances with infrastructure players such as payments & payroll firms, data cloud providers, and cloud-native core banking players. The rise of open banking is further catalysing infrastructure modernisation through access to open data.

Diversifying Product Portfolio

In 2022, digital banks found themselves stuck between unprofitable business models and nosediving valuations. In order to get closer to breaking even, several digital banks launched new products such as BNPL, mortgages, investments, insurance, and crypto to unlock new revenue streams and grow cross-sell and up-sell scenarios. Digital banks also expanded their focus to serve SMBs with innovative financial services and launched marketplaces and super-app propositions to become a one-stop shop for customers’ financial needs.

Regulatory Trends

Many regulatory authorities introduced new guidelines to support the acceleration of digital transformation and bring forth niche products that offer superior user experiences. Across Southeast Asia, the Monetary Authority of Singapore granted a Capital Market service licence to Wise, while Malaysia and the Philippines were observed to award multiple digital banking licences. SoFi received regulatory approval for Bank Charter in the US from Federal Reserve and OCC, and the EU regulation landscape was primarily focused on providing e-money licences. Regulators realised the growing importance of licenced tech-enabled entities that not only moderate the cost-to-serve but also provide value-added benefits integrating services like payroll, accounts receivables, accounts payables management, tax compliance, and other SaaS-based services.

Despite the advancements and future potential in the digital finance industry, the economic backdrop in the second half of 2022 was challenging for digital banking startups in the space. With funding becoming scarce and market crises unfolding across different markets, the overall atmosphere was pretty gloomy. Digital banks, in particular, faced scrutiny around areas of business sustainability amidst news of emerging players shutting down due to various reasons.

The spirit that remained unwavering was the commitment to keep trying and uncovering avenues for business growth. An increase in pivots and consolidation might not be such a surprising thing in the new year. What that also means is more activity and nail-biting events for us to analyse, as the digital banking sector stands at an inflexion point in its quest to ​​revolutionise the way that people manage their finances.