“audax offers a modular and API-driven platform, empowering banks, FinTechs, and businesses beyond the financial services industry to seamlessly embed banking services into their own products and ecosystems.” – Dewi Rengganis, Senior Industry Analyst

Market Disruption and Market Gaps

Passionate Persistence and Competitive Differentiator

Brand Equity and Customer Ownership Experience

Conclusion

With their established networks and trust, banks are uniquely positioned to bridge this digital divide – but only if they can modernise their technology infrastructure efficiently. The evidence suggests banks achieve optimal results when they focus on their core strengths – financial services and customer relationships – while partnering with specialists for technology infrastructure. This model not only accelerates innovation but also ensures that digital banking services can be deployed cost-effectively across both metropolitan and underserved areas.

The Hidden Cost of Fragmentation

Across Southeast Asia, traditional banks typically operate with a patchwork of systems cobbled together over decades. This fragmentation creates particular challenges in a region where cross-border transactions are commonplace and regulatory requirements vary significantly by country. While metro customers might tolerate system inefficiencies by switching between banking channels, customers in underserved areas often abandon digital banking altogether when faced with complex, unreliable systems. The real cost isn’t just financial – it’s the missed opportunity to serve all market segments effectively.

Beyond APIs: A Unified Approach

The complexity of Southeast Asia’s banking ecosystem demands more than simple API integration. Success in this region requires comprehensive solutions that seamlessly address local regulatory compliance and integration with regional payment systems. Leading platforms combine APIs, SDKs, and integrated channels into one cohesive system, enabling significant reductions in time-to-market and maintenance overhead.

The unified approach enables banks to rapidly deploy scalable services that work efficiently across all markets. Banks can now launch new business models in as little as six months when partnering fintechs offering such end-to-end digital banking platforms, making it economically viable to serve previously underserved markets without compromising on features or security.

Modernisation Without Disruption

Banks face the challenge of transitioning from legacy systems without disrupting operations. Successful strategies may employ parallel implementation, allowing banks to maintain their core systems while gradually modernising their infrastructure. This proves particularly valuable where traditional banking services remain essential while digital adoption grows.

This modernisation imperative extends beyond systems to user experiences. Banks must cater to vastly different user needs and digital literacy levels – from sophisticated mobile-first users to those new to digital banking. Success depends on interfaces that adapt to local constraints like internet connectivity while remaining accessible regardless of technical literacy or location.

Security, Compliance, and Data by Design

Southeast Asia’s regulatory landscape is uniquely complex, with each country maintaining distinct requirements for data localisation, privacy, and security. For example, Singapore’s Personal Data Protection Act (PDPA) allows for implied consent in some cases, while Indonesia’s PDP requires explicit, informed, purpose-specific, and recorded consent. Banks would require assistance to adapt their consent mechanisms to comply with each country’s regulations, potentially offering different consent options based on the user’s location.

Modern banking infrastructure requires embedded compliance controls and continuous monitoring that can adapt to changing compliance mandates across jurisdictions. Effective solutions should incorporate robust analytics capabilities to help banks understand and serve diverse market segments – from transaction patterns to channel preferences.

The Future of Banking Technology in Southeast Asia

Recent innovations in the region demonstrate how unified platforms can help banks serve diverse markets efficiently. Several global banks, including Standard Chartered, have successfully implemented Banking-as-a-Service solutions, proving that traditional institutions can innovate rapidly while maintaining consistent service quality across different market segments.

In Malaysia, Islamic finance has become a cornerstone of the national economy, with Shariah-compliant assets now accounting for almost half of total banking assets. Indonesia, the world’s most populous Muslim-majority country, combines vast scale with a burgeoning fintech sector, creating an ideal environment for Islamic finance to flourish.

But today’s growth isn’t just about size – it’s about speed and adaptability. Islamic financial institutions are increasingly pressed to modernize. Legacy systems, fragmented infrastructure, and the challenge of integrating Shariah principles with digital innovation slow progress. To remain competitive, the sector must leap ahead of these obstacles and embrace tech-driven transformation.

Banking-as-a-Service (BaaS) offers an effective solution. By allowing institutions to offer advanced financial services through API-driven platforms without overhauling legacy systems, BaaS enables seamless and scalable integration of digital banking. With Malaysia and Indonesia leading the way in both technology and finance, the question remains: how will they shape the next phase of Islamic finance?

Malaysia – Leading the Charge in Islamic Finance

BaaS offers a clear path for institutions to modernize while staying true to their roots. It enables organizations like KAF Bank to introduce digital services alongside existing systems, significantly reducing time-to-market without compromising Shariah compliance. These platforms are designed with mobile-first consumers in mind, ensuring convenient, on-the-go access to financial services.

With strong regulatory support, Malaysia is seeing a resurgence in its Islamic finance sector, spurred by strategic frameworks and industry partnerships. For example, Bank Negara Malaysia’s inclusion of Islamic finance in its Financial Sector Blueprint 2022-2026 has further advanced value-based finance. Partnerships like the one between audax and Maybank Islamic are reshaping the industry, demonstrating how tradition and technology can work in harmony.

Thanks to its robust governance, progressive regulations, and the rapid adoption of BaaS, Malaysia is leading the way in digital Islamic finance. Its top ranking in the 2024 IFDI further underscores the country’s role in setting global standards where innovation and tradition thrive side-by-side.

Indonesia – Paving the Way for Financial Inclusion

Indonesia’s fintech scene is brimming with potential, yet it remains fragmented, especially when it comes to Islamic banking. While demand for Shariah-compliant services is on the rise, access remains uneven – particularly in rural and underserved areas, where banking infrastructure is lacking. This gap underscores the limitations of traditional banking models and highlights why scalable BaaS solutions are crucial to bridging Indonesia’s expansive archipelago.

BaaS makes it possible for banks and fintechs to deliver essential services like onboarding, payments, lending, and compliance through seamless APIs, driving rapid innovation. A prime example is audax’s collaboration with Standard Chartered and Bukalapak, which led to the creation of BukaTabungan – a digital banking service that offered savings accounts via a BaaS model. This initiative successfully tripled the bank’s customer base in just six months, with 98% of new customers coming from previously untapped segments.

This model offers a promising path for Islamic finance in Indonesia. By embedding Shariah-compliant services such as digital savings, investments, and zakat payments into everyday apps, BaaS can extend Islamic finance to millions who have been excluded from the formal system. Platforms like LinkAja Syariah are already making this vision a reality, demonstrating that BaaS isn’t just a digital solution – it’s infrastructure for nationwide financial inclusion.

Twin Engines, Unified Vision

While Malaysia and Indonesia are at different stages of development, they share a common goal: to drive the future of digital Islamic finance. Malaysia brings regulatory clarity and depth, while Indonesia offers unmatched scale and digital innovation. Together, these two nations are not just growing Islamic financial assets – they are revolutionizing how Shariah-compliant services are delivered in a digital-first world.

With strong regulatory support, thriving fintech ecosystems, and increasing consumer demand, both countries are poised for even greater innovation. From embedded finance to digital lending and micro-investments, both Malaysia and Indonesia are proving that regulation can drive innovation. Malaysia’s regulatory sandbox and its top IFDI ranking reflect its commitment to aligning technology with Shariah principles, while Indonesia’s FSTI framework does the same, embedding Islamic values into its digital finance strategy.

As both nations move forward, they set a powerful precedent: inclusive, technology-driven Islamic finance is not just possible – it’s already underway. Southeast Asia is no longer merely a growth market – it’s becoming the global benchmark for the future of Islamic finance.

In today’s world, seamless payment transactions for daily essentials like food, transportation, and housing are expected. Yet, some of the most commonly used payment systems appear disconnected,, clunky, rife with technical issues and fraud – rampant in everyday life. In October 2023 alone, 2.5 million transactions were affected by bank outages in Singapore and 810,000 attempts to log in to digital banking accounts failed.

Despite having advanced technology solutions readily available, notable challenges still exist in the financial industry. With customer wants and needs rapidly evolving with technology, how can traditional financial institutions keep up?

Embedded finance is the norm today and Banking-as-a-Service (BaaS) is the antidote to the issues plaguing payments and the broader financial industry. Enabling banks and fintech companies to innovate as they collaborate, which then leads to better and more efficient financial products and services, BaaS simplifies the integration of banking services via the use of APIs, reducing complexity and speeding up the development of new payment solutions. The benefits are both obvious and endless, but we must first understand why it is especially crucial in Singapore’s payments market.

The payment landscape in Singapore can be divided into three categories of key players: banks and financial institutions, payment processors (think Visa or Mastercard, Stripe, Apple Pay, etc.), and fintech firms looking to disrupt the financial services landscape. It features multiple digital payment systems, schemes, and providers that operate independently, leading to complexities for both merchants and end consumers.

PayLah!, PayAnyone, and PayNow have transformed the ability to make purchases, including P2P purchases, without the need for a payment gateway or terminal. Now, everyone with a bank account can be both a merchant and a consumer, reducing the cash transactions seen from yesteryear. User acceptance across these applications is promising.

There is also a huge range of payment providers with their own set of services, fees, and technical requirements that are complex to navigate. Additionally, the existing services can be inefficient, partly due to the significant technical debt accumulated by banks and financial institutions over the years as new features are added and changes are made to accommodate the evolving requirements of users. Technical debt and the lack of resources utilised to play catch up sees legacy systems succumb to outages and inefficiencies.

The BaaS proposition was specifically designed to overcome these challenges. BaaS typically means that banks and financial institutions leverage scalable and modular technology solutions that allow them to expose their services to third party platforms in a seamless manner. On top of that, banks and financial institutions effectively providing BaaS already adhere to industry standards and best practices, especially around security and regulatory requirements that also prevent the introduction of unnecessary complexity or inefficiencies into the system.

BaaS is a one-way ticket to a world where banks work with third party platforms including but not limited to fintechs, to launch new products and services without having to build infrastructure from scratch. This is where innovation happens at speed as we can test new ideas and iterate more rapidly.

On a more practical level, BaaS also enhances security in the financial services industry, as the banks and financial institutions themselves are adopting advanced security measures, compliance with regulatory standards, secure APIs and data protection measures as part of their technology stack.

However, there is still quite a ways to go in terms of the widespread adoption of BaaS as a business model amongst banks and FIs in Singapore. Many banks and financial institutions are yet to fully appreciate the suite of advantages that the business models offers, whilst others are hesitant to do so due to the limitations of their existing solution in catering to the inevitable scale of a BaaS business model.

Addressing these challenges will need a multifaceted approach with regulators, third party ecosystems, payment providers and banks / financial institutions collaborating to create an environment conducive to innovation with ample support for the integration of a easy to deploy and scalable solution with legacy systems.

Singapore’s readiness to be a global leader in fintech is proof of its rapid growth potential. With the government implementing and promoting regulatory sandboxes that allow for fintechs to test products and services in a controlled environment, a revolving door of new fintech solutions to solve even the most complex problems awaits. We’ll also start to see a higher rate of financial inclusion as the use of digital wallets and simplified banking services are more widely adopted.

Overall, the Singapore payments landscape will benefit greatly from an adoption of a BaaS business model by banks and financial institutions – especially in reducing technical debt, significantly increasing agility and offer a solution to scalability without compromising in legacy systems. With the government’s commitment to continuous improvements and fixes, the transformative impact of BaaS on the Singapore payments landscape is poised to be significant, paving the way for a more efficient, secure, and innovative financial ecosystem.

—

This article was first posted on e27.