ACROSS the world, customer expectations of banking are shifting rapidly.
What was once a transactional utility has become a primary enabler of lifestyle and business goals.
In this landscape, digital engagement has become the leading indicator of customer acquisition and deposit growth.
This shift has propelled a new generation of digital-first institutions that grow by focusing not only on lending volume, but on building structurally low-cost deposit franchises through account primacy.
This “transaction-led” model is emerging as a sustainable path to profitability as interest margins tighten and competition intensifies.
But what makes these banks successful? And more importantly, how can incumbent banks in Malaysia adapt these lessons to transform sustainably?
Britain’s first digital bank, Starling, serves as a compelling example of the transaction-led model. By doing so, it captured a 9.4% share of the United Kingdom’s small and medium enterprises (SME) and reached profitability while maintaining a conservative loan-to-deposit ratio of about 40%.
High-touch customer service, delivered through highly efficient digital operations, enabled the bank to keep costs low without compromising service quality.
A similar pattern emerged in Vietnam.
Cake by VPBank targeted Gen Z and millennials underserved by traditional banks, differentiating through “brilliant basics” such as instant onboarding and embedded small-ticket financing.
According to a 2024 report in The Digital Banker, Cake acquired five million users and reached profitability in 2024, just three-and-a-half years after launch, supported by an artificial intelligence-driven technology model that enables two-minute onboarding and processes 400,000 credit applications a month.
The modernisation gap
Traditional banks recognise this shift and have invested heavily in digitalisation. However, many struggle to match the efficiency and agility of leaders of modern digital banks.
Three structural constraints often sit at the core:
> Product-centric business structures
Many incumbents remain organised around product lines, such as lending, cards and deposits, rather than customer needs.
This limits their ability to design holistic experiences and respond to new behavioural patterns, particularly those that drive primary account status.
> Fragmented operating models
Teams working in silos, long approval cycles and waterfall delivery approaches slow down the pace of innovation. By the time a new feature reaches the market, it may no longer be relevant.
> Legacy technology environments
Many banks still rely on outdated technology systems that are costly to update and slow to adapt.
Because key customer data sit in these legacy platforms, teams are struggling to access the insights needed to support customer service effectively across the organisation.
The result is a widening modernisation gap, where banks aspire to deliver real time, personalised services, but their underlying architecture and operating models hold them back.
New integrated path: Aligning business, operations and technology
Becoming a “digital bank” is not simply about launching a new app or modernising a single system. True transformation requires deep alignment across:
> Business model
Start with segment-led strategy by identifying clear, underserved segments such as SMEs and mid-market enterprises, and design value propositions around real customer pain points.
Enhance the current service offering by focusing on the day-to-day realities of business owners, for example, integrating accounting and invoice generation within key transaction journeys.
> Operating model
Build operating models for agility by empowering cross-functional teams collaborating across organisations to co-own outcomes.
Front-line staff and back-end support have full visibility into the customer journey, enabling faster resolution and improved customer experience altogether.
> Technology model
Digital banking requires real-time data and modular services that support continuous delivery.
Leading banks update their systems multiple times a day allowing the bank to adapt to market changes instantly.
This shift unlocks scalability and allows banks to deliver world-class experiences for their customers.
The future: From digital adoption to digital advantage
The divide between “digital challengers” and “incumbents” is rapidly narrowing as competition increasingly centres on who can deliver seamless, everyday banking transactions at scale.
As digital banking becomes more deeply embedded in the daily lives of consumers and businesses, long-term success depends on placing transaction execution and constant customer engagement at the core of the business model.
High-quality mobile experiences are now the bare minimum; true differentiation depends on a deeply modernised core, rebuilt on cloud native architectures that enable speed, resilience and continuous innovation.
Without this foundation, institutions remain constrained by ageing infrastructure that drives higher costs and limits their ability to respond to changing customer behaviours.
For institutions willing to modernise with intent, core transformation becomes a powerful growth opportunity.
A cloud-native, transaction-led operating model allows banks to reduce cost-to-serve, drive higher customer satisfaction and loyalty.
This will ultimately secure account primacy and fuel low-cost deposit growth, anchoring sustainable long-term profitability in the digital age.
Ravi Kittane is a partner at Financial Services Technology Consulting, Ernst & Young Consulting Sdn Bhd, and Nick Drewett is the Chief Commercial Officer, Engine, at Ernst & Young Consulting Sdn Bhd. The views expressed here are the writers’ own.
