This article first appeared in Forum, The Edge Malaysia Weekly on August 3, 2026 - August 9, 2026

For most of the past decade, Southeast Asia’s digital banking debate was framed as a contest between digital challengers and incumbent banks. That framing is now too narrow.

The market is entering a phase where customer acquisition is not the primary challenge. App downloads, promotional deposits and faster onboarding create momentum but they do not prove that digital banks can underwrite profitably, retain customers once incentives fall or turn artificial intelligence (AI) into a durable source of earnings.

The next competitive frontier will be fought around three capabilities: scaling lending without importing credit losses; embedding financial services into everyday customer journeys; and using AI with data, governance and the operating discipline required in regulated banking.

Early digital banking in Southeast Asia was an access story: broadening reach, lowering onboarding friction and testing new propositions. Those remain important but access is no longer enough.

Malaysia illustrates both progress and challenges ahead. By end-2025, all five licensed digital banks were operational, collectively serving 2.4 million customers and holding RM4.2 billion in deposits. Bank Negara Malaysia reported that about 65% of these customers came from unserved or underserved segments.

These are meaningful numbers illustrating that customers will try digital-first banking when the proposition is clear. Yet, investors are asking four fundamental questions: Will deposits stay when rates normalise? Can credit withstand a full cycle? Are acquisition costs lower than lifetime value? Can digital banks scale profitably? This is where platform banks have an advantage. Banking is not always a destination product. For many consumers and businesses, finance is contextual. The institution closest to key financial moments is more likely to earn engagement, trust and long-term relevance.

Thailand’s virtual bank approvals point in this direction. In June 2025, the Bank of Thailand announced three successful applicants, including the consortium of Krungthai Bank, Advanced Info Service and PTT Oil and Retail Business, which is behind CLICX. This is not a pure fintech wrapper around a banking licence but rather a consolidated solution across three networks.

Indonesia further highlights the power of ecosystem banking. By integrating Superbank into its broader platform, Grab has transformed banking from a standalone offering into an embedded service. The combination of scale, customer engagement and transaction data strengthens both distribution and underwriting, helping drive Superbank to profitability in FY2025.

That is the strategic point. Platform ownership can create a reinforcing loop: increased customer interactions generate richer behavioural data; richer data improves risk selection and product timing; better products deepen engagement; and deeper engagement lowers the cost of distribution. Standalone digital banks can win but they must work harder to create the same frequency of interaction.

Technology alone is not sufficient. Cloud-native cores, e-KYC, digital onboarding, analytics tools and increasingly capable AI models are becoming available across the industry. What is scarce is not the model itself but permissioned data, daily relevance, balance-sheet capacity, model-risk discipline and the ability to act on insights inside the business.

The institutions that succeed in this next phase of digital banking will not necessarily be those that deploy AI fastest but those capable of integrating ecosystem data, distribution capabilities and AI-enabled decision-making into scalable operating models.

Recent banking transformation programmes have consistently demonstrated that technology investments create value only when embedded within operating models, workflows and decision-making processes. The value of AI is unlikely to be realised through deployment alone. Instead, it emerges when organisations use it to improve credit underwriting, strengthen customer engagement, accelerate product development and enhance operational efficiency.

This creates banking models that are both more resilient and more scalable than those built primarily around digital customer acquisition.

Initiatives such as Malaysia’s Islamic AI framework further reinforce this direction, suggesting that future banking competition may be less about who deploys AI first and more about who can combine AI with trusted data ecosystems, robust governance frameworks and enduring customer relationships.

The next generation of banking leaders will be defined by its ability to monetise customer context through AI while maintaining the trust, regulatory alignment and ecosystem access required to operate at scale.

First, make lending a proof point. Digital banks need clear target segments, disciplined risk appetite, alternative-data rules and collection models built before aggressive credit growth begins.

Second, build a consented data architecture rather than a data swamp. Platform banks must show that customer data is permissioned, explainable, secure and usable across business units without breaching privacy or regulatory expectations. The advantage is not simply owning more data; it is knowing which data improves decisions and being able to prove it.

Third, embed finance at points of need. The next generation of digital banking will be more about making finance available when a transaction, risk or opportunity appears. That may mean merchant working-capital offers inside a commerce platform, device financing inside a telco journey or micro protection attached to mobility and delivery activity.

Fourth, AI must be connected to decision rights, frontline workflows, credit policy, model monitoring and customer accountability. Otherwise, it becomes another technology layer that produces insight but not earnings.

The emerging divide in Southeast Asian banking is no longer simply between digital banks and incumbents. It is between institutions that operate as standalone providers and those that can combine banking capability with distribution, customer context, data governance and trusted relationships.

Wendell Tan is a principal at Arthur D Little’s Financial Services practice

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