Why APAC banks must rethink their approach to the cost reduction challenge

APAC's fintech market is set to reach $304.55b by 2030, up from $144.87b today.

How can Asia-Pacific bank CEOs reduce costs whilst also meeting their innovation and growth goals against a backdrop of fierce macroeconomic headwinds? 

Cost optimisation initiatives too often fail to deliver tangible results and merely shift costs and inefficiencies elsewhere within the enterprise. To achieve lasting cost transformation, APAC banks must embrace three critical changes – a strategic mindset shift, a reassessment of their key levers for change, and a sharper focus on operational discipline.

A strategic mindset shift
With APAC’s banking landscape already seeing disruption from an ever-expanding fintech market– forecast to reach $304.55b by 2030, up from $144.87b today–a profound reshaping of the banking landscape is underway, driven by digitalisation, integration of artificial intelligence (AI), and cloud adoption, amongst other factors. Clearly, the stakes are only getting higher.

It won’t be enough to reduce the costs of existing operational models and tech stacks. Given the pace of banking market evolution, there needs to be a shift away from focusing solely on short-term results, and towards cost optimisation programmes that support innovation, business growth, and scalability.

Harnessing key levers
The latest AI technologies are quickly becoming embedded across financial services, with measurable benefits already evident in areas including regulatory compliance, customer service, accelerated software development, the modernisation of legacy systems, and enhanced internal knowledge management. 

However, it is key to resist viewing AI simply as a tool to achieve short-term FTE savings. Instead, banks should see it as a strategic enabler that also helps to improve productivity, innovation and client experiences.

Scaling AI implementations is vital to extracting long-term value from the technology, but that requires robust foundations to be in place. This may mean making an initial investment in simplifying and standardising processes to prepare the way for more complex agentic solutions.

Banks will also need to develop clear frameworks and governance to define when, where, and how AI and automation tools should operate. These should include an automation and AI tool selection framework, to help the bank choose the right AI approach and help it re-use the same fit-for-purpose tooling across many use cases to increase ROI.

In addition to adopting AI tooling in the right way, banks can develop a ‘scalability index’. Accurately evaluating whether products and markets have the potential to scale successfully allows costs to be controlled sustainably and encourages targeted investment in areas that can deliver sustainable growth. It will also help make sure the bank’s focus is on long-term viability rather than short-term results.

Continuous discipline in operations 
Banks need to build sustainable cost reduction into their operations by strengthening key dimensions such as offshoring, data management, vendors, and cost-to-serve analysis. 

Whilst offshoring is a well-established route to addressing operations cost challenges, such initiatives are too often undermined by a lack of investment in technology, processes and organisational efficiency. However, as regional hubs in the Philippines, Malaysia, and India continue to mature, there is a real opportunity to elevate them to become true Centres of Excellence. 

Banks that apply a principles-based approach to scrutinise onshore activities, whilst also empowering off-shore leadership, often find they can pare back their onshore operations by an additional 10% to 20%. 

In some cases, implementing a hybrid operating model, leveraging onshore, offshore, nearshore and remote capabilities, can prove to be the most effective strategy. The success of this strategy will rely on understanding the client’s tech infrastructure, level of digitalisation, and organisational flexibility to tailor the model accordingly.

Cost reduction should not be about isolated cost cutting but rather improving underlying cost architectures, whether relating to vendors, client servicing, or data. 

Data is today a key strategic asset for banks, but as its importance grows so do the associated costs. Banks should look to rationalise the data lifecycle. As part of a revised strategy, AI tools can be applied to optimize data governance costs and banks can rationalise data controls and shift towards self-service. 

Enhancing data quality can reduce the costs arising from poor-quality data such as remediation efforts and fines. 

Moreover, by accurately measuring the true cost of data sourcing, management and reporting, banks can ensure cost control across the data lifecycle. 

External vendors are often the first focus for many banks when cutting costs. However, focusing purely on price can lead to an erosion in quality and inflate the cost of poor delivery. 

Banks should instead consider the total value of the relationship, assessing factors such as resource quality, delivery or time to onboard. If vendor incentives are closely aligned to the bank's strategic goals – whether these are improved customer service or accelerated timeframes – vendors are more likely to focus on delivering outcomes that drive the bank’s long-term performance and success. 

Switching the focus to customers, cost-to-serve can be an obfuscated and hence difficult cost to address. When it comes to generating revenue and building strong, lasting relationships, bespoke products that are tailored to a customer’s specific preferences and requirements are a powerful tool. At the same time, it is key to maintain the right balance of customer benefits versus long-term bank costs. 

This is best achieved by carefully allocating underlying costs such as technology change requests and bespoke report production and using the results to inform the use of key cost-reduction tactics. These include introducing additional servicing tiers and charges, encouraging clients to use self-service solutions, and integrating them into more standardised core offerings – with customisation applied only where it drives meaningful customer impact. 

Conclusion
To thrive in today’s digitalised, heavily regulated and ever more competitive landscape, APAC banks must focus on initiatives that deliver lasting and measurable cost transformation.

Those that embed sustainable cost discipline will not only increase operational efficiency but also unlock resources to invest in innovation – positioning themselves for future growth.