Half of Asian Banks Still Playing Catch-Up in the AI Race
DBS Bank's outgoing CEO has delivered a stark warning to the region's financial sector: only 50% of banks have made sufficient progress in embracing artificial intelligence and digitalisation. As Asia races towards an AI-poweredโฆ future, the lagging institutions risk being left behind by more agile competitors and fintech disruptors.
Piyush Gupta, who transformed Southeast Asia's largest bank during his tenure, believes many financial institutions are approaching digital transformationโฆ backwards. "A lot of people have tried to digitise before they change the fundamentals," he told Bloomberg News. "I call that putting lipstick on a pig."
The Billion-Dollar AI Opportunity
Under Gupta's leadership, DBS has become a global digital banking pioneer, with its market value reaching S$112 billion. The bank expects to generate over S$1 billion from AI initiatives by 2025, demonstrating the tangible returns possible from strategic technology investments.
The numbers tell a compelling story across the broader Asian banking sector. Financial services companies globally invested $35 billion in AI during 2023, with projections suggesting this will nearly triple to $100 billion by 2027. For context on how this transformation is reshaping the region, consider how harnessing generative AI for risk and compliance management is becoming crucial for competitive advantage.
Banks currently dedicate just 7-10% of their technology budgets to AI, but this allocation is expected to surge to 25% by 2026. The urgency is clear: 65% of financial services firms are already actively using AI, up from 45% just one year earlier.
By The Numbers
- Only 50% of banks have made sufficient progress in AI and digitalisation according to DBS leadership
- DBS expects to gain over S$1 billion from AI by 2025
- Banks will increase AI spending from 7-10% to 25% of tech budgets by 2026
- 65% of financial services companies actively use AI, up from 45% year-over-year
- End-to-endโฆ operations account for 60-70% of a bank's cost base where AI can unlock valueโฆ
"The most tangible ROI I'm seeing is in payment operations, specifically authorization optimization and intelligent routing. Agenticโฆ AI systems can now autonomously route transactions to the most optimized payment networks, dynamically adjust retry logic based on real-time issuer signals and make routing decisions under 200-millisecond routing that traditional rule-based systems simply can't match." Dwayne Gefferie, Payments Strategist, Gefferie Group
Cultural Revolution Drives Digital Success
Gupta credits changing DBS's corporate culture as his greatest achievement. The bank has become "a little more entrepreneurial, a little bit more risk-taking, but most of all, it has got a little bit more confidence about what can be achieved." This cultural shift proved essential to the institution's digital transformation success.
The transformation wasn't without challenges. DBS experienced technology glitches and faced penalties from the Monetary Authority of Singapore along the way. However, these setbacks became learning opportunities that strengthened the bank's resilience and capabilities.
"Open source models are fundamentally changing the competitive dynamics in financial AI. The real value capture happens when institutions fine-tune these models on their proprietary transaction data, customer interaction histories and market intelligence, creating AI capabilities that competitors cannot replicate." Helen Yu, CEO, Tigon Advisory Corp
Strategic Foundations Beat Shiny Technology
The banking sector's mixed progress stems from fundamental strategic missteps. Many institutions focus on acquiring cutting-edgeโฆ technology without first establishing clear strategic frameworks or addressing underlying operational inefficiencies.
Successful AI implementation requires several critical elements:
- Clear strategic vision before technology investment
- Cultural transformation to embrace experimentation and calculated risk-taking
- Legacy system modernisation, with annual costs ranging from $55 million to $1.5 billion
- Cross-functional collaboration between technology and business teams
- Regulatory compliance frameworks that support innovation
- Data governance structures that enable AI model training and deployment
The Asia-Pacific banking market, valued at $126 billion, faces significant reshaping as AI adoption moves from experimental pilots to full production deployment. This transition coincides with the growth of instant payments, open finance initiatives, and SME-focused digital services.
| AI Application | Current Usage | 2026 Projection | Primary Benefits |
|---|---|---|---|
| Payment Processing | Basic automation | Intelligent routing | 200ms decision-making |
| Risk Management | Rule-based systems | Predictive analytics | Real-time threat detection |
| Customer Service | Chatbots | Conversational AI | Personalised interactions |
| Loan Processing | Manual review | Automated approval | Instant decision-making |
Regulatory Evolution Enables Innovation
Asian regulators are shifting from restrictive oversight to collaborative enablement. The Monetary Authority of Singapore, Hong Kong's financial authorities, and ASEAN central banks are developing AI risk guidelines whilst facilitating cross-border digital payments and digital asset adoption.
This regulatory evolution supports initiatives like ASEAN cross-border QR payments and enables banks to experiment with unleashing AI's potential through strategic implementation. The collaborative approach helps institutions navigate compliance requirements while pursuing innovation.
Agentic AI and multiagent systems represent the next frontier for Asian banking operations over the coming decade. These technologies will execute complex tasks, optimise workflows, enhance customer service, and reduce operational costs across end-to-end banking processes.
In ASEAN markets specifically, AI budgets will surge to 25% of technology spending by 2026, focusing on automation in SME onboarding, claims management, document processing, and real-time loan approvals. Legacy clearing processes are transitioning to near-instant payment systems, fundamentally changing customer expectations and competitive dynamics.
What percentage of banks have made sufficient AI progress according to DBS?
According to DBS CEO Piyush Gupta, only about 50% of banks have made sufficient progress in embracing digitalisation and AI. The remaining half risk falling behind as AI adoption accelerates across the financial services sector.
How much does DBS expect to gain from AI by 2025?
DBS expects to generate over S$1 billion from AI initiatives by 2025. This projection demonstrates the significant financial returns possible from strategic AI investments when implemented with proper planning and execution.
Why do many banks fail at digital transformation?
Many banks attempt to digitise before changing fundamental processes and culture. This approach, which DBS's CEO calls "putting lipstick on a pig," leads to surface-level changes without addressing underlying operational inefficiencies.
What role does culture play in AI adoption?
Corporate culture is crucial for successful AI implementation. Banks need to foster entrepreneurial thinking, calculated risk-taking, and confidence in achieving ambitious goals. Cultural transformation often determines whether AI initiatives succeed or fail.
How are Asian regulators supporting AI adoption in banking?
Asian regulators are evolving from restrictive oversight to collaborative enablement. They're developing AI risk guidelines, facilitating cross-border digital payments, and enabling digital asset adoption whilst maintaining appropriate oversight and consumer protection.
The future of Asian banking hinges on institutions' willingness to embrace comprehensive transformation rather than superficial technological upgrades. As the three AI markets shaping Asia's future continue evolving, banks must decide whether to lead the revolution or become casualties of it.
Which banks in your market are leading the AI charge, and what specific applications are delivering the most value? Drop your take in the comments below.
Latest Comments (2)
it's interesting that gupta mentions cultural shifts as key for DBS. often, the focus is purely on the tech stack. i wonder how much of that cultural shift involved fostering an understanding of what AI can realistically do, beyond just hype, particularly for non-tech employees. we're seeing similar discussions in NLP adoption for Indic languages-it's not just about the model, but how teams integrate it.
lipstick on a pig" LOL. that's what we tell clients when they want AI solutions without fixing their messy data first. makes our compliance automation almost impossible.
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