SINGAPORE (July 11): DBS Bank says its big investments into creating and implementing digital technologies have helped it acquire new customers more cheaply while generating more revenue.
“As we continue to invest, we think that the revenue will more than make up for the investment that we are making,” says CEO Piyush Gupta a media briefing on Monday.
Back in June 2014, the bank announced a S$200 million investment planned on digital technologies over the next three years. This spending is on top of S$600 million or so a year that the bank already spends on keeping its IT systems humming.
Going forward, with an on-going redesign and implementation of newer technologies in favour of existing systems, the bank plans to keep total IT spending at around S$800 million to S$900 million a year, while enjoying better efficiency coming through the bank’s overall cost of operations.
Last year, 53% of the bank’s new consumer customers and 52% of new SME customers were acquired via digital channels. Cost per credit card acquisition via digital channels cost just one third that of traditional channels; cost per account servicing was just 10% versus traditional; costs per international transfer just one-eighth; and cost per local transfer just 5%. On the other hand, customers acquired via digital channels generate higher revenue: 2.2 times for consumers and twice that among SMEs.
DBS Bank was recently recognised by trade publication Euromoney as the World’s Best Digital Bank, beating much bigger institutions BBVA, Citi and ING. In addition, DBS was also one of the three finalists competing for the overall title of World’s Best Bank.
Sadly, that honour went to BNP Baribas, leaving DBS and the other finalist BBVA to rightfully claim to be either the second or third best in the world. “I’m extremely chuffed,” says Gupta. “This award is an award for the future of banking.”
Quick follower
Among some of the new digital technologies which DBS Bank is experimenting with is blockchain. The bank is using it in trade financing with industry partners like Standard Chartered. Down the road, DBS plans to extend the experimentation with banks in other countries, and get on board other key parties like customs authorities on how the transfer of documents and goods across borders can be recognised.
New York-based R3, a high-profile grouping of banks, is jointly developing the protocols of how blockchains will be used. The consortium was started in September 2015 with just nine members like Barclays, BBVA, Goldman Sachs and UBS, but has since grown to 45 members.
Gupta says not in a hurry to join this organisation. He believes that it will take some years before protocols used in blockchain technology will be fully determined and deemed acceptable. Since DBS has no intention to develop its own protocol anyway, it can let the R3 members shape the process and then DBS can be a “quick follower” and get on board at a later stage, he explains.
Gupta believes blockchain, because of its ability to create and maintain distributed ledgers, has “tremendous impact” over the medium to longer term. “It will force societies to rethink this whole notion of the ‘architecture of value’,” he says. Today, key institutions like banks and stock exchanges play the roles of “hubs”. They are surrounded by peripheral players – the “spokes” - who then base their processes on the trust they have put on banks to manage money; and stock exchanges to clear trades and recognise holdings. The roles of these traditional hubs will be undermined by blockchain technology.
Another notable project undertaken by DBS is getting Watson, the learning supercomputer from IBM, to help improve its wealth management capabilities. The tie-up was first announced back in 2014.
Gupta notes that Watson has largely done well, helping make investment recommendations by drawing upon the bank’s research, and then matching it with the clients’ individual profiles.
However, he acknowledges that there are a couple of areas where this computing platform is “a bit short”. For example, for all its much touted language capabilities – Watson became famous when it won the quiz show Jeopardy! – it still can’t quite understand when sentences are constructed in the double-negative. “It’s got to get better trained, learn the universe of how people might speak,” says Gupta.
In addition, Watson can’t quite fully understand graphs and charts – commonly used by analysts to illustrate how they slice and dice the numbers. “The next generation is going to improve some of those things and we can go back and look at that,” he says.
New skills, new benefits
The bank has been engaging various fintech start-ups but unlike other banks, DBS isn’t looking to invest in many of them in the hope that they will be turn out to be the “home run”. The bank will be very selective as and when it decides to invest.
Rather, Gupta says the intention of working with start-ups is to help change the culture within the bank, so that its own staff will be receptive to new ideas and innovations. “I like to say we are now a 22,000-strong start-up. Everyone needs to embrace this digital agenda,” he says.
One such recent example is that of Kasisto, where DBS acquired a 10% stake and is using its artificial intelligence to power its digital bank introduced earlier this year in India. “We are quite focused, we find companies that we think are good to be integrate into our offering, then we will be happy to write a ticket for such a company. We don’t invest for the sake of investing,” he says.
Gupta acknowledges that the growing prevalence of new digital technologies will influence the bank’s hiring, over the next five years, at least.
The Singapore government has in place a scheme called SkillsFuture where it is giving each citizen above 25 years old S$500 a year to be used for training in new skills. DBS is matching its own S$500 into this modest but nonetheless significant pot. “We actively work to retain our people so that we can get them to do different things because the old jobs will not exist,” says Gupta.
With so much done, DBS is still actively looking ahead. Within the realm of data analytics, the bank is experimenting with so-called ‘contextual marketing’.
For example, if a customer likes Chinese food and he happens to be near a partner restaurant of the bank, a message might be sent to offer a dining discount. Or, a customer using his credit card to buy an air ticket might be offered a travel insurance plan.
Such revenue-generating opportunities will require different layers of data and background understanding to be used together within specific context.
“This changes the nature of the interaction with the customer; the customer is more likely to engage when he sees the value benefit, and see the financial benefit,” says Gupta.