Pure-play digibanks here to stay despite banking disruptions and online scams

DIGITAL banking has become too ingrained in daily life for consumers to give it up, even in the face of disruptions and scams. Industry watchers said pure-play digital banks – such as GXS Bank, MariBank and Trust Bank – have little to fear from a growing emphasis on physical options in banking operations.

The increasing frequency of banking disruptions – including a major one at DBS last month that affected both cash transfers and credit card payments – has highlighted the importance of a physical presence.

DBS reopened its branches after hours during its Oct 14 outage to provide assistance to its customers – an option that would not be available to a pure-play digital bank.

The increasing frequency of online scams, meanwhile, has motivated DBS, OCBC and UOB to introduce a “money lock” feature. To be rolled out from next month, the feature will allow customers to mark some funds for withdrawal by physical means only.

Zennon Kapron, managing director of fintech consultancy Kapronasia, does not see too many customers giving up on digital banks though.

Outages affect individual brands more than the concept of a digital bank, Kapron said: “The average individual here in Singapore doesn’t really care about the technology stack. They just want a 100 per cent uptime service.

“If anything, it might make them more interested in digital bank offerings,” he added, noting that the traditional banks tend to have older, antiquated systems that are more fragile.

“Digital banks have what is likely a more robust and stable technology, infrastructure and footprint that would prevent these issues from happening in the first place,” Kapron said.

Dennis Khoo, managing partner of consulting and services provider allDigitalfuture, said the digital banks here are also generally simpler – across products, operations and technology architecture.

With the right design that incorporates redundancy, Khoo said, these digital banks should be able to provide round-the-clock operations.

Coping with service disruptions

Customers of DBS and Citibank on Oct 14 faced issues accessing their banking services because of a contractor error at an Equinix data centre that both banks use.

The Monetary Authority of Singapore noted that both banks were unable to fully recover their systems within the required four-hour timeframe.

DBS’ outage lasted more than 18 hours, and crippled services including the bank’s ATMs, mobile apps and websites. The bank has reported at least six outages since 2021, some of which lasted more than a day.

OCBC and UOB have reported disruptions too. In June last year, a technical issue affected OCBC payments from a couple of hours. And in February last year, users of UOB’s TMRW mobile app were unable to log in for several hours.

The digital banks have not reported any such disruptions.

Responding to queries from The Business Times, a Trust Bank spokesperson said the bank’s platform simultaneously runs off multiple data centres. This decreases the likelihood of a disruption and shortens recovery time, it said.

Rajat Malhotra, chief technology officer at GXS Bank, also said the bank’s technology architecture is designed to contain any disruptions and minimise impact.

Do digital banks really have superior technology? Or could the lack of disruptions have more to do with their short track records and smaller customer bases?

Digital banks also tend not to be the primary banks of their customers, noted Khoo of allDigitalfuture.

So, can customers be persuaded to make a digital bank their primary bank given the recent disruptions?

Forrester senior analyst Liu Meng believes there is a user demographic that is well-acquainted with digital banks and likely to stick with them.

“In reality, the outages may encourage customers to switch their bank accounts to more stable institutions and diversify their banking relationships by opening multiple accounts,” he said.

Service recovery

The digital banks also do not see the absence of physical branches as a disadvantage.

The Trust Bank spokesperson noted that services at a bank’s physical branch are likely to be affected during a system disruption anyway.

“While the branch is a way for customers to contact the bank for other services, it is unlikely to be a way that customers can make payments,” the spokesperson said.

Kapron said digital natives are less likely to be concerned about the lack of physical branches.

“Of course, there are segments of the market that want physical branches because that’s something that they’re very used to and feel comfortable with. But for the younger generations, they tend to be more digital first,” he said.

The average individual might reconsider this viewpoint if a digital bank experiences a technology outage, though. Said Kapron: “Until that happens, it probably won’t be something that crosses a lot of people’s minds.”