To challenger banks, an incumbent poses S$2 million question

Singapore

THE question behind the worth of a challenger bank may come down to this: would you put two million dollars in a challenger bank?

So asked Jimmy Ng, the incoming head of group technology and operations at DBS. Mr Ng, who spoke to BT before the announcement of the digital banking licence, said the latest licensing framework will put these challenger banks on a similar playing field as the incumbents, particularly in handling regulatory burden.

"They are going to be regulated... let's compete," said Mr Ng, who will in a few months' time, head the group, as current group head of technology and operations David Gledhill leaves the bank. Mr Ng is now the deputy head of the unit.

"I think we have a great platform. We have been banking for a long time and we will be able to hold ourselves up against these players."

To be sure, the digital banking licences to be issued by Singapore will limit deposit-taking at the start. Still, the competitive landscape is being redrawn.

But banks are going to win in the area of data analytics, as the fintechs still do not hold enough data on customers, said Mr Ng. Banks are also highly regulated in terms of keeping customer data safe.

The Big Techs such as Alibaba, Google and Amazon are kings in the data space. With that, DBS has been shifting towards operating more like a platform company, by cutting silos across divisions. The bank has designed its balanced scorecard so staff can focus on working like a platform firm, with business units and the IT department jointly responsible for certain outcomes to drive this ambition.

In fact, DBS may be an outlier in this regard. Mr Ng was speaking to BT on the sidelines at a recent conference held by Workday, which sells enterprise technology. Workday launched a study showing that 60 per cent of C-level executives in Singapore think their digital transformation projects are failing due to company silos. The survey further showed that 76 per cent of C-level executives say their organisation has yet to achieve any major return on investment (ROI) improvements in digital transformation.

Rob Wells, president of Workday Asia, said the results may run counter to Singapore's emergence as a Smart Nation, noting that digital transformation must happen at the enterprise level and be cross-functional in nature to succeed. "The right and effective technology can help business leaders to disassemble information silos, and reimagine the business in a way that allows an organisation to stay competitive in a disrupt-or-be-disrupted world," he said.

On the flip side, the confidence from DBS comes as the bank had, in fact, embarked on a 10-year journey that was started "free from" an ROI discussion but that focused on the strategic needs of the bank, said Mr Ng. This came as the bank had in 2014, set aside a separate S$200 million with the board's blessing to spend on digital transformation over a three-year period.

"If it was purely based on ROI, we probably would not have started," said Mr Ng.

DBS's starting point in its digital pursuit was in addressing "really bad" customer service, with Mr Ng, recalling that in his previous life as part of group audit at DBS, he walked alongside the chief of Singapore's largest bank Piyush Gupta, who personally stood in queues for ATMs, and walked around branches, to get a full sense of retail customers' pain-points. Mr Gupta is also said to make incognito strolls into branches and would queue at ATMs by himself when he first joined DBS in 2009.

That subsequently led the bank to review the way it replenished the cash machines, with DBS using Big Data to predict in-house the cash withdrawal demand based on upcoming events located near ATMs. It has also shifted these ATMs to locations that better capture traffic flow.

Between 2014 and 2018, DBS spent a total of S$1.8 billion on digital initiatives, a Moody's report showed.

Reports show DBS spends roughly S$800 million to S$900 million a year on technology now, and this is up from 2014, when it ramped up its digital efforts. Then, it had spent about S$600 million a year on technology.

DBS has said that previously, 90 per cent of it was used for IT maintenance and spending - working out to roughly S$540 million in 2014 - to essentially keep the lights on. Today, with the ongoing development and use of powerful cloud technology, the estimated S$900 million in annual tech spending is split evenly between IT maintenance cost, and spending on new technology developments, so roughly S$450 million each. Mr Ng expects technology costs to fall for DBS, though he would not put down a timeframe or scale on that.

With early technology bets such as working with IBM's Watson in 2014 yielding less results than what the bank had envisaged early on, the bank is continuing to "keep pulse" on the fast evolving landscape, said Mr Ng, though he would not detail any specific tech bets.

The bank has as well worked with more partners using APIs to embed themselves into customers' lifestyles and working patterns, having some 90-odd "live" API partners today, even as the exact amount of revenue growth from API partnerships at DBS is less clear for now.

It has also been working with other partners. In 2018, it partnered rubber supplier Halcyon Agri to create a digital trading marketplace for sustainable rubber. It also used its internal APIs to speed up insurance claims submission, decisioning and payout processes for its nine insurance partners.

Analysts have asked how banks will use technology to drive revenues significantly, moving the dial from cost savings alone, to that of topline generation. To Mr Ng, the answer still comes down to top customer service. "Revenues will come in as a natural consequence."