Chris Skinner believes banks and startups could learn by immersing themselves in three DBS presentations, which he summarises in this article.

I wrote about the fact that digital transformation doesn’t create greater shareholder value … yet … DBS then announces it is the first bank in the world to demonstrate the link between digitisation and shareholder value creation, on 17 November. Interesting, as I blogged about this on 16 November, inspired by an article in The Economist.

First, DBS CEO Piyush Gupta talked through its digital strategy and journey. His presentation about its digitisation begins on slide 12 in this PDF, and it’s recent, just since 2014. The strategy begins with five core capabilities:

  • Acquire: Increase customer acquisition through wider distribution. Lower acquisition cost.
  • Transact: Eliminate paper. Create instant fulfilment. Decrease cost.
  • Engage: Drive ‘sticky’ customer behaviours. Cross-sell through contextual marketing. Increase income per customer.
  • Ecosystems: Pipes to platforms.
  • Data: Be insights-driven.

But then the bank recognised that capabilities aren’t enough – it has to change the culture, so a vision was put into play making banking joyful. In order to do this, the bank recognised that it had to put digital at the core of the company and act like a 22,000-person startup. This was delivered by focusing on customer journeys, and in those customer journeys, to make the bank invisible. In other words, take all the friction out of every customer interaction and experience with finance.

This meant moving from legacy systems to open APIs in a micro-service architecture living in the cloud; moving from a waterfall management team to agile; and moving from projects to platforms. You can read the slides for more, but for me DBS did something upfront that many other banks are yet to implement. It recognised that to change the culture and the focus of 22,000 meant changing the measures and rewards to reflect digital.

You manage what you measure: Balanced scorecard and management process. Source: DBS.

Making banking joyful KPIs. Source: DBS.

Changing the culture is the most critical part of any digital transformation, and those who treat digital as a project to delegate will never get there. The fact that DBS built digital into the corporate fabric was evidenced by the Euromoney award given to DBS in 2016, when it was chosen as the ‘World’s Best Digital Bank’. In presenting the award, Clive Horwood, editor of Euromoney, said: “It is demonstrably the case that digital innovation pervades every part of DBS, from consumer to corporate, SMEs to transaction banking, and even the DBS Foundation.”

And it’s delivering results that shareholder’s can recognise. For example, 38% of DBS’s 2015 S$10.8bn revenues were derived from digital platforms, rising to 44% in 2017 (S$11.6bn).

Consumer and SME (Singapore, Hong Kong). Pre-empt disruptors. Source: DBS.

Of those 2017 figures, what’s really telling is the Compound Annual Growth Rate (CAGR) and Return-on-Equity (ROE) figures are for digital users versus the traditional, physical services (branch, call centre and offline).

CAGR and ROE figures for digital users versus traditional, physical services. Source: DBS.

(Figures are for the main retail bank consumer and SME services and these figures are from a second presentation.)

There are clear differences between customers who use traditional offline services (T) versus those who use digital online services (D).

There are clear differences between customers who use traditional offline services (T) versus those who use digital online services (D). Source: DBS.

In fact, it’s finding that, as digital customers grow, they are delivering far higher profitability. In 2017, 39% of customers are delivering 68% of profits.

Digital share of customers, income and profit before allowances. Source: DBS.

This is because digital customers are:

  • Lower cost-to-acquire.
  • Lower unit cost-to-serve.
  • Higher income per customer year on year.
  • Consistently faster growth in income per customer.

A third presentation talks about its investment in growth markets of digibank, currently running in India and Indonesia. This is all about reaching high-value customers in scale markets by offering an entire bank in a smartphone, and it’s all delivered by curating a marketplace of partners through APIs (ring any bells?).

DBS investment in growth markets of digibank, currently running in India and Indonesia. Source: DBS.

Piyush summarised the whole day by stating that:

  • The strategy leveraging Asia’s mega-trends has paid off with diversified growth and higher returns.
  • Digitisation creates opportunity to preempt disrupters, disrupt incumbents and improve business profitability.
  • DBS’s digital transformation is pervasive, encompassing technology, customer journey and a startup culture. This is difficult to replicate and creates competitive advantage.
  • The bank has established a management and measurement system to drive this transformation, and a robust methodology to track financials.
  • Early results are encouraging. Digitisation has accelerated income growth and lowered structural costs, boosting operating leverage. The opportunity space is significant.

I agree, and think a lot of other banks and startups can learn by immersing themselves in the three presentations embedded in this document, which, if you missed them, are:

  1. DBS’s digital strategy.
  2. How the strategy is creating shareholder value.
  3. Strategies to grow in new markets.

READ NEXT: The digital bank vs digital banking

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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