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With Digibank app, Singapore's DBS takes on Alipay

Eyeing Indonesia, India and China, bank says it must innovate to survive

  © Reuters

SINGAPORE -- DBS Group Holdings is expanding its reach in emerging Asian economies with its banking app, Digibank, taking on the likes of internet giants such as Alibaba Group Holding hoping to capture a fast-growing universe of mobile users.

Victor Davis, a 28-year-old who runs a marketing consultancy in Jakarta, is an example of these companies' target audience. Davis said he downloaded the DBS Digibank smartphone app after seeing an advertisement. It took him minutes to register and within a day or so, a bank agent visited to verify his identity. Without setting foot in a bank branch which normally meant standing in a line for ages or getting stuck in a traffic jam, Davis had a working bank account. "The whole process was very fast and straightforward," he said.

For DBS, the Digibank app is a strategic tool for strengthening its presence in emerging markets where financial and transportation infrastructure is not yet fully developed. Before Digibank, the bank's overseas strategy had been focused on investing in banks in neighboring countries and acquiring the Asian wealth management and private banking arms of institutions such as Australia and New Zealand Banking Group and France's Societe Generale.

But local regulation posed problems for such expansion, DBS Chief Executive Piyush Gupta said in a recent interview. "The industry has become more protective in the last decade," he said. "In most countries, you can't buy more than a 5% or 10% [stake], which means you really don't have an opportunity to [acquire local banks] and grow organically."

The rapid take-up of mobile phones and the fast expansion of mobile networks have opened doors for a new strategy.

In particular, DBS has its eye on Indonesia, India and China. Digibank launched in Indonesia in August. In India, where the app was introduced in April 2016, there are now 1.5 million users. And around 25% have opened deposit accounts. The Indian version of the app has an electronic wallet feature that supports payments between individuals as well as to businesses. The app supports Bharat QR, a quick-response code-based mobile payment solution similar to Alibaba's Alipay that is already accepted at more than 700,000 stores.

In China, DBS is still formulating a strategy and has not yet rolled out Digibank partially due to the massive popularity of local players such as Alipay and Tencent Holdings' WeChat Pay. 

Biometric identification being rolled out in both countries eliminates the need for customers to visit branches, and an artificial intelligence-activated chatbot answers questions 24 hours a day. In India, DBS plans to start offering insurance and investment vehicles as well as loans on the Digibank by the end of the year.

Apart from the convenience the app offers to users, the cost savings for the bank are also a key consideration, DBS said. With the app, it saves on labor by using chatbots and there is also less need for a wide network of brick-and-mortar branches. DBS said that Digibank requires one-fifth of the resources required for a traditional bank set-up. These savings are passed on to customers; Digibank offers annual interest rates starting at 3% in Indonesia.

Gupta said: "The idea is to be an embedded retail player with at least 10 million customers [in each market] overtime," said Gupta.

Storming the castle

DBS' shift toward digital banking comes as industry outsiders make their way into offering banking services. The likes of Facebook and Google have been moving into financial services, leveraging on the massive user base they have acquired with their online platforms. "For many of these companies, diversifying from their core business into financial services is a very logical next step," Gupta said.

DBS' Digibank app lets you open a bank account without going to the bank.

Gupta pointed to Alipay. With 520 million users around the world and a fast-growing loan book, Alipay is now used for paying utility bills, making purchases at physical stores and even buying investment products. "What do they do that a bank doesn't do? They do everything," Gupta said.

And Alibaba is sharpening its focus on Southeast Asia, having bought regional e-commerce leader Lazada. The digital payment company servicing Lazada's websites is now controlled by Ant Financial, an Alibaba group company that runs Alipay. Ant Financial has been forging partnerships with local companies in numerous Asian countries, and has begun rolling out mobile payment solutions to local customers in countries including India, Indonesia and the Philippines.

Local companies are also on the offensive. Indonesian ride-hailing company Go-Jek is accepting payment on its mobile wallet Go-Pay in a wider variety of services including food delivery and grocery shopping.

"Five to 10 years forward, if you can't re-architect yourself like one of the platform companies, I think your days are numbered," said Gupta. "Any bank, no matter how big or small, needs to benchmark themselves against these players. This is the only way you can win."

DBS is making hefty investments to compete with these platforms. The bank invested roughly 5 billion Singapore dollars ($3.68 billion) in technology between 2012 and 2016 to update its infrastructure and introduce new digital services. "The outcomes have been good," said Gupta, noting that the bank is seeing revenue and market share increases in Singapore.

DBS was named the world's best digital bank by Euromoney magazine in 2016. Nandan Nilekani, co-founder and chairman of Indian IT company Infosys, called Digibank "a WhatsApp moment of banking." Whether it can establish a new banking model in Asia amid stiff competition remains to be seen.

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