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Business trends

Asian banks tear down brick-and-mortar expansion model

With quick biometric checks at coffee shops, smartphone banking captures the hearts of youngsters

A DBS banking terminal in Indonesia. Bank transactions are increasingly moving away from physical branches. 

SINGAPORE -- Just a few years ago, starting a retail banking operation in Indonesia, a nation teeming with islands stretched across a distance as wide as the U.S., would require investing in thousands of physical branches and on an army of bank tellers.

But Singapore's largest banking group DBS Group Holdings is attempting to disrupt that business expansion model by wielding its own branchless smartphone banking platform.

The bank launched digibank in Indonesia in August last year, the biggest selling point being accounts that can be opened without visiting a bank branch. Although other banks offer similar digital services, almost all of them require customers to open accounts at physical locations.

DBS sales associates can be found in over 50 coffee shops and malls in the cities of Jakarta, Bandung, Surabaya and Jogjakarta. Signing up takes about 15 to 30 minutes -- or "as long as it takes to drink a coffee," as the digibank salesforce promotes. The accounts check fingerprints through e-KTP, the Indonesian electronic identification card.

New applicants can verify their biometric identities on the spot at coffee shops, or they can wait at home for digibank agents to come visit them. Through their mobile phones, customers can accept deposits, transfer funds, and an artificial intelligence program answers most basic queries, such as those regarding balances and account histories.

After DBS rolled out digibank in India in 2016, it captured over 2 million customers, yet only 60 to 70 people run that operation. "In the last five years since 2013, the whole world has changed," said Pearlyn Phau, deputy group head of the consumer banking group and wealth management at DBS.

A DBS representative promotes digibank at a shopping mall in Jakarta. The bank launched the service in Indonesia last year.

The fact that smartphones handle almost all aspects of life, especially among the younger demographic, have paved the way for this moment. Advances in financial technology and flexible government regulations were also tail winds. "With the digital model, what we're trying to do is to re-enter the retail space, but without the high cost of brick-and-mortar," said Phau.

DBS plans to add lending functions to digibank by the end of this year. In Indonesia, digibank drew about 600,000 users over the past year. "In the next five years, we want to book around 3.5 million customers," said Wawan Salum, managing director of the consumer banking group at PT Bank DBS Indonesia.

Another Indonesian bank, Bank BTPN, is attempting to eliminate the face-to-face verification step altogether. The company is applying for government permission to verify new accounts for Jenius, the smartphone-based financial service platform, via video calls.

"Once that is approved, we will not even send someone on a motorbike to come and visit you for identification," said Peterjan van Nieuwenhuizen, BTPN's head of digital banking. "You can just do a video call on your phone."

Jenius, which went live in 2016, began offering unsecured loans last month. Lending limits are set based on an individual's financial profile, such as the transaction history, and the financing includes instant-access credit lines. Jenius could offer insurance and wealth management products later on.

"We started consumer retail banking...from scratch," said Nieuwenhuizen. "We started from the concept of how we can be a life finance tool rather than a bank. Traditionally, it would have been very difficult for us, or any new player, to enter [Indonesia] because you're building a thousand branches across more than 13,000 islands."

Jakarta, Indonesia's capital, suffers from traffic snarls like other major metropolises across Southeast Asia. The extra effort to travel to a bank branch has contributed to the lack of foot traffic to bank branches. But the spread of smartphones has granted youth tools to easily fulfill bank transactions. Only 20% of adult Indonesians held accounts in 2011, but the share has risen to 49% last year, World Bank data shows.

Globally, about 1.7 billion adults have neither opened an account, nor transferred money with a mobile phone, the World Bank estimates. However, two-thirds of unbanked adults have mobile phones. That shows digital banking could be ripe for explosion in places like the Philippines and Vietnam.

Innovative financial services open the door for small to mid-tier banks, as well as foreign players, to expand market shares -- more so than large, established banks. Go-Jek, the Indonesian ride-hailing app, also poses a threat to traditional banks since it runs an online payment service.

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