SINGAPORE -- DBS Group Holdings is implementing a new growth strategy with a focus on digitalization and an aim to equip all employees -- from CEO to front-line staff -- with a thorough knowledge of cutting-edge information technology.
Singapore's biggest bank was incorporated as The Development Bank of Singapore in 1968, but now wants to transform itself into the "Digital Bank of Singapore."
It hopes to do this by providing a round-the-clock service for clients through its DBS app. For example, a client who has stock investments can get notifications on overnight trades in other markets and upon waking, react to those moves on the same app.
DBS hopes to be able to offer this by the first quarter of 2021, among other financial services for retail customers. The company will use artificial intelligence to analyze customers' transaction histories and send information about stocks or currencies tailored to their needs and interests.
The idea is to ensure that customers do not miss trade opportunities in case of significant fluctuations in stock and currency markets. Customized analyst reports will also be sent to clients.
The app will display functions frequently used by customers on the front page, and also outstanding utility bills to remind them to make payments. DBS also aims to make the user experience easier. For example, the number of clicks required to open a bank account will be reduced from 27 to 15.
DBS in September unveiled the plans to come, including what it called "intelligent banking." "We're seeing that the era has come whereby [with] intelligent banking with AI and data," said Sim S. Lim, group head of consumer banking group and wealth management at DBS Bank. "So this is really what a new wave of banking moves is about."
To this end, DBS in April developed an asset building tool that analyzes customers' monthly income and expenditure, aiming to harvest such data. DBS says the tool also helps customers to budget better. So far, 1.1 million customers have used the tool, of whom around 33,000 have turned their monthly balance positive, DBS said.
Three years after Singapore gained independence in 1965, DBS was established to supply long-term funds to companies with investments from the Singapore government and private lenders. The bank continues to be vital to the development of the city state's economy and industry, helping domestic companies and multinational companies operating in Singapore to raise funds. It played a key role in the initial public offerings of Singapore Airlines and Singapore Telecom.
In 1998, during the Asian currency crisis, DBS merged with POSB Bank to become Southeast Asia's largest bank. Singaporean state investor Temasek Holdings still owns about 30% of DBS.
DBS had begun to break away from traditional banking to focus on digitalization since former Citibank executive Piyush Gupta became CEO in November 2009.
DBS launched a smartphone-based financial service for retail customers in India in 2016 and in Indonesia in 2017, building a business model that does not rely on branch networks. The bank invested 4.4 billion Singapore dollars ($3.26 billion) in IT in the last four years alone.
The coronavirus pandemic further accelerated DBS' transformation. The number of customers who signed up for the bank's smartphone-based financial service jumped 216% on the year in the June-August period, while transactions of asset management products via smartphones also rose 217% over the same period.
Meanwhile, cash transactions dropped 34%. "Five to 10 years' worth of digitalization has happened in just three months," Gupta said.
DBS also moved into digitalizing trade finance, making it possible for clients to complete the entire process online from loan application to submission to any required documents such as customs declarations.
What is unique about the DBS plan is that it is not only relying on artificial intelligence and big data specialists. The bank has started to introduce to some of its employees an AI learning program by Amazon Web Services, an Amazon.com subsidiary, to ensure that there is a total move toward digitalizing.
The program is aimed at teaching clerical staff the basics of AI through a gaming experience, in this case a circuit race. Around 3,000 of the total of roughly 28,000 DBS group employees are scheduled to participate in the program by the end of the year. Members of the management team, including Gupta, have already completed the program.
The company also introduced in 2018 an intensive six-month program that taught a small group of employees to analyze sophisticated big data.
"The business people and the analytic team, you've got these two groups of people that together can actually drive tremendous value, but the problem is that they don't necessarily speak the same language," said Jurgen Meerschaege, head of data culture and curriculum, transformation Group of DBS.
"So what do you do when you have two groups of people who don't speak the same language? You bring in a translator and that's a new role. That's become more important over the last couple of years," he said.
According to Meerschaege, an organization will not be able to take full advantage of technological reforms unless at least 10% to 15% of its employees become knowledgeable about the processes and are able to explain them to colleagues.
The number of employees who have taken the intensive program has reached 1,800. DBS plans to continue the program until it reaches 15%, or over 4,000, of all its employees.
However, despite its moves toward technology, traditional interest income still makes most of the bank's revenues. That has slumped this year due to rate cuts and monetary easing implemented across the globe. Rising competition from new companies entering the banking industry is also threatening DBS' position as Southeast Asia's strongest bank.
"The challenge next year will be net interest margin," CEO Gupta said, referring to the bank's key income source, at an November results briefing for the July to September period. "Even if market interests do not get much lower, because repricing will continue to filter into our loans. Our guidance is that net interest margin will probably wind up between 1.45% and 1.50%."
Net interest margin fell sharply this year, from 1.86% in the January to March period to 1.53% in the July to September period, as global money supplies were eased due to the pandemic. DBS' net interest margin has not dropped below 1.6% since 1997, the earliest year for which a comparison figure is available.
"Given the size of the ongoing monetary and fiscal stimulus, we are going to have a low interest rate environment for much longer," Gupta said in August.
Net interest income from lending and investment still represents about 60% of total income for DBS. The bank has managed to increase the income for nine consecutive years to fiscal 2019 by limiting falls in interest margins while increasing the amount of lending.
Yet, unexpectedly, its attempt to diversify income sources globally has not led to much progress. Although DBS has operations in 18 countries and territories mainly in Asia, it still earns 63% of its group income in Singapore. The greater China region, including Hong Kong and Taiwan, represents 27% of group income, and the contribution from other markets total a mere 10%.
While digitalization is key to winning new customers, particularly among younger clients, and laying the foundation for future growth, it will be a while before DBS can see a significant contribution to profits. The question remains if DBS can push through its digitalization endeavors amid a harsh income environment as a result of a global economic slowdown caused by the COVID-19 pandemic.