The island state is responding fast to the challenges of fintechMay 2nd 2019Print edition | Special report
IN 2014, AS ALIBABA was preparing to list in New York, Piyush Gupta, the chief executive of DBS, Singapore’s biggest bank, was watching with growing alarm. Together with his bank’s chairman, Peter Seah, he arranged a meeting with Jack Ma, Alibaba’s founder, and Joseph Tsai, then its chief financial officer. “I walked away scared out of my wits that they will change our industry forever,” says Mr Gupta. Many bankers, particularly in America, seemed convinced that onerous regulations would protect them from challenge, or that regulators would dampen competition for fear of destabilising the sector. To Mr Gupta that seemed complacent. “Ant shows that there’s more than one way to skin the cat,” he says. “They are getting the customer relationship and the data to create value, and then passing the regulated part of the activity to banks.”
The meeting left him determined to disrupt his own bank before Ant, or another challenger, had a chance to do so. He considered spinning off a separate unit to lead the transformation, or outsourcing some of it to fintech firms, but decided that DBS was capable of rebuilding itself. “The received wisdom is that it’s impossible to change culture,” he says. “But I had gone back home to Delhi to visit my dad, who’s in his 80s. He banked online, paid his taxes online, shopped on Amazon—so what makes us think we can’t change people in their 40s and 50s sitting in a bank?”
Since then DBS has reworked much of its back-office technology, moving more than 80% of its computing power off clunky mainframes onto the cloud. It has teamed up with businesses offering a wide variety of services to its app—including, most recently, Gojek. DBS’s market dominance was essential to forging these relationships, says Mr Gupta. Elsewhere in the region it has decided that acquiring new customers requires a new approach. Two years ago it launched digibank, a mobile-only bank aimed primarily at young people, in India. Last year digibank launched in Indonesia. It now has 2.9m customers in those two countries.
Acquiring a digibank customer via online promotions and ads costs around $8-10 a go, far less than the $60-70 it takes to acquire a customer offline. And without branches, running accounts is very cheap. Even so, it will take time for digibank to become profitable. “Because the cost is not huge you think you’ll acquire the customers and figure out what to do with them,” says Mr Gupta. For a possible model he points to DBS’s digital marketplaces for cars, housing and energy contracts, which earn it commissions.
United Overseas Bank (UOB), Singapore’s third-biggest bank by deposits, is also creating a digital bank to support its regional expansion. TMRW (pronounced tomorrow), a mobile-only bank aimed at millennials, was launched in Thailand in March. A digital bank can be a trove of customer data. UOB has set up an “engagement lab” to use behavioural insights and artificial intelligence to study customers’ banking habits and needs.
The focus on young people simplifies things, explains Dennis Khoo, who is leading the expansion, since they are already digitally minded and their financial needs are usually straightforward: payments, credit cards and savings. He draws a distinction between “digital banking”—offering services through internet and mobile, alongside other channels, such as branches and phone—and a “digital bank”, like TMRW, which is available only through mobile phones. The latter is the way, he says, that banks can squeeze out costs while still offering excellent customer service.
Singapore’s banks have certainly been forward-looking. But they have also been supported by a regulator that wants incumbents to be well-placed to survive the coming competition. In typically technocratic Singaporean style, the Monetary Authority of Singapore (MAS) has chivvied banks to upgrade their software, move onto the cloud and build fintech-style services in order to see off challengers before they can gain a foothold.
In 2016 MAS summoned the island’s big banks and told them to create a peer-to-peer system for moving money between accounts. Any account-holder in Singapore should be able to transfer money free to anyone else with no more than a few clicks on a phone. More information fields were added to Singpass, the national digital-identity system, and a system was set up to enable people to give financial institutions direct access to their profiles. “We decided to upgrade the ability of the existing players and equip them so they can better compete in the market,” says Sopnendu Mohanty, MAS’s chief fintech officer. “As a public policymaker, we are working with banks to rationalise their costs, and create a level playing field for them to compete with non-regulated entities.”
This approach has had the desired consequence: fintechs in Singapore have largely shifted from offering services to consumers to offering digital services to banks. Some other regulators, notably Britain’s, are taking a different tack: encouraging new entrants and leaving it to the market to pick the winners.