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DBS Bank: Digitizing at its core

Interview - October 3, 2018

The Worldfolio speaks to Piyush Gupta about how DBS Bank is at the forefront of a real digital transformation starting at its core, the innovative services it offers its clients, as well as the opportunities presented by growth in the ASEAN region.



The Monetary Authority of Singapore (MAS) in Singapore is both a regulator and promoter of the fintech sector. How important do you think is it for Singapore to embrace digital disruption and to really push forward to become a creative economy in its own right?

It's crucial. Singapore's strategy in its first fifty years of development was to create first-world infrastructure in a third-world region. That's what we did. That led to inbound investment– MNCs came in and that drove growth. That strategy cannot take us forward for the next twenty, thirty, fifty years. The new strategy has got to be to create the world's first true smart nation. Everything we're trying to do is related to this: electronic government, identity systems, payment systems, urban mobility. If we can do all of this, we will be a showcase for the rest of the world, but it will also allow us to create the connectivity into every other part of the digital world.


Talking about the smart nation and cashless payments, which is a big topic that has been talked about a lot lately by Prime Minister Lee:of course, MAS has been very active inactually creating a unique platform which is now available to different corporations. How do you see the advancement of Singapore to becoming a cashless economy?

In the last 24 months, actually even 12 months, it’s progressed a lot, but you have to remember we come from an unusual situation where despite being one of the highest income per capita countries in the world and one of the most advanced, the percentage of cash in Singapore has been extraordinarily high. Cash to GDP in Singapore is at the high end of any developed country. We are about 1.6 to 2% cash to GDP. It's quite ironic that for a country so advanced, there is so much cash in the system. We have a lot of catch-up to do.

What's happened in the last 12-24 months is that started getting attacked. Trying to get that last mile challenge at point of sale – not just through PayNow which we launched, but also PayLah which is an e-wallet by DBS. The takeup has been remarkable. We've got about a million PayLah users. We've got about a million PayNow users. We're seeing the transition happening very rapidly.

We wired up the National University of Singapore earlier this year. Everything there is now electronic and through digital. Within a couple of months, the cash users in the university are down to low single digits. Everybody is just doing electronic and digital. The last mile is beginning is to takeoff.In the next year or two, if you ask me, we'll see large parts of the cash at point-of-salebegin to reduce.


Moving to your digital transformation, you made digital your core. Hardware that is centered on network management. You have in-sourced 85% of what you mostly outsourced before. When it comes to cloud augmented technology, 66% of your applications are now cloud ready and you increased your rate of cadence on your application in the market tenfold through automation. How important was it for you in your digital transformation, not just to add value to your customer with new applications but also change your entire structural organization from within?

It's critical. If you don't do that, then you're putting on digital lipstick but not really digitizing to the core. You can put four kids in a garage and they can come up with an app. But if you really want to operate like a big tech company operates, you got to do a lot more than that.

In some ways, we made what I call a ‘down payment’ between 2010 and 2014 because we invested a lot in cleaning up our technology. We came to common operating platforms. We built resiliency in some of our systems. We made sure we had the ability to do active operations. You can start a digital transformation only when you have a solid operating base. We took four, five years to build that solid operating base.

The real transformation to digital only started in 2014. Therefore, it's really a four-year journey so far. In fact, we gave ourselves a four-year target which we're pretty much on track with. In doing this journey, we really thought of it in three pillars.

Technology is one. The technology view is how do we completely transform ourselves to think like Amazon? If Amazon can create Amazon Web Services, then why can't we operate with the same technology architecture as them instead of like an old-fashioned bank with big data centers, big machines etc. The idea was think small, think commodity hardware, think automated dev ops and taking it all the way from end to end. You can actually shrink your costs while improving your cadence.

The second pillar that we've worked on was really embracing journey thinking. A lot of the transformation that happened is not because of technology. It happened because we re-imagined how to solve a customer problem by thinking outside it. Uber and Airbnb are not about technology. Hotels and taxi companies have had technology before. Uber re-imagined what it meant to go from point A to B. Airbnb re-imagined what it meant to go and find accommodation. That is the second big pillar. How do we teach people to re-imagine the journey itself?

The third big pillar is the culture change pillar. If you really want to transform then you have to be nimble, agile and data obsessed like a technology company. Our journey in the last four years is based on all three. It is very comprehensive. Our view is if you don't make change at that scale, then you don't change the core. Then whatever you're doing is at the periphery– it's interesting but it won't be fundamentally game-changing.


Through your APIs, you're actually incentivizing other players developing the ecosystem of digitalization. How important is it that you also embark on a transformation journey of the entire ecosystem from SMEs to medium sized companies, all the way to startups?

One of the big changes that's happening is that banking used to be what I call a pipeline business. You went from the bank to the customer – it was a singular monolithic pipe. That's changing to being a partnership business. You're moving from pipelines to platforms. If you want to be a platform business,you have to partner with a lot of different people. You have to partner for acquiring customers, for creating value propositions, for new forms of credit underwriting. That is because if you do journey thinking, you've got to engage the customer and what the customer really wants to do. It's a very different model. You have to learn to be a partner organization, an ecosystem organization.

If you look at the last 12 months, we launched a property marketplace which we're embellishing now, where people today can rent properties, buy-sell properties, get their properties renovated, and we need a lot of partners to create a property marketplace. We've launched an auto marketplace where you can do the same thing for cars. We launched an electricity marketplace where people can go and buy retail electricity as and when they want. All of these are because what consumers really want is not banking:they want to buy the house, they want to buy the car, they want tobuy electricity. You have to embed yourself in what customers really want to do with their lives. To do that, you have to run partnership and ecosystem thinking.


People credit DBS for being revolutionary because you were able to quantify what digital transformation means andthis ended up having an important impact on the value of DBS’ shares. How important is that as an example for people to actually understand digital transformation and to understand that it's not just a catchphrase, it actually has a real impact on day-to-day operations?

In 2014, when we started the journey and looking around the world, it was quite obvious that a lot of people were anecdotal in their narration. They would say, “We’ve done this app” or “Customers like this”.The question was if you're a shareholder of the company, how do you add all this and say is it making any sense for me or not? Do I actually get value in terms of return? Very early in our journey, we started trying to track the data. We set up largedata warehouses and used some external help to think about a model of how we could track this. The model we very simply defined was tracking traditional customers compared to digital customers.

Three and a half years of data gave us the confidence to know that when a customer converts and becomes more digital in their activity, their engagement with the bank increases. Their stickiness increases.The amount of interaction and business they do with the bank doubles. The fact that from when you acquire a customer, the customer does double the amount of business with you… that automatically results in better efficiency ratios and better return on capital.

Being able to show the breadcrumbs from the digitization you do, to the fact that you actually get better ROE and returns to the business –that is quite important and almost nobody in the world has been able to demonstrate that. A lot of boards make the digitalization investment as a leap of faith because you don't have a choice; you have to do it. But if somebody can demonstrate to you that it's not just a leap of faith but empirically, you can see the outcomes,that gives you much more confidence that the company knows what it's doing and is trying to track.

The other thing it does is it allows us to put a management model around it. Once we know how the breadcrumbs work,then we know what the levers of change are. We know the levers that we need to work on to get this improved return. We know we need to drive more customers through digital. It allows you to get more discipline around a management set of actionswhich you can then pursue. That's the second advantage.


What are the opportunities for American companies here in the region in terms of growth?

American companies have a significant manufacturing opportunity in the region. Because it's still not only a huge source of labor and educated, skilled labor with good work ethic;increasingly, it's a more productive labor force because of technology. It's a labor force which can use and adapt to applied technology, to new ways of working.

The bigger opportunity is the consumer opportunity. ASEAN is the fastest growing in every level of the consumption chain. If you take the creation of wealth, of millionaires, of luxury brands, luxury goods, ASEAN is booming. If you look at the next segment, the creation of the upper white collar, upper middle-class segment, looking for a better life, looking for travel, for tourism, ASEAN is booming. If you look at the mass market segment, people looking to move out of the poverty trap, ASEAN is booming. If you move out of the consumption space into the investment space, ASEANis going to go through an infrastructure boom in the next ten years like we haven't seen in a lot of other places.This is because most countries in ASEAN are infrastructure short.

That's accompanied by urbanization which again creates another big investment boom in the region. There is a big opportunity inenergy. ASEAN has generally been fossil fuel dependent, particularly countries like Indonesia. That's changing. Across ASEAN, you're seeing wind projects, solar projects, renewable energy projects, waste energy projects.

Singapore is the second largest commodity hub in the world for a reason. It's the third largest FX center in the world for a reason. That is because a large part of the physical movement and flow of goods still happen to go through this part of the world. It's just a fantastic place to be.


What do you believe is the role of Singapore and the role of DBS in facilitating this interaction of American businesses and investors to enjoy that ASEAN growth story?

Singapore's got a couple of obvious roles. First of all, for anybody who wants to come to Asia, Singapore is Asia 101. It's the easiest place in Asia to come and live. It's a first-world country within the Asian context. But it's a good context because it does give you a deep understanding of the Malays, the Indians and the Chinese. It is a multicultural culture.

Secondly, Singapore continually plays a very good role of being politically neutral. Its location is helpful because from here, you can cover not only the subcontinent but North Asia as well. It gives you an extremely good place to cover the region from as well.

Thirdly, it's got a government and a public private partnership which is unique. The system comes together to facilitate business. That's the reason there's a government -- to facilitate business, as much for incoming business as for local businesses. Everybody gets to benefit from that public private partnership approach.

That same thinking and thought applies to us in DBS. Our whole strategy of linking the North, South to Southeast, of leveraging digital, of participating in the mega trends of Asia and wealth creation, consumption, infrastructure, organization are exactly the same things that apply to Singapore.This is a fantastic place for business and it's going to continue to be a great place for American companies to do business in the future.