As detailed by Bloomberg, the bank earns S$1,300 from those digital customers as compared to S$600 from traditional customers. What’s more, those digital customers cost less to take care of as measured by cost-to-income. It takes S$468 to service a digital customer, 36% of income, compared to S$348 to service a traditional customer, or 58% of income.
Overall, DBS Bank’s return on equity, a key measure for banks, is nearly 10% higher for digital customers than it is for traditional customers. As Bloomberg’s Andy Mukherjee noted, if the bank can grow its share of digital consumer and small business customers from 39% today to 50-60%, DBS could achieve a total return on equity 14.5%, an amount “unprecedented in DBS’s history.”
Such a return on equity would prove beyond a doubt that digital transformation is not something banks should invest in ‘just because’, but that it can be incredibly profitable.
A product of dedicated investment
DBS Bank’s digital success isn’t an accident. By 2015, the bank was on record as indicating that 99% of its customer interactions were driven in some fashion by technology.
With that in mind, it shouldn’t come as a surprise that DBS Bank has been investing heavily in recruiting digital talent, including web and mobile app developers and UI designers. It has even incorporated hackathons, originally a startup invention, to hire talent and get its teams working alongside independent third-party developers.
The bank’s investments have produced a growing portfolio of digital assets, including what DBS Bank claims is the largest open API platform offered by any bank in the world.
When it launched that platform, which has over 150 APIs covering functionality such as funds transfers, mobile wallets, rewards and real-time payments, David Gledhill, DBS Bank’s CIO, stated:
DBS embarked on a journey to transform our tech infrastructure nine years ago. With that early start, we are now ahead of many others in being digital to the core. This has given us an edge – enabling us to operate with fintech-like agility and nimbleness, and also platform-like inclusiveness. This will be transformative in ways not imagined previously, both for the customer and the bank.
Many companies, from major multinationals to startups, have integrated with DBS Bank’s API platform. For example, McDonald’s is using DBS Bank’s APIs to integrate PayLah!, the bank’s mobile wallet, as a cashless payment option. And Activpass, a fitness, wellness and beauty startup, has integrated DBS Bank’s rewards program into its app so that customers can redeem their DBS Points to pay for services.
The new fintech landscape
Although it’s still ongoing, DBS Bank’s already successful digital transformation reflects the new fintech landscape in which many of the biggest gains are now being notched by established institutions that have invested wisely in technology and digital customer experiences.
From Quicken Loans overtaking perennial leader Wells Fargo in mortgage originations to Goldman Sachs’ expectation that it will be able to generate $1bn in revenue from its new online consumer lending business over the next three years, any doubts that established financial institutions are capable of catching up and becoming digital innovators have been erased. Startups and institutions that haven’t been investing should take note.