Are digital banks truly a threat to the incumbent traditional banks? Five years after the Monetary Authority of Singapore (MAS) issued licences for digital banks, DBS Group Holdings CEO Piyush Gupta says that he is unfazed by the new competition coming from these purely digital players.
While he acknowledges that new digital bank players are threats, he notes that “the Singapore banks have done enough to ensure we are as credible as any digital challenger”.
“There is no digital bank out there which has created digital capability or experiences or products or solutions better than we have,” says Gupta, who was speaking at DBS’s 1HFY2024 results briefing on Aug 7.
The larger concern lies in the pricing strategies of new banks — whether digital or traditional — who often use tactical promotions such as supermarket vouchers for new sign-ups to attract new customers. However, as seen in markets like Hong Kong and Singapore, such aggressive pricing methods are typically short-lived.
In Gupta’s view, digital banks also tend to compete in niche segments. This leaves the broader market — where the large revenue pools and the wallet pools exist — largely untapped, and where DBS can maintain a strong position in various segments. On a q-o-q basis, DBS’s growth rates in its income and all its markets continue to show that the bank can hold its own in terms of current account, savings account (casa) growth.
“We’re getting casa growth everywhere, including in Indonesia, India — where we use [DBS] digibank, we are getting casa growth. But to be fair, if you just use digital, we found it hard to get casa. So to get casa, we had to go ‘phygital’,” says Gupta.
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DBS’s Gupta: There is no digital bank out there which has created digital capability or experiences or products or solutions better than we have. Photo: Samuel Isaac Chua/The Edge Singapore
The bank’s “phygital” approach combines its physical presence with digital capabilities, and is crucial particularly in markets like India and Indonesia, where DBS has 500 branches and 50 branches respectively.
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“Customers still like to see the branch, but then they want to deal on the mobile and they want to deal on the desktop. We are continuing to grow casa, but you do need to be ‘phygital’, not purely digital,” he notes.
On the bank’s digital push, Gupta says it continues to enhance its product offerings, ensuring that a complete suite of services is available on mobile phone devices in all of its markets.
“When we launched digibank, our original premise was that we would only do mobile and then we learned over two to three years that it doesn’t work because the signal can drop. So, we needed to have a desktop backup offering. A desktop was needed as backup, but we did not immediately put in the same functionality and so have to go back and keep improving,” says Gupta.
Right now, the bank is looking to add more artificial intelligence (AI) tools into its offerings, which Gupta deems as “very constructive”. In Singapore, for instance, DBS does 30 million nudges a year using AI. While the bank does not have the same number of nudges in its overseas markets, it is also building up the capability for the rest of its markets to follow suit.
UOB’s omnichannel strategy
Like DBS, United Overseas Bank U11 (UOB) believes that rather than being challenged by pure digital banks, it has an edge. UOB says that it, too, has held its position in casa growth.
“Five years on, even with the emergence of four digital banks, UOB has kept its market share on cards and casa in a growing market share position,” adds Jacquelyn Tan, managing director and head of group personal financial services at UOB.
The bank boasts a 66% increase in card fees income from 2022 to 2023. In 2023, it acquired more than 600,000 new customers across Asean, and has more than 1.5 million casa and credit card accounts. More than 50% of this figure has been acquired digitally, through UOB’s TMRW app.
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Following the acquisition of Citigroup’s retail banking segment in Indonesia, Malaysia, Thailand and Vietnam, the bank has seen an increase in digital engagements as compared to physical engagements.
UOB’s Tan: Even with the emergence of four digital banks, UOB has kept its market share on cards and Casa in a growing market share position. Photo: UOB
At UOB’s corporate day held in Kuala Lumpur on Aug 14, Tan shares that customers who have engaged with UOB digitally have grown from 58% in 2022, to 68% in 2023, and 70% as at the time of presentation on Aug 14. Offline engagements have dropped from 42% to 32% in the same period. This is part of its omnichannel strategy — similar to DBS’s “phygital” approach — in which UOB will offer lower-value transactions to digital channels and offer higher-value services such as wealth advisory through its physical networks.
“And we have seen some promising results today, more than one in two new-to-wealth customers are actually acquired digitally, and we will expect this to grow closer to 65% in 2026. 70% of our unit trust transactions are done digitally today, and we will expect this to grow closer to 80% come 2026,” says Tan.
UOB offers its customers a full suite of products and services on its TMRW app, from savings to wealth generation, which it counts as a unique proposition against pure digital banks. This enables it to cross-sell products, leading to the “deepening of relationships” with customers who will find themselves better engaged in the bank’s ecosystem.
Digital banks in Singapore are mostly focused on two or fewer products in the savings and spending space, or “niche” segments as said by Gupta. “And they need to be a little bit more holistic [in their offerings], including wealth, 360 savings, across a suite of products,” says Tan.
“The key things that digital banks out there need to address [are] the ability to acquire at scale and with quality … their path to profitability, and [a] holistic product suite of solutions to offer to clients,” adds Tan.
Even if a digital bank acquires new customers at scale, the accounts have no value if they are not funded. “Many digital banks need to prove that they can acquire at scale with quality,” explains Tan. “This means your casa accounts need to be funded to a certain amount where it will make sense for the bank to get sufficient data insights [on a consumer’s behaviour] so that it can nudge you to top up, make transactions or invest.”
The average ticket size of an account on UOB TMRW in Singapore stands at above $20,000, and it ranges from $2,000 to $8,000 in its other Asean countries. With such an amount, UOB can grow the casa asset under management (AUM) by making digital wealth products available, so that a customer will be further entrenched in the bank’s ecosystem.
Henry Choi, head of group retail TMRW, boasts that the digital banking app has data scientists who build machine learning models that recommend the next best products to continuously engage customers. TMRW is consistent in four markets — Singapore, Malaysia, Thailand and Indonesia — where a collaboration or innovation is rolled out across all markets at once.
Outside of Singapore, where UOB cannot compete with the big local banks in terms of branch count, the digital bank helps to level the playing field, Choi adds. The real challenge is to grow to become the primary or at least secondary bank for locals in other Asean countries it has a presence in.
What is also understated is the trust that consumers have in traditional banks. “I did a lot of customer interviews and asked them why they chose UOB or sometimes even DBS. There’s a meaning when they download the app. They know, behind the scenes, a concrete brick-and-mortar business is supporting them,” says Choi.
