Singapore-based DBS bank has earned multiple “best bank” titles, from publications including Euromoney, The Banker, and Global Finance. The bank is widely cited as being in the vanguard in terms of embedding digitization across the full range of banking processes and services. McKinsey senior partner Joydeep Sengupta, leader of McKinsey’s Strategy, Organization, and Corporate Finance Practice, sat down with Chng Sok Hui, DBS’ Chief Financial Officer, to discuss the bank’s approach to digital transformation.
I. Communicating the value of digital
Joydeep Sengupta: One of the things that people like most about DBS’s digital transformation journey has been the fact that it is able to communicate the value that you’ve captured through this process. So, tell us a little bit about how it all started.
Chng Sok Hui: The way it started is the realization that we were not just a bank, we were becoming a technology company. And the markets were not giving us a valuation that was reflective of the work that we were doing. We believe we were the first bank to make this effort to link the methodology of how we demonstrate digitalization efforts and link them directly to the P&L. So, we were able to demonstrate that the most digitizable part of our business, which is the retail and SME business in Singapore and Hong Kong, we were able to bifurcate that between a digital segment and a traditional segment, and to accelerate the adoption of digital behavior. We were able to show that digital customers had two times higher income per customer compared to a traditional customer.
We were able to demonstrate that the digital segment had cost-to-income ratio that was about 34 percent—20 percentage points lower compared to the traditional segment of 54 percent.
2. Setting ourselves apart from the crowd
Sengupta: There are many banks who say they are all going through digital transformation. So what’s the difference in your approach versus what the other banks are doing?
Chng Sok Hui: The key is to be able to translate operational metrics. Because a lot of these metrics that fintechs and competitors put out is the rate of growth of the digital customers, it is the metrics around conversion, it is the metrics around income per customer, and how it was building up . . . all these are good metrics. But for the analyst to translate that more concretely into a valuation model—because these are not technology analysts, these are banking analysts—the way that we have communicated is: how these operational metrics translate into a lower cost-to-income ratio.
3. Creating change from the inside out
Sengupta: How convinced are you now of its robustness?
Chng Sok Hui: We have been running this digital value creation metric coming to five years now, and I think the value that I can see out of this is that the businesses themselves are very passionate about it.
I just had a review meeting with one of the business units today and they were talking about the way they go about trying to accelerate digital adoption; so, for a traditional customer, how do you introduce incentives, products to attract them to buy a digital product?
The other thing that I think we are beginning to do very well is to understand which processes are truly digital. And therefore there is huge operating leverage. For example, our DBS remittance product: it’s fully digital, and therefore whatever additional customers you acquire, additional number of transactions, actually the benefits flow through to the bottom line.
So it’s not just the outcome that is great, I actually think that the internal mechanism by which we drive the business, to actually think through because our metrics are very granular, that is the part that I think is beginning to actually contribute much more than external communication, but really driving our business as a technology business.
4. Cultivating a digital culture
Sengupta: Do you see any impact on the culture of the organization?
Chng Sok Hui: I think we needed to learn how it is that we can become digital to the core, but I think that we also need to learn how to change in terms of our own mindsets and in terms of the organization culture.
And we remind ourselves that it’s not only the executives at the top, that it’s not just the IT folks, that it’s not just the business folks, it’s everyone. So, we started with a lot of change agenda items. I remember we had human-centered design thinking. In fact, almost everyone had to go through a process of coming up with an app.
The other thing we did very well I thought was customer-journey thinking, and thinking about the customer. So not so much an inward process, but how the customer would actually experience the app that we wanted to put out. So today when I look back I actually see an awesome culture change that has actually happened.