Inside DBS Group Holdings Ltd’s Push into Digital Banking: 5 Reasons Why It Is Mission Critical

DBS Group Holdings Ltd (SGX: D05) is making a push into digital banking and the results are beginning to show.

In early 2016, DBS Group launched its mobile-only digibank in India. By the end of the year’s fourth quarter, the bank reported that it had signed up 800,000 customers and was on track to eclipse the one million mark by the end of its first year of operations.

Turning digital is one of DBS Group’s key priorities, and there may be good reasons why. A 2016 Bloomberg article sheds some light on five possible reasons:

1. Banks in Asia are responsible for 46% of the industry’s total profits, which amounted to US$1 trillion in 2015. While the figure looks impressive, consulting firm McKinsey warned that up to US$400 billion of revenue at Asian banks could be at risk by 2025. Banks in Asia could lose out to fintech start-ups that tend to be nimbler.

2. Around two billion people in the world do not have bank accounts. Asia accounts for 55% of this figure. Within the 55%, one third of the unbanked Asians come from India, China, and Indonesia. This could be one of the reasons why DBS Group’s digital effort is focused on India.

3. The article pointed out that Chinese online marketplace giant Alibaba has 37 million small businesses that transact over its platform. It also argued that Ant Financial, an offshoot of Alibaba, is in a better position (compared to a traditional bank) to satisfy the credit needs of small and medium online enterprises.

4. Ant Financial has also made a foray into India by acquiring a stake in Paytm, a mobile payments firm. With 43% of India’s SMEs estimated to be seeking informal credit loans, Ant Financial could replicate its model in India and offer an alternative to traditional banks such as DBS Group.

5. Speaking of India, Credit Suisse has estimated that retail loans will grow to a stunning US$3 trillion by 2026. The market could be big enough for more than one winner.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.