DBS Group Holdings Ltd’s Indian Mobile-Only Bank Could be the Future of Banking

DBS Group Holdings Ltd’s (SGX: D05) digital efforts are gaining traction.

In early 2016, DBS Group launched its mobile-only digibank in India. By the end of 2016, the bank reported that it had signed up 800,000 customers. By April this year, the number of users had crossed the one million mark. In the latest quarter, DBS Group’s Chief Executive Officer, Piyush Gupta, provided an update on its progress:

“We’re now at about 1.3 million customers, actually 1.4 million in July customers. Of that, about 300,000 are full savings account customers.”

From there, Gupta highlighted the efficiency of the digibank model in terms of headcount:

“We are processing that with about 60-odd people. In the normal course, we would need like 400, 500 people to do that scale. We need 60 people. By year-end, we think we’ll be down to half, so 30 people. If you can design for something like that, the costs can be very low.”

The lower headcount benefits the bank in terms of cost. Gupta explained:

“Now know that if you were to do a complete digital bank, Digibank kind of thing, you can run a cost to income ratio in the low 30s.”

The cost to income ratio shows the bank’s cost against the income that it makes. The lower the ratio, the better. For context, DBS Group’s cost to income ratio was 43.3% for the first-half of the year. So, a cost to income ratio in the low 30s would be a much lower ratio compared to where the bank is today.

Gupta provides insight why the cost to income ratio is lower for a digibank:

“I think that’s possible to do based on essentially no branch infrastructure at the front end, straight-through processing regime, and using AI and chat bots at the back end. So even though you wind up with customer acquisition cost, your actual processing and servicing cost is very, very low.”

The same cost-to-income ratio is not possible in Singapore at the moment. Gupta said:

“… the reality is, you can’t get to that level where you have a legacy base. So it will be very hard to get to a low 30 cost to income ratio for us in Singapore, for example, because we got branches, customers, heartland and all bunch of things, but that’s a go-to that over — we have to think over 10 years what could banks get to, I think that is possible.”

And it’s not all a bed of roses. Gupta said that the venture has not made any money yet. He expects the digibank initiative to lose money for the next three to four years. But that’s not a horrible thing. Gupta compared it to the traditional branch model.

“But if you look at the comparison, if we try to do the same buildup in an old-fashioned branch model, you need like 15, 20 years to pay back. In a digital model, you can get that scale and presence and still look to getting a breakeven in 3, 4 years.”

At the moment, we do not know if India’s mobile-only model will turn out to be a model for the rest of DBS Group in the future. The bank is planning to roll out the same model in Malaysia, which will be worth watching.

And who knows? In the next ten years, Singapore’s banks could change too.

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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.