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India: DBS's digibank launch brings in biometric banking

DBS’s launch of a new digital bank in India provides a test case for a branchless model of banking in Asia that will influence a dozen other markets in the years ahead.

Piyush Gupta DBS-R-600
DBS Chief Executive Officer Piyush Gupta speaks during their fourth quarter earnings announcement in Singapore February 22, 2016. DBS Group Holdings, Singapore's biggest lender, posted a 20 percent rise in quarterly profit that beat expectations, as its net interest margin rose to a five-year high. REUTERS/Edgar Su - RTX27Z5H
© Edgar Su / Reuters/REUTERS

CEO Piyush Gupta says DBS’s ambition is to reach India’s middle-class smartphone-users

Digibank will be India’s first mobile-only bank, operating under DBS’s India licence.

It goes further than any comparable initiative in removing not only the branch but the human from any banking transaction:

  • one can open an account in 500 cafés across India, among other places, rather than in the 12 branches nationwide DBS Bank is permitted to have;

  • customer service is conducted not by a banker but a virtual assistant created by an artificial intelligence system devised by US fintech Kasisto, a spin-off from the group that invented the tech that drives Siri;

  • its security systems are not based around one-time passwords sent as an SMS, but through what it calls dynamic inbuilt security, based around the Aadhaar card.

This last bit is the fascinating part. Aadhaar is a preposterously ambitious attempt to get India’s entire 1.3 billion population into a national biometric identification scheme, which logs the fingerprints and iris signatures of cardholders and stores them in a national database.

The scale of the challenge must have been unimaginable when it began seven years ago, as an attempt to streamline the payment of benefits, cut wastage and fraud, and bring more people into the real economy.

However, at the end of March it passed a billion registrations, by far and away the world’s largest biometric identification programme. One seventh of humanity is on it.

It didn’t take long for people to see the financial services possibilities inherent in this database; indeed, financial inclusion was a large part of the reason for developing it.

The unbanked

In April, a new system called the Unified Payment Interface was launched by the Reserve Bank of India, built on top of the Aadhaar system to bring banking and financial services to the unbanked. And there are plenty of them: PwC reckons at least 233 million Indians have never been to a bank.

DBS is the first foreign bank to have exploited this fabulous resource. CEO Piyush Gupta says DBS’s ambition isn’t to reach the unbanked, but the mighty numbers of Indian’s middle class who use a smartphone: 200 million today, potentially three times that within the next few years, he says.

With a hefty 7% interest offer, he admits there’s a sense of buying deposits – “there’s an element of go-to-market strategy built into that,” is how he puts it to Euromoney – but then again he reckons the whole strategy is so low-cost there should be the potential to keep rates high regardless.

Gupta has argued for a while that branch banking is over – “yesterday’s story”, as he put it in Tuesday’s briefing to analysts and journalists – and India will be the perfect place to discover if the mobile phone creates a credible alternative.

It’s not as if DBS has all that much legacy business in India anyway, so it’s a fairly clean slate, with an obviously vast demographic potential.

If it works, the intention is to roll it out elsewhere where DBS has a licence, such as the two other high-population markets, China and India.

And if that works, there will be a host of other consequences, from branches becoming all but obsolete, to an end to regional expansion through acquisition. A very big deal. 

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