In August, DBS took its latest step in digital banking with the launch of its mobile-led digibank business in Indonesia. Like its landmark offering in India last year, it is branchless and paperless, making heavy use of biometrics and artificial intelligence.
The jury is still out on how well digibank has worked in India. In terms of customer acquisition, it is outstanding: 1.5 million customers acquired with a staff of just 60, a headcount number that will fall to about 30 by the end of the year. CEO Piyush Gupta says a bank would ordinarily need 400 to 500 employees to achieve those numbers.
But DBS has not yet put a number to the balance achieved through the venture and it is thought to be below the bank’s expectations, although naturally it must be given time to grow. Also, digibank in India is at this stage only a savings and payments bank, which is fine as a start, but the real profitability will only come when it can earn fees through wealth management, insurance and lending.
Gupta was honest about this at the first-half results in August: “Like every good fintech, we’re losing money. We expect to continue to invest and lose money for three or four years.”
The model in Indonesia will seek to take advantage of demographics almost as attractive as India’s. Around 91% of the population has a mobile phone and 47% a smartphone. The national digital economy is expected to be worth $130 billion by 2020 and the use of e-banking is growing fast – up from 13.6 million customers in 2012 to 54 million in 2016.
Also like the India offering, DBS is spending big on deposit interest to lure new customers. It will offer 6.25% on deposits over Rp5 million ($374) and 3% on deposits as small as a single rupiah.
One difference is that DBS does has presence in Indonesia in a more meaningful form than it does in India, dating back to 1989 and covering 37 branches, all of it to be bolstered by the wealth acquisitions from ANZ. That might help with branding.
The biometrics are different too between India’s Aadhaar and Indonesia’s E-KTP cards, and whereas in India customers join the bank through cafes, in Indonesia they have to arrange to meet a digibank agent, who will bring a biometric device with them. That might be straightforward in Greater Jakarta, but it remains to be seen how it is going to work in more remote areas.
Gupta reckons a true digital bank can run on a cost-to-income ratio of around 30%. That means low customer acquisition costs and an awful lot of upside. But success will only been achieved when balances and fees follow the headline customer numbers.