Digital consumers power up Singapore's big three banks

DBS and OCBC generate twice or thice as much revenue from digital retail and SME customers than traditional customers, on average.

Whilst digitisation has helped banks improve efficiency and lower customer acquisition and transaction costs, a Moody’s report noted that efficiency gains from digitisation have been insignificant as the banks are channelling cost savings back to technology investments.

In the case of DBS and OCBC Bank, digital retail and SME customers, on average, generate twice or three times as much in revenue as traditional customers. Compared to a branch customer, each digital customer at the two banks holds more products, maintains a larger deposit, loan or investment balance, and makes transactions more frequently.

“Digital customers make up most of the revenues from the retail and SME businesses at DBS and OCBC, compared to traditional customers. In DBS’ wealth management and private banking business in Singapore and Hong Kong, a subset of the bank’s retail business, although digital customers made up 43% of total segment customers as of the end of June 2017, they contributed 53% of income in the first half of 2017,” Moody’s added.

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Local banking groups have set up teams dedicated to creating convenient, innovative products. “Singaporean banks have also recognised that increasing smartphone penetration in emerging markets with young populations, such as ASEAN countries and India, will create a need for branchless banking, leading to the launch of their own digital banks in the region,” Moody’s said.

Singapore’s big three banks, which account for more than 60% of domestic deposits, have ample financial resources to invest in the development of digital capabilities and integrate them into their business models. The incumbent banks have been seeking to improve efficiency through digitisation.

According to Moody’s, digital customers are more profitable than traditional branch users because, on a per-customer basis, they generate more revenue through closer engagement with their banks. The three largest banks’ key retail and small and medium-sized enterprise businesses have grown substantially in recent years, and their profitability has improved, helped by digitisation.