DBS said its digital customers were 42 per cent more profitable than “traditional” clients as it highlighted the sharply higher margins banks earn through internet-based services. The figures from Singapore's biggest bank showed that it made a return on equity of 27 per cent for its digital customers in Singapore and Hong Kong in the first six months of the year. This compared to a return on equity for DBS’s non-digital clients of 19 per cent during the same period.
The profits do not include DBS’s most digitally-advanced business, Digibank, which has grown to more than 1m customers since becoming India’s first online-only bank last year. Digibank has recently launched in Indonesia. Speaking after an investor event in Singapore on Friday, two London-based investors said DBS’s was the most detailed breakout on digital profitability they had ever seen from a traditional bank. DBS’s shares rose almost 3.5 per cent in the hours after the bank discussed its digital finances.The biggest banks in Europe and the US have been pursuing digital strategies for more than a decade.
The aim is to drive customers away from high-cost branches and call centres, in favour of low cost apps and websites.In Europe, Deutsche Bank has put digital at the heart of efforts to restructure its minimally profitable German retail bank, hoping to follow the success of European digital trailblazers such as ING and BBVA. In the US, banks such as JPMorgan Chase, Citibank and Capital One, have invested billions in chatbots and improved online services. “Investors are interested to understand the impact of digital banking to the cost stack of banks,” said Ronit Ghose, Citi’s global head of bank research. He added, however, that “success in one country may not be replicated in others” because adoption depends on the “digital readiness of the population, the banking and IT infrastructure [and] mobile banking penetration”.
At DBS, digital customers — defined as those who use online services to buy products or upgrade, or who do more than 50 per cent of their transactions online — generate twice as much income per customer as traditional ones, Friday’s presentation showed. Digital customers’ revenues are growing faster, while they have a cost/income ratio of just 34 per cent — implying $34 of costs for every $100 of revenue — versus a cost/income ratio of 55 per cent for traditional customers.
Mr Ghose said it was hard to prove causation between digital channels and the higher profitability and revenue growth. “Early adopters may be richer clients and they may be more profitable due to their wealth and activity levels rather than digital channel usage,” he said.
Digital customers’ revenues are growing faster, while they have a cost/income ratio of just 34 per cent — implying $34 of costs for every $100 of revenue — versus a cost/income ratio of 55 per cent for traditional customers.