My questions on @DBS Bank's Digital Transformation Metrics

As many of us know, Singapore’s DBS Bank. Living, Breathing Asia has been doing a great public relations job on just how "digital" it is.

I had some very hard questions to ask the bank about the way in which it measured its so-called “digital” contribution to its bottom line and performance, and spent an afternoon going through the numbers with CFO @Chng Sok Hui. The recording of the conversation is in The Asian Banker interview with Chng Sok Hui, DBS Bank CFO

I came away with the following impressions:

i. Digital measurements and benchmarks should be set by a neutral party, and not by the institution doing the drum beating. In this regard, there is no one authoritative matrix out there, and so customers, investors and employees may well subscribe to different ones, but still it has to be an external one.

ii. The Asian Banker has been assessing retail banks across more than 30 countries using our new scorecard in the past two years. Our metrics is based on the tracking of the institution's own digital journey ("how digital is one institution over the others") and "what does the customer see?".

a. Our finding was that from a retail finance perspective, China Merchants Bank (CMB), the Australian banks such as Commonwealth Bank even Singapore’s OCBC Bank were far more “digital” than DBS, as seen in our annual The Asian Banker Digital Finance Scorecard and Ranking ranking scorecard started last year. The main reason for this appears to be because DBS is carrying way too much more legacy technology infrastructure, and therefore has too many moving parts.

b. As far as rankings go, there is no bank anywhere in the 50 or so countries we cover in Asia, Middle East and Africa who are anywhere near the new non-banks like China's @Ant Financial Services Group, @Tencent and even newcomer Korea's @Kakao Bank, and understandably so, as these are mostly "only digital" and operate under less operational, regulatory, and capital requirements.

ii. Having said the above, DBS claims are not inaccurate or misleading. All scorecards developed by the institutions themselves are always self-serving – to tell a story to investors and internally as a guide to their own employees as to their own journey. So we have to ask them questions based on their own terms. This is something completely missed by investors at the annual general meeting of the bank recently.

iii. While institution can communicate its own measurements, the fact that the institutional investor community is so mesmerized by DBS Bank. Living, Breathing Asia, as reflected in the spike in its share price since November, is amazing indeed.

iv. In my Conversation with Chng Sok Hui, DBS CFO, the big questions that I had were as follows:

a. Why work on the assumption that only 50% of customers are digital? 50% raises the question of double counting for some metrics. She disagreed. But I still ask this question. In my view, digital is digital and should be all-encompassing.

b. What is the overall “plot” in its digital journey? Where do you want to take your employees, customers and shareholders? A visit to any of DBS offices will reveal thousands of erudite employees all engaged in happy projects designed to make them feel relevant for now, but not realising that digital means many of them will not be needed in the future.

c. Customer value? So, what are the savings, ala Amazon.com, that are being passed back to the customers instead of to the shareholders? I told one of my journalist friends that the question to ask any bank that is boasting is “what does the customer get from all this?”

d. Most of the income from digital appears to be old-fashioned FX fees and NIM. There are no original digital driven fees such as in APIs and competitive pricing for trade and transactions. In fact, I would say that for a digital bank, DBS fee-based income is a bit anemic. These are not easy to derive, but they should be the holy grail. The expectation should be set for banks by an independent observer, and not the banks to sidestep these difficult questions.

e. What are the targets that you have set for yourself. DBS has wisely avoided stating targets. Privately, I believe that giving analysts targets is not a smart thing to do, as we saw in the case of John Cryan of @Deutsche in the past three years. They will hound you for it. But still, I want to know.

iv. While institutions can communicate their own measurements, the fact that the institutional investor community is so mesmerized by DBS Bank. Living, Breathing Asia, as reflected in the spike in its share price since November, is amazing indeed. The institutional investors appear to have been bought in by the high dividends and good investor relations management. But even there, a low ROE, high dividend payouts, low cost-to-income ratio in a low ROA environment is a weird combination that I have not seen before. Something has to give eventually.

Having said that, the digital transformation agenda is a much more disruptive one than we are imagining right now, as I will elaborate in my book to be launched by October 2018.

It is my opinion that everything that DBS is commendably doing right now does not guarantee it, or any other traditional bank, survival in the digital age. The film distributor Kodak entered the digital film industry in 1987, and its share price went up right up to 1997 - a good 10 year run, before it started unraveling. (The link to my 2017 presentation on Banking's Kodak Moment has some points on this.)

PS: In the meantime, I posted a second photo of a long queue at a DBS ATM for cash withdrawal a few weeks ago on my fb version of this post. I have another photo of a sign inside a taxi taken at the airport saying "cash only" next to a @Paylah logo. If there were no Chinese banks, banks like DBS could get away with saying that they are digital and yet ask us to excuse the long queues in its branches and ATMs and practically no transformational change in its digital money programmes. But @China Merchants Bank (CMB) has 100m customers, as against DBS 5m, and no queues in any one of its branches or ATMs. In fact, they don't even think that their story is anything spectacular. This is the kind of benchmark set by "digitalised" players in today's Asia that DBS has to measure up to, not some number it set for itself.