DBS: All about digital innovation
In our journey to become a different kind of bank, DBS garnered some of the most prestigious accolades from Euromoney, Global Finance and other leading financial publications.
Euromoney has been evaluating the world’s leading financial institutions through performance data, surveys and industry awards for more than 25 years. Their Awards for Excellence are the awards that matter to the banks and bankers who matter. Euromoney was established in 1992 and were the first of their kind in the global banking industry.
Global Finance regularly selects the top performers among banks and other providers of financial services. The Innovators 2022 annual awards program recognises banks, fintechs and companies that excel at identifying new paths and developing new tools in finance. These awards have become a trusted standard of excellence for the global financial community.
Scroll through to read what these publications had to say about our award wins this year.
The world’s best bank for SMEs 2022: DBS
The bank is successfully exporting its SME expertise and advanced financial technology across Asia.
UOB and OCBC, have built considerable skill sets serving SME clients in the city state, but there is clearly a finite business opportunity on an island nation one-fifth the size of Rhode Island.
Therefore, they have variously cast out to southeast Asia, India and China. In so doing they have become some of the few banks in the world to build true cross-border SME businesses. DBS, our winner this year, now has over 50% of its SME book outside Singapore.
DBS has been boosted in this regard by the Covid-opportunist acquisitions that Euromoney highlighted last year when DBS was named the world’s best bank. The Lakshmi Vilas purchase in southern India was particularly important in this regard. This almost doubled DBS’s asset and liability book in SMEs in India, but without a big shift in asset quality.
The current account balances of the customers acquired through that deal have grown 11% since the deal was completed.
DBS is all about digital innovation, and it has been applying technological advantage to its SME book as it has grown. The bank has its own definition for digital customers – those who transact at least 75% through digital channels – and these clients account for 84% of SME income, up from 69% five years ago.
Some of the digital initiative is about convenience, with the lending process for access to working capital now reduced to, the bank says, a minute to apply, a second to approve and instant disbursement.
It is partly about cross-selling, with artificial intelligence applied to an in-house business intelligence engine that predicts what customers need and then nudges them in that direction. This has been tried out on 150,000 SME customers so far and DBS says AI-related revenue from this has grown fivefold.
Around S$250 million ($180 million) of trade financing has been provided to SMEs in Hong Kong and China through alternative lending models with digital at the core. Revenue from cash-flow management for merchants in Singapore, Hong Kong and India has doubled since 2019, again thanks to tech. And the application of AI models to the new business in India is rapidly ramping up engagement with previously underserved customers.
But perhaps the key story of the past two years has been about using digital skills to assess credit quality, to see trouble coming and act while it is still possible to do so. DBS says the bank’s AI accurately predicted more than 95% of non-performing assets or loans moving past due. Having spotted these problems, 80% of them were then averted from risk. About S$700 million of the loan book was protected in this way.
Partly as a consequence of this predictive approach, DBS has survived the return of 90% of loans to principal repayment post-Covid without much impact on delinquency rates. In fact, those rates are roughly in line with what they were pre-pandemic, and there was an 88% drop in specific allowances year on year in the first quarter of 2022.
This is going to continue to be useful.
“We’re using this [predictive approach] not just to look at the pandemic but at interest rate hikes,” says Joyce Tee, head of SME banking at DBS. “Or supply-chain disruption: which are the customers that cannot pass through that additional cost?
“The model now is to look at all the different situations and ask: which customers are going to be vulnerable here?”
Still, DBS hasn’t closed the door on troubled borrowers. In 2021, it granted a further 39,000 loans worth S$13 billion of principal moratorium in Hong Kong, Singapore and India, including 14,000 collateral-free loans in Singapore. In India, 190 SMEs received disbursements from DBS through the Guaranteed Emergency Credit Line initiative, worth S$30 million; every one of them has resumed payments, with no new delinquencies.
DBS was also an early mover in the idea of embedding itself in customer ecosystems through partnerships. It has done this with great success not only in consumer but also in SME, where it has 106 of what it calls anchor programmes. An example is a partnership with JD Logistics through which merchants can initiate financing requests, view their available balance and loan outstandings, and gain automated disbursement of funds through the JDL platform. This one partnership alone yielded 89 new customer acquisitions between December 2020 and March 2022.
The bank has also sought to build its sustainability priorities into its SME business, disbursing S$100 million in green financing schemes in this segment, including green renovation financing, an industry first. Its SME Kickstarter Programme under the DBS Foundation helps SMEs adopt more sustainable business models.
The result of all of this is a business increasingly crucial to the overall bank. SME revenue is 28% of all institutional banking revenue. In the first quarter of 2022, net profits before tax shot up 67% year on year. Fee income was up 10% and deposits 9%.
Financial innovation of the year 2022: DBS – FIX Marketplace drags DCM into the digital age
Traditional bond market processes are, let’s face it, a bit Old Economy. The whole procedure, from origination to issuance, settlement and secondary trading, is still heavily manual – especially the first two bits – and not only ripe for disruption but clearly overdue a shake-up.
Many initiatives have been proposed to drag this most traditional of financial market processes into the digital age. The problem has not been conceptual – everyone can see the greater efficiency and more convenient execution that ought to come with a digital solution – but agreeing on a product and achieving critical mass in it. Most solutions have opted to take on a segment of the chain but not the whole thing.
One new platform with a better than reasonable chance of success is FIX Marketplace, Asia’s first fully digital and automated fixed-income execution platform. Driven by digital leader DBS, it creates a new primary issuance distribution channel by giving issuers an interface through which they can directly issue their own bonds into the marketplace, without direct intervention from a bank. Investor orders can be made directly, allocation is transparent and the documentation and trade confirmation is quick and digitalized.
The idea is that Asia’s commercial-paper market will be boosted, in efficiency as much as in volume, by allowing corporate issuers a simple digital method to issue and giving investors a wider range of instruments to invest in. It ought to mean lower transaction costs, greater funding alternatives and wider investor access, even if it does appear to be eating the lunch of the investment bankers who are pushing it in the first place.
“FIX is the first of many steps in the ambition of the digitalization of the capital markets,” says Clifford Lee, global head of fixed income at DBS.
DBS’s chief executive Piyush Gupta has long taken his digital lessons from the likes of Amazon and Alibaba, and one of them is the idea that it is OK to launch something that isn’t complete: a beta version, if you will, which can then be refined continuously from experience.
In that spirit, DBS launched what it calls a minimum viable product version of FIX Marketplace in Singapore in June 2021, getting long-time client (and fellow Temasek investee) Keppel Corporation on board that month. Keppel self-executed its maiden three-month commercial-paper issue on the marketplace in August, the first live trade.
DBS had first approached Nivaura – the European technology provider to banks and to digital capital markets platforms that pioneered a general-purpose legal mark-up language that makes legal documents for new issues machine readable – two years before this.
The two firms passed ideas back and forth.
“A lot of those were about go-to-market strategy,” says Scott Eaton, chief executive of Nivaura. “What was great about working with DBS is that they absolutely understand their position in the ecosystem. Issuers and investors naturally come to banks rather than to new technology platforms. And DBS realized that if they could make this a shop front window, they could really advance automation and digitization of the new issue process.
“It was particularly intelligent to begin with commercial paper, which is such a thin margin business that it might really benefit from the efficiencies if it becomes a simple process of issuers opening and filling in drop-down windows and investors responding,” Eaton adds.
While partly symbolic, the first big corporate deal was a useful proving ground. It showed that the technology works: Keppel self-issued and investors subscribed directly. Since then, more clients and issuers have been brought on board, and more issues were completed across multiple currencies.
Although DBS won’t give precise volume numbers, it disclosed in January, when GLP, a global investment manager and business builder in logistics, data infrastructure, renewable energy and related technologies, self-executed its maiden S$100 million ($72.2 million) six-month commercial-paper issue on the platform, that FIX Marketplace had seen S$7 billion of issuance in its first seven months, denominated in US, Singapore and Hong Kong dollars.
Many of these transactions have been small. GLP’s inaugural issue of S$100 million of six-month commercial paper was then the largest single deal on the platform. But many issuers doing small deals is a good way to start.
As a regional banking leader, DBS counts many smaller Asian banks as its clients, and these are natural issuers of short-term paper. Even before the landmark Keppel transaction, over $300 million of dealer-led bank certificates of deposit issuances had been transacted on the platform with direct investor subscriptions.
The next steps will be to use the platform to issue longer-term instruments – DBS has always called it a bond platform – and to see if digital placements can become traded bonds.
“The first steps have been taken: the creation of a platform where issuers, lawyers, investors and other banks can work together directly,” says Lee. “We were testing the pipes: short duration, low credit risk, high grade. Then this year we will take the next steps.”
Specifically, in the second half of 2022 the product range will be expanded to include medium-term notes and new methods of price discovery and allocation will also be introduced. After that, the ambition is for the platform to be a multi-bank solution all market participants can use and then to embed the various other bits of the ecosystem – credit research, data analytics, rating modelling and hedging.
“The technology does what it says on the tin,” says Eaton. "DBS has proved the business case. It is now for the market to take it up."
But the biggest battle, as everyone knows, is buy-in. DBS is big in Asia, but will the largest banks in the global debt capital markets come on to its platform?
While FIX Marketplace allows issuers to sell direct to investors, it is not a pure disintermediation play. Borrowers can still issue through dealers. But it seems a stretch to imagine that other leading arrangers will use FIX Marketplace unless, having launched and scaled it, DBS invites more banks to own equity and share governance.
In the early days, leading banks don’t want to anoint a competitor as the winning developer of the digital DCM platform of the future. At least DBS has had the courage to step up with a platform that it believes will benefit clients, even at the risk its own groundbreaking effort may eventually be bypassed.
FIX Marketplace could become an independent platform. Lee has described it as the first step on an ambitious journey to democratize the capital markets for better transparency and broader financial inclusion. This can only be done effectively in consultation and collaboration with other market participants, including arrangers, issuers, investors, lawyers, auditors and clearing houses.
Banks may each develop their own automated digital capital markets systems that all talk to each other. But they are not just reluctant to endorse a competitor’s platform, they are also highly sensitive over data and loss of control of issuer and investor relationships. If other big banks do deals on FIX Marketplace, does DBS see the data? Even worse, does it own the data?
These are big issues to wrestle with in future. But the key question is whether, in becoming a first mover, DBS has met an actual need. The old system of capital markets may not be terribly efficient, but it does work.
“We conducted an independent survey to find out: do people really want it?” says Lee. “A lot of tech solutions, nobody wants it and it costs you a lot more than you save.”
The survey told them that there was a definite need.
DBS is looking and hoping for this engagement on a number of fronts right now: its digital exchange, its carbon exchange, the Partior payments platform and trade-finance blockchain consortiums.
“Whatever solution we have, we must allow for the old and new economy to interact,” says Lee.
Eaton sees concerns ahead for banks caught between developing capital markets platforms on traditional technology and on blockchain. DBS says that FIX Marketplace supports issuers in generating digital bond-ready transactions that can be listed and traded on the DBS Digital Exchange that it set up in 2020.
We are on the edge of tokenization and radical change, perhaps with delivery versus payment through Partior, which came out of the Monetary Authority of Singapore's Project Ubin that explored central bank digital currency. JPMorgan is partnering with DBS on Partior along with Temasek.
Many capital markets participants see blockchain as the future, but few want to go all-in on the new tech.
“How many blockchain bond deals have there been?” asks Eaton. “Maybe 10. It is still innovation theatre. It is not business as usual, and most of those bonds don’t trade. What happens if you launch your bond on Ethereum and an investor buys it, but the next potential investor is on Corda or some other blockchain and so needs to find a bridge?”
There is a clear risk that the new technology becomes as messy as the old. But participants are also wary of resting on the clearly antiquated legacy technology.
“It may be that new platforms will at least need DLT [distributed-ledger technology] on-ramps and that there will be hybrids between the existing tech stack and blockchain,” says Eaton.
A glance at the global DCM league tables shows them led by the big five US banks, followed by the Europeans. DBS deserves congratulations for taking this key step forward in digital capital markets. It will require some of the leading DCM banks to take the next step and transform debt capital markets.
Asia’s best bank for SMEs 2022: DBS
Always a strong player in small and medium-sized enterprise banking, DBS enjoyed a stellar year driven by digital investments, careful credit management and great progress in India.
As a franchise, DBS’s SME business increased net profits before tax by a mighty 67% year on year to the first quarter of 2022. SME revenue now accounts for 28% of all institutional banking, and is likely to grow; fee income was up 10% year on year in the SME business and deposits 9%.
As always with DBS, digital has a lot to do with it. In 2021, 84% of the bank’s SME income came from what it defines as digital customers, compared with 69% in 2017.
AI-driven revenue has grown fivefold, engaging over 150,000 customers with an in-house business intelligence engine that predicts the financial needs of SMEs and nudges them towards the right product.
The lending process for immediate access to working capital has been digitalized to such an extent that the bank boasts it takes a minute to apply, a second to approve, and disbursement is instant.
Digital has also helped to secure credit quality. More than 95% of non-performing asset or past-due cases were accurately predicted by the bank’s AI, enabling it to deal with problems before they really arrived; 80% of the borrowers who were identified as needing closer support were then averted from risk, covering S$700 million ($509 million) of the loan book.
It is partly because of this discipline that there was an 88% drop in specific allowances year on year in the first quarter. Delinquency rates are similar to pre-Covid levels even after over 90% of loans resumed principal repayment since the end of 2020.
Joyce Tee, who runs the SME business for DBS, says the same system will be equally helpful planning for interest-rate hikes and supply-chain disruption. “The model now is to look at all the different situations and ask: which customers are going to be vulnerable here?”
Half of all SME revenue is from markets outside Singapore. This was the year in which DBS finally seemed to crack India after many years of trying out different models, and one of the areas this manifested itself is in the SME segment covered by Lakshmi Vilas Bank, which DBS acquired during the pandemic. The acquisition almost doubled DBS’s asset and liability book in the SME space in India, and the current-account balance of the customers through the Indian acquisition has grown 11% since the deal was completed.
DBS has also continued its pattern of building a network of ecosystem partners, connecting SMEs to integrated financial solutions. The bank participates in 106 anchor projects, among them Nexus, C2FO, Taulia, Odex and JDL. Networks such as these give clients access to everything from freight forwarders to suppliers.
Euromoney: Asia's Best Bank for Wealth management 2022
The wealth management award is in some measure a decision about a model as much as a bank. For the last few years, we have tended to reward the big Swiss houses, UBS and Credit Suisse, who have scale, history and the advantages of being part of a larger bank. In other years, we might consider the Swiss pure-play model, the ultra-high net-worth-only model, the mass-affluent approach.
For some time, we have watched with interest the growth of what you might call the local model: banking entrepreneurs on the ground in Asia, and serving their needs, from wealth to succession planning to capital raising to corporate finance, as seamlessly as possible, growing as they grow.
Add in excellence in family office and digital innovation and you have a very strong offering, which is best demonstrated by Singapore’s DBS.
If there is ever a year to reward that model, it is this one, as China and Hong Kong’s isolation has led to increased business and flows for Singapore as a wealth centre – not necessarily as a replacement for Hong Kong (the data on flows just don’t support that) but certainly as a diversification effort. This has been a handy era to be considered geopolitically neutral.
In this environment, DBS’s wealth business has been booming. Fee income was up 18% year on year during our review period on the back of higher client activity; assets under management grew 13% year on year on the back of strong net new money, despite the negative underlying market performance. That net new money figure was up 39% year on year, and a compound annual growth rate of 35% from 2019 to 2021 through a pandemic.
And the pandemic is partly the point. It brought about a flight to quality and trust, from which DBS has benefited.
One insider says: “It’s like a fire hydrant coming to us.”
Delivering the whole bank is key to making the model work, since most of DBS’s private banking clients are also business owners. Relationship managers are trained across corporate banking disciplines, private equity access and anything else a client might need.
Much of DBS’s institutional banking and capital markets strength comes from putting the right transactions into the hands of the right investors, typically private-wealth clients and, in particular, family offices. It creates a virtuous circle when done well.
The growth and sophistication of family offices in Singapore plays to DBS’s strengths, and it has experienced a more than threefold increase in the number of established structures and a more than doubling of assets under management in this segment in 2021 alone. It estimates it has more than S$1 billion ($727 million) of family office structures in the pipeline, not just from Singapore but from China, north Asia, Asean and increasingly the US and Europe.
“The world is coming to DBS,” says Joseph Poon, group head of DBS Private Bank.
DBS is all about tech as a differentiator, and its new DBS Digital Exchange, launched in December 2020, will allow accredited investors (which, in effect, means DBS’s private banking client base, for the moment) to tap into a tokenization ecosystem for digital assets. These include crypto, but the more interesting bit is when things such as private debt or Series B or C pre-IPO funding rounds are tokenized and democratized, allowing clients to buy in at lower minimums than has historically been the case. This is a work in progress but DBS already has over S$800 million in digital assets under custody as of the end of 2021.
More broadly, digital wealth revenue doubled in 2020 and had grown a further 25% year on year by November 2021. DBS’s work on sustainability – which we expect to hear much more of in the year ahead – is also a differentiator for private wealth.
Most Innovative Financial Institutions - Global
DBS Bank worked to transform how banks operate and markets function in Asia. The bank’s products provide commercial and retail customers with more-seamless processes. The bank is proceeding to digitalize Asia’s capital markets, starting with its FIX Marketplace product for the fixed income markets. This fully digital and automated execution platform is the first where issuers can connect directly with investors. This product is working to create a more inclusive and accessible market.
Working with different technologies, DBS is developing innovative products like its 24/7 multicurrency payment settlement on Partior. Partior is the first live permissioned, blockchain-based clearing and settlement platform for commercial bank money. This platform prevents cross-border payments from needing to travel through a network of banks and time zones. It thereby eliminates associated inefficiencies. Instead, Partior uses a programmable real-time value transfer that eliminates friction in cross-border payment processing.
DBS developed solutions for the country’s biggest industries. Close to 50 million tons of marine fuel was sold in Singapore in 2020, and DBS is the first bank to finance bunker fuel deliveries with a digital bunker delivery note rather than a physical copy. This solution eliminates potential human error due to manual processes and incorporates real-time data connectivity.
To be more sustainable, the bank is changing how it does business. Its full-service branches now use the Internet of Things and robotics, integrating these with live-streamed video analytics data, to augment tasks typically performed by branch staff. DBS is also facilitating processes for customers. Among such processes are the bank’s electronic document verification that leverages AI, and biometric authentication for the Hong Kong government-issued identity card. Now, customers can open accounts in about 10 minutes.
Most Innovative Bank - Asia-Pacific
DBS Bank claims innovation in its DNA, and 2021 was no exception. Notable launches included an automated fixed-income execution (FIX) platform, where issuers can directly connect with investors—a first in Asia. Along with JPMorgan Chase and Temasek, DBS was behind Partior, the first live permissioned blockchain-based clearing and settlement platform for commercial bank money. DBS became the first bank in the market to finance bunker fuel-shipment deliveries using a digital bunker delivery note (eBDN); the first bank in Singapore to integrate video analytics with robotics for oversight and customer meet-and-greets at self-service branches 24/7; the first bank in Taiwan to enable customers to link their Economy Stimulus Vouchers to their credit card, using the DBS social media platform; the developer of QR code deposits via ATM; the first end-to-end comprehensive digital solution for credit card applications in Hong Kong; an industry first to offer a seamless straight-through journey from customer onboarding to instant US stock trading. Behind the scenes, DBS launched Client Connect—the first all-in-one, AI- and data-driven customer-relationship management platform to help frontline relationship managers and investment consultants to prioritize their call lists based on data and algorithms.