Digital transformation in banking & finance: strategies that impact Singapore
2 Oct 2023
In today's digital age, digital transformation is crucial for businesses in different industries. The digital revolution has touched almost all (if not all) industries, helping to improve operational efficiency and reduce costs through technology. Following the Covid-19 pandemic, customer expectations and how businesses operate have also changed.
Singapore is one of the countries that are at the forefront of digital transformation efforts, and the city-state's banking and finance industry is no exception.
At DBS, we started our digital transformation journey in 2014, and created one of the most comprehensive digital transformation programmes for a bank. Today, we offer financing services that are highly customised and seamlessly woven into everyday life.
Introduction to digital transformation
As defined by McKinsey & Company, "Digital transformation is the rewiring of an organisation, with the goal of creating value by continuously deploying tech at scale.” It is not just about implementing new technologies, but digital transformation also involves the overhaul of an entire organisation's business operations, processes, and culture.
Why do we need digital transformation? The world is evolving rapidly, alongside the strategies that businesses employ to thrive and stay competitive. When companies embrace digital technologies, they can potentially improve their productivity, efficiency, and overall growth.
Here are some ways digital transformation can benefit an organisation:
- Customer experience: Personalisation caters to different customer needs and preferences, helping customers enjoy convenience and ease when shopping online or accessing a company's services. Digitising this process allows businesses to tailor customer interactions that are more effective and efficient.
- Cost savings: Digital transformation can streamline business operations and reduce costs by automating processes, eliminating redundancies, and optimising workflows and efficiencies while meeting business objectives.
- Agility and adaptability: Businesses can respond to market changes and customer preferences quickly and effectively, adjusting operations and business goals to support growth and innovation.
Digital transformation in banking and finance
It is inevitable that with the rise of digital technologies, digital services and their proliferation in our daily lives, businesses and organisations must keep up or become obsolete. The banking and finance sector is no different, reshaping the traditional model and customer experiences through digital transformation.
At DBS, we have four key pillars of digital transformation, which include accepting failure as part of the journey, as well as upskilling employees. The bank has also implemented a comprehensive digital strategy, integrating digital technology into all aspects of its operations. This includes digitising customer services, adopting artificial intelligence/ machine learning and automation, and leveraging data analytics for better decision-making. Forbes highlights DBS as a blueprint for digital transformation in finance.
By imbuing a startup culture in the organisation and equipping employees with important digital skills, a spirit of innovation and entrepreneurship will continue to flourish. This is key when embracing emerging technologies such as blockchain and artificial intelligence/ machine learning that will likely reshape the world of finance in the coming decade. A measurement methodology was also developed to quantify the impact of our digital transformation on our bottom-line. Today, we are now seen as a global leader in digital transformation, a feat that was also studied by McKinsey.
The banking industry and the finance function is also adopting technology and innovative practices for greater efficiency and deeper insights into risk and customer behaviour. AI capabilities can be leveraged to drive better productivity and decision making. This can be seen via chat and voice bots that can answer frequently asked customer questions and even assist with functions like debt collection and managing credit risk of small- and medium-sized enterprises.
Digital transformation strategies and best practices
Digital transformation is a complex process that requires careful planning and execution. There is no one-size-fits-all strategy when it comes to digital transformation but the process can be distilled into three main phases. According to a Harvard Business Review article written by digital transformation thought leader Dider Bonnet, the first two stages, modernisation and enterprise-wide transformation, are focused on reshaping the existing business. The last phase is about new business creation and uncovering new sources of value.
However, skipping a step or moving too fast could result in failure, he cautioned. “Various studies from academics, consultants, and analysts indicate that the rate of digital transformations failing to meet their original objectives ranges from 70% to 95%,” he added.
DBS also conducted research to find out what determines the success or otherwise of digital transformation today, gathering the insight of 1,225 senior executives worldwide. This was one of the first studies to explore the finance/ commercial dynamic at the heart of transformation.
As a result, four key principles of digital transformation were identified in DBS’ research:
- Agree on a “north star” and accept failure along the way. Having a shared vision helps support a culture that supports constant improvement through positive feedback loops.
- Harmonise the relationship between finance and commercial for better success. Finance professionals are no longer passive observers but key players in enabling returns in their businesses’ commercial performance.
- Give treasury a clear role in the finance/ commercial partnership. By giving treasury a more influential role in transformation, you will drive better results.
- Build and borrow new skills and technologies within treasury. By improving the skills base of your treasury teams, you will empower them to play a more forward-thinking and outward-looking role.
On our end, a customer-centric focus is also key. This involves understanding the needs of customers to inform product development and services, as well as continuously evolving digital services. We design digital solutions around this group of stakeholders to ensure they have a joyful and seamless banking experience – an approach of “managing through journeys”, versus a focus on projects in the past.
Our digital transformation strategy has helped DBS clinch the accolade of World’s Best Digital Bank by Euromoney multiple times. As DBS CEO Piyush Gupta said in a 2018 interview,“So in running the company, we started to act less like a bank and more like a tech company, asking ourselves, 'What would Jeff (Bezos) do?' I believe that today, DBS has one of the most comprehensive transformation programmes for a bank, encompassing journey thinking, culture change, and a measurement methodology that is able to quantify the impact of our digital transformation on our bottom-line.”
Digital transformation in Singapore
Digital transformation in Singapore has been a key focus for the government and various industries, including the finance and banking industry. The Singapore government has been actively promoting a digital-first approach to drive innovation and improve efficiency across sectors with initiatives such as the Smart Nation programme. Today, 95% of all transactions with the government are digital from end-to-end.
The Covid-19 pandemic has also heightened the need for digital acceleration. During the coronavirus’ peak in 2020, almost three-quarters of local firms sped up digitalisation, seeing it necessary for survival and success during that crucial time. In 2023, Singapore was recognised as the leading smart city in Asia and the seventh-smartest in the world, on Swiss business school Institute for Management Development (IMD)’s Smart City index.
Benefits and implications of digital transformation in banking
Digital transformation in finance and banking offers numerous benefits for businesses and consumers alike.
In DBS' consumer and SME businesses in Singapore and Hong Kong, the benefits of digitalisation are most visible. The bank grew the proportion of digitally-engaged customers from 42% in 2017 to 60% in 2022.
Here are some examples of benefits and possible implications of digital transformation in banking:
Streamlined processes: Automation plays a vital role in digital transformation, allowing banks and financial institutions to streamline their processes and reduce manual intervention. Tasks like account opening, loan processing, and fraud detection can be automated, resulting in faster turnaround times and improved efficiency. DBS built the Intelligence Business Process Manager, an API that automates manual processing and provides instant updates to customers – the first API in banking to consolidate and incorporate different technologies, systems and platforms. Meanwhile, the bank’s AutoFIN (automated financial analysis) enables relationship managers to spend more time nurturing client relationships. These innovations, among others, clinched the bank nine wins in Global Finance’s Most Innovative Bank 2023 awards.
Fintech collaboration: Collaboration with fintech companies has become increasingly important for traditional banks and financial institutions. By partnering with these agile and innovative startups, they can leverage their technological expertise and offer customers a wider range of services such as digital wallets, peer-to-peer payments, and robo-advisory platforms.
For instance, in 2020, during the pandemic, DBS collaborated with Singaporean fintech Doxa to launch Doxa Connex, Singapore’s first automated supplier procure-to-pay solution for the construction sector. This helped main contractors improve cashflow management with their suppliers while increasing productivity and efficiency. Another collaboration was with global fintech FinLync in 2022. By aggregating global banking APIs, corporates can now seamlessly connect to and leverage DBS’ extensive suite of cash management, workflow, trade, information and foreign exchange services in real-time.
Data analytics and AI: By harnessing the power of data analytics and AI, banks can gain valuable insights into customer behaviour and preferences. This can be used to offer tailored products and services, develop targeted marketing campaigns, and mitigate risks through advanced fraud detection algorithms.
Cybersecurity: As digital transformation progresses, the importance of robust cybersecurity measures cannot be overstated. With the increased digitisation of financial services, banks must invest in strong security protocols to protect customer data, prevent cyber-attacks, and ensure regulatory compliance.
On that note, enhanced security and regulatory controls give businesses a better overview of current risks and future risks, while providing secure and convenient transactions for customers. However, it also presents challenges like cybersecurity threats and the importance of having a comprehensive security framework.
Said DBS Chief Information Officer Jimmy Ng, “With a hybrid-work future, cybersecurity efforts must be strengthened to address the larger attack surface and potential gaps in work processes. Our multi-layered defence includes micro-segmentation of our networks, and multi-factor authentication.
“To safeguard customers from fraud, we deployed AI technology to detect and take prompt actions against phishing or scam attempts, with real-time pre-transaction blocking. We worked with the authorities and partners to implement new solutions, such as registering with the SMS Sender ID Registry to provide a secure banking experience.”
Future trends in digital transformation for DBS and the banking industry
Digital transformation in banking and finance has rapidly advanced within a few years. It is crucial to note that the journey is far from over, with predictions showing innovation will continue expanding. According to the McKinsey Technology Trends Outlook 2023, some of the top trends that will drive digital transformation include applied and generative AI, machine learning, and Web3 (inclusive of blockchain technology). The investment in trust architectures and digital identity increased by almost 50% since 2022 as security, privacy, and resilience become increasingly critical across industries, said the report. The continued digital transformation of the financial sector will create opportunities for new businesses to enter the market and force traditional banks to evolve their business models.
Businesses that embrace the change have thrived, and those that resist will continue to struggle to compete in a rapidly changing market. By using best practices and keeping pace with industry trends, businesses in the banking and finance sectors can maximise the benefits of digitalisation. The banking industry will continue to transform, and it will take collective efforts from the industry's stakeholders to welcome the transformative journey to remain relevant.
With the growing competency of generative AI models, more complex customer queries and transactions can be outsourced to AI. This can help banks manage drastically larger transaction volumes with smaller staff strength, lowering cost-to-income ratios and increase profitability.
In conclusion, digital transformation is crucial to most businesses in today's digital age, with numerous benefits, including increased productivity, enhanced agility, improved customer experiences, and cost savings. It requires a shift in mindset and organisational culture, including a willingness to adopt new technologies, a commitment to employee training and development, and having a clear understanding of the company's objectives. Digital transformation is a journey that requires careful planning, but once completed, it offers numerous opportunities for businesses to grow, innovate, and compete effectively in the ever-evolving digital marketplace.
Digital transformation in banking and finance is an ongoing process that requires continuous adaptation and innovation. Institutions that successfully embrace these changes can gain a competitive edge, attract a wider customer base, and provide a more seamless and secure banking experience.
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