2 Big Ways DBS Group Holdings Ltd Will Transform in the Future
(DBS Group Holdings Ltd (SGX: D05), Singapore’s largest bank, is going digital and the results are beginning to show.
For 2016, DBS Group’s total income was $11.5 billion, an increase of 6% from 2015. Interestingly, profit before allowances grew at a faster rate of 10% to end at $6.52 billion. The reason behind this was the slower rate of growth in expenses. DBS Group said that costs were contained due in part to productivity gains from its efforts to go digital.
For the first-half of 2017, expenses declined another 1% from digitalisation and productivity initiatives. DBS Group’s cost-income ratio was down to 43% for the same period.
During its earnings briefing, DBS Group chief Piyush Gupta revealed two ways that the bank will be changing in order to bring the cost-income ratio to 40%. He referred to the slide below in making his points:
Source: DBS Group CEO presentation
1. Fewer bank branches
Gupta said that there would be a reduction in the number of bank branches:
“… over the next three to five years, we should be able to rationalise the branch footprint.
If you look at the Netherlands, branches are down to 25% of what they were five years ago. If you look at Scandinavia, branches are down to 30-40% of what they used to be. Our own footfall in our branches is coming down because we continue to move people onto digital channels. As more and more people are using our iBanking, PayLah, and PayNow, they come to the branch [less]. We’re seeing a reduction of almost 3-4% in footfall in the branches.”
DBS Group is seeing more customers use online services to perform the activities that used to happen at a physical bank. On a personal note, I can’t remember when I last visited a bank branch. Do you?
2. Fewer ATMs too
As DBS Group moves more of its customer payments into the digital sphere, the need for cash handling should start to reduce:
“Equally, we’re able to rationalise our ATMs partly because we’ve been able to [bring in] a new generation of ATMs. Earlier, we had [separate] machines to put in cash and take out cash.
Today, you can put in cash and take out cash from the same machine. Now that is quite a dramatic impact because not only can we reduce the number of machines, but it also saves the number of cash trips we need to make.
[Previously], we had staff going to withdraw cash from one set of machines, bring it back and count it, and then another bunch of staff going to load cash into the other set of machines. Now, because the cash goes into the machine, it cuts down the number of trips.
Our total cost of cash handling in Singapore is $80 million-$100 million, so as we rationalise both the machines and the cash recycling process, you see visible saves in that.”
The new ATMs models can handle both cash withdrawal and cash deposits. The change reduces the number of ATMs needed around Singapore. The combination also simplifies the process of cash handling. Gupta believes that there will be tangible savings from the simplification of the process.