SINGAPORE (Aug 12): Digital banking and a digital bank are not quite the same, says Dennis Khoo, regional head of TMRW Digital Group at United Overseas Bank. Digital banking is part of an omni-channel strategy in which customers use the banking app as part of the products and services a bank offers. In the case of UOB, its banking app UOB Mighty provides customers with a bank on the phone.
A digital bank is a mono-channel strategy in which the bank uses data to engage customers as its primary goal and business model. “In the business model for a digital bank, it will centre around service not as a cost centre but as an engagement differentiator and use it (data) to help customers do what they want to do but do it better, and help customers spend and save better,” Khoo explains in a recent interview.
UOB’s standalone digital bank TMRW was launched in Thailand in March. Thai customers of UOB TMRW simply download the app, fill in their details and take a photo of their identity card. They are then directed to any of the 350 kiosks located throughout Bangkok, where they insert their IC and place their left and right fingers on the fingerprint reader for authentication. They can then use their TMRW account immediately. The kiosks are in high-foot-traffic areas such as Siam Paragon and Bangkok Mass Transis System stations and also at UOB branches.
TMRW is targeted at millennials (those born between 1980 and 1994) and Generation Z (those born in and after 1995). According to a results presentation on Aug 2, UOB plans to launch TMRW in five markets, including Thailand. The next market is likely to be a market with a big population base, says Wee Ee Cheong, CEO of UOB: most probably Indonesia, followed possibly by Vietnam.
UOB’s target is for a customer base of three million to five million in these five markets (the other two being Malaysia and Singapore), with an engagement index of more than 7, and a steady-state cost-to-income ratio of 35%. Engagement can be tracked, measured and targeted, based on frequency and depth of usage and specific actions taken.
TMRW is for the young, while Mighty is for everyone. UOB has been present in Malaysia and Singapore since 1934; it celebrated its 80th anniversary in Singapore in 2015. Its retail customer base is likely to comprise all demographics, including those from the Pioneer and Merdeka generations, who are wealthier and less digitally savvy. UOB also has a substantial small and medium-sized enterprise franchise and corporate customers. The digital banking for UOB’s medium-sized companies and large corporates is Business Internet Banking Plus (BIB Plus).
“We don’t prevent a 50-year-old from applying for TMRW, but we have a limited product set, such as current account, credit card and personal loan. We are not at the stage where we are looking at wealth products yet,” says Khoo.
“The way we are competing is very different; our segment is very different. We choose young professional families because we want a mono-channel form of banking based on the mobile, and mobile data. It’s simpler and cheaper to run,” says Khoo. “We need transactions to generate data and use this to engage customers so that we can build a solid, sticky relationship with customers and propose products. We have to look at needs to fit solutions.”
Eye on net promoter score, advocates
TMRW does not plan to attract customers with goodies. “Showing big numbers is the most unimportant thing because all the banks that show big numbers have failed [to turn a profit]. If I take in one or two million new customers now, I will have lots of dormant customers and low engagement,” says Khoo. “In the first two years, we are looking at creating advocates who ask other customers to sign up, and this lowers the cost of acquiring customers.”
UOB is also keeping a close eye on TMRW’s net promoter score, which measures customer experience and predicts business growth. Khoo says TMRW’s NPS tracks expectations. “We have a high percentage and total number of advocates among our base.”
The rationale behind a high NPS is that once customers are happy with TMRW, they will refer the bank to friends. “Initially, we had a target of 15% of advocates at the end of the first year. We are moving in that direction. I see progress going according to plan. We see Personetics starting to kick in,” says Khoo.
In July last year, UOB invested in and partnered with Israel-based fintech Personetics to enhance its artificial intelligence (AI)-based solutions for customers across the Asean countries. Personetcis uses cognitive analytics tools, which include machine learning and pattern recognition algorithms, to enable engagement with customers. It appears that TMRW has enough data to send insights to customers, such as notifying them to pay bills, collect rent from tenants or check salary payments.
“We are seeing people transacting, and we can measure these NPS and see whether they are advocating others to sign up,” Khoo says. The other area that a mono-channel digital bank is different is that it has a chatbot, which Mighty does not have. Chatbots are more useful in a mono-channel digital bank because everything is centralised.
“TMRW is not about launching something that anyone can copy, but it’s about learning from data to engage customers. When you serve the digitally savvy, you can push what you are doing and take more risk [in that manner, as] they are digital natives who learn very quickly,” Khoo says.
Unlike digital banking apps, which have to cater to older customers, TMRW has no fixed menu, leaving the bank with the ability to experiment.
The traditional retail banking model of cross-selling products to customers appears to be truly passé with the emergence of digital banks and digital banking.
“The future is to engage to cross-sell,” Khoo says of using data analytics to observe a customer’s banking behaviour. “This is the new business model. If you can’t engage the customer fast and in a cost-effective way”, the bank could go the way of Eastman Kodak, he points out.
Sidestepping a Kodak moment
In the old days, a Kodak moment meant capturing an image on camera for posterity. These days, though, a Kodak moment is a buzzword for the company’s failure to develop a new digitally empowered market, owing to its desire to protect its existing market. Khoo uses the Kodak analogy to describe the revolution taking place in banking today.
“This big upheaval in the use of data to serve and engage customers is not equally understood across the industry, and this is the opportunity. There is a revolution going on in transactional banking for retail customers, and if you don’t catch on to this, it could be a Kodak moment,” Khoo says.
Retail banks, including UOB’s retail bank, are embracing technology because of the efficiencies and other advantages from digital banking. Thirty to 40 per cent of a big retail bank’s customer base provide the largest portion of retail earnings.
Since everyone has a mobile, the transactional part of banking will be increasingly through the mobile, whether it’s a cashless or contactless payment or QR code or money transfer.
There are some transactions that should not be done through the phone. Nobody is likely to use a mobile app to finance a home. The larger the ticket size, the higher the risk for the bank, and it is more likely that the customer would need someone to speak to. In addition, most people are unlikely to deposit vast sums for investment in a fintech or start-up.
“That’s when most of the branches will [become] places for advice,” Khoo says. “It is the model of the future, but banking isn’t something you do very fast.” Banking or investing in big-ticket items such as property is very different from being engaged on social media.
“Banking is a long cycle. Nobody wants to switch banks,” Khoo notes. But banking is changing. Hence, the use of advocates to attract young and up-and-coming Thais to use TMRW. TMRW has the ability to flag the transaction and offer the customer a savings challenge, and then reward him or her.
The CASH Act
Despite the populace in China and Singapore increasingly going cashless with mobile banking, on a global scale, there is less likely to be a trend to go cashless. This is because of the debate within the US.
A proposal for a Cash Always Should Be Honoured (CASH) Act is being debated in Congress. Already, lawmakers in Philadelphia have passed a ban on cashless stores with effect from July. New Jersey recently passed a similar measure and New York City is considering such a legislation. Massachusetts already requires businesses to accept cash.
The US is important for two reasons: the US dollar is the world’s reserve currency and therefore, very powerful, and the US is the world’s largest economy. More recently, the data breach at Capital One may make customers wary of digital banking and digital banks.
Even then, mobile-only banks such as Monzo and Nubank are examples that Khoo studies closely. UK-based Monzo, which was launched in 2017, gives each customer a Monzo-branded Mastercard that allows customers to track expenses such as transport, groceries and bills.
São Pauolo-based Nubank is probably a different proposition. The Brazilian fintech, set up in 2013, initially used fintech to bank some of Brazil’s 55 million unbanked population. It has since expanded to Argentina, Mexico and other parts of Latin America.
“We look for inspiration from digital banks such as Nubank. They will know what we are talking about,” Khoo says. “If we can build a five-year lead in using data to engage customers, we will have a lead that is unassailable.” UOB’s grand plan is to build an Asean digital bank. “We’ve taken many years to assemble these regional banking licences,” Khoo points out.
Asked whether the new Singapore digital bank licences are a threat, Khoo replies that by the time the new bank is operational, TMRW would probably be in its third market. “We are building a regional bank, and our ability to deploy across countries is very high. That’s the weapon we have in the storeroom that we can bring out if we need to.”
