Euromoney, December 2017 (first published November 22)
Analyst briefings come and go, particularly ones about digital strategy.
It was quite something, then, when a DBS Digital Investor Day in November triggered a raft of glowing analyst reports and a 4% jump in the share price.
Some sample analyst notes demonstrate: Citi: “DBS in our view presented one of the most comprehensive digital strategies of any bank in the world, let alone Asia”; CIMB: “On stage, CEO Piyush and CFO [Chng] Sok Hui were Jeff Bezos-esque”; Credit Suisse calls the bank its top pick and says it could deliver 121% return over the next five years; All three rate it buy, or some equivalent.
So what brought this on? It’s nothing new that Gupta and his senior disruption lieutenants David Gledhill and Neal Cross are evangelical about digital disruption. Gupta is a mighty fine presenter, saying things such as “the best way to fight disruption is to pre-empt it and disrupt ourselves”, but he has been saying that for several years now.
No, the thing that so enthused analysts is that this appears to be the clearest articulation yet of what precisely a digital strategy means to the bottom line.
At Euromoney, we spend a lot of time listening to bankers explain how visionary they are in the digital realm, but little quantifying what that means to profitability. Too often the gist of it is chiefly a matter of marketing.
DBS has come up with a metric to define each client in consumer and small and medium-sized enterprises (SME) banking as digital or traditional – the rubric is freely available – and then crunch the numbers by accounting for all of their associated income and costs.
The results are striking. Digital consumer and SME clients deliver 27% return on equity; traditional clients produce a 19% return. The front-office cost to acquire a digital consumer account is 43% of that of a traditional one, or 54% for SMEs. Income per customer is more than double from a digital customer than from a traditional one. Digital customers account for 39% of customer numbers, but 68% of profit before allowances, with a cost-to-income ratio fully 20 percentage points lower than traditional clients.
Add to that some bold hopes about new digital businesses in India and Indonesia, and one can understand analyst enthusiasm, but the point, perhaps, is that it’s not just the quantum of the numbers so much as the fact that they exist at all. Digital strategies are precise in the execution, but vague in the articulation, and the market loves a clear answer to their most urgent demand: show me the money.