Singapore's largest bank DBS is rolling out "soft" tokens for its 2.6 million online and mobile banking customers to replace hardware tokens.

The soft token, or digital token, is being embedded in DBS' digibank app and personalised for every user in batches starting from yesterday. It is used to generate the one-time passwords (OTPs) needed for accessing e-banking accounts.

The bank hopes to let customers ditch their hardware tokens by June next year, when the digital token is upgraded to take over all of the former's functions.

The roll-out follows a successful trial which started in December last year involving some 200,000 DBS and POSB customers.

"It is part of our innovation drive so that banking becomes simpler for customers," Mr Jeremy Soo, head of Consumer Banking Group Singapore at DBS Bank, told The Straits Times.

The digital token targets mobile banking users, for starters. Customers will be alerted by the bank via an e-mail to set up their soft token in the digibank app.

Once it is set up, they need not enter the OTP manually as it is automatically accepted by the app.

Over the next few months, the soft token will be upgraded to also generate OTPs for customers to access their e-banking accounts on their computers. DBS will continue to issue hardware tokens until June next year, when the soft token has all the advanced features of the hardware token.

The advanced features are for authenticating high-risk transactions such as adding a payee or fund transfers.

The Straits Times estimated that the exercise could save the bank more than $12 million in hardware costs, as these tokens - priced at upwards of $10 each - are typically replaced every five years after their battery runs out.

United Overseas Bank was the first bank to issue a soft token, in December last year, with its UOB Mighty Secure app. Its 280,000 mobile banking customers can use the soft token to authenticate even high-risk transactions such as adding a payee or fund transfers using their phones.

Sales executive Peter Lee, 42, gave digital tokens the thumbs up. "Mobile banking is the way to go, and it is troublesome to carry a physical token," said Mr Lee, who is a DBS digibank user.

But businessman Harry Chew, 47, asked: "What if my phone is stolen or if someone has hacked into it?"

DBS' Mr Soo assured customers that the bank is committed to providing the "highest level of security", and its digital token is encrypted and protected against phone malware.