OCBC says no to digital bank, but yes to 'digital transformation throughout bank': CEO

OCBC Bank Group CEO Samuel Tsien speaking at an event on June 18, 2018. PHOTO: OCBC

SINGAPORE - OCBC Bank's digital transformation is bearing fruit with more customers transacting digitally while helping to drive costs down, said its chief executive Samuel Tsien.

But OCBC will not create digital banks, nor apply for an Internet bank licence in Hong Kong, said Mr Tsien on Thursday (Nov 1) following the release of its third-quarter results.

The bank does not believe in focusing on digital banking, but believes in a digital transformation throughout the bank, he said, in a slight dig at his peers.

DBS Group Holdings has digibanks in India and Indonesia while United Overseas Bank said in August that it plans to launch a digital bank for Asean customers.

"We do not intend to create a bank outside of the conventional bank to pursue purely the banking digital strategy," he said.

OCBC believes that it does not need a separate digital bank to look for new customers, whether it's in its core markets or even in markets like Indonesia where it has a smaller market share, he said.

"We also do not think it's the right approach," he said. OCBC NISP Indonesia will instead have a separate unit to pursue digital connection with customers while operating under the same brand and licence and the same legal unit, he said.

Mr Tsien said the bank is not applying for an Internet bank licence in Hong Kong. The Hong Kong Monetary Authority has opened up additional licences for Internet banks and banks without branches, and 29-30 applications have been submitted, he said.

In the past five years OCBC has been spending more on technology as it pushed towards digital transformation throughout the bank, he said.

Technology spend, excluding IT staff costs, has risen steadily to 11.3 per cent of total costs, said Mr Tsien.

In the first nine months of 2018, technology spend was $330 million, against $430 million in 2017.

This could go to 12-12.2 per cent next year, where it could be "half a billion dollars or more, it is most likely", he said.

OCBC is also committed to spending $20 million on educating its staff on their digital knowledge, he said.

"We're educating them, we're encouraging them... not just from a work perspective... but also from a social and personal perspective because going forward, if you're not digitally equipped and digitally knowledgeable, you may feel yourself to be gradually outpaced in societal development," he said.

"We think digital as a techonology should be employed throughout the bank, and not just focusing on interaction with the market, or with the customers. It should be all comprehensive from the back office to the middle office, to the front office," he said.

Since 2012, OCBC has reduced 14 per cent of its branches, in Singapore, Hong Kong, China and Indonesia, he said. The only place it has increased the number of branches is Malaysia - by five in East Malaysia where the bank has a smaller presence and believes "there's a market which is very worth developing for us to be more engaged in", he said.

"Teller headcount has fallen by 15 per cent; there's been no attrition because we always retrain our people to do other things," he said.

Sales have improved three times, and in Singapore, the bank has 2,700 sales staff who are digitally equipped, he said.

Excluding ATM withdrawals, 87 per cent of financial transactions and 70 per cent of international remittances are now done on the digital channels, he said.

Previously there was quite a lot of manual processing for remittances, which included customers having to queue at a bank counter to fill in forms. he noted.

"So it has been helping us on the cost side quite a bit," said Mr Tsien.

OCBC is targetting for consumer digital customers to reach 60 per cent for all its core markets, and for small and medium enterprise (SME) digital customers to hit 70 per cent.

Digital consumers who have used the Internet or mobile banking at least once in the last three months made up 48 per cent in the first-half of 2018, up from 36 per cent in 2014. SME digital customers have risen faster, making up 60 per cent now from 36 per cent in 2014.

Revenue from the digital consumer customer is two times more than from the non-digital customer, while revenue from SME digital customer is three times more.

At the same time OCBC expects the cost-to-income ratio to fall to 40 per cent by 2023, from 42.7 per cent now, he said.

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