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Creating shareholder value

from digitalisation
Chng Sok Hui
Chief Financial Officer

17 November 2017

The presentations contain future-oriented statements, including statements regarding the


Group’s vision and growth strategy in the light of anticipated trends as well as economic
and market conditions. Such statements necessarily involve risks and uncertainties, 1
which may cause actual performance in future periods to differ from projections.
Agenda for the day
Presentations Showcases
Transforming technology and Tech and Ops | APIs
Digital Transformation culture Use of data insights

Consumer and SME Bancassurance |


Pre-empt disruptors
(Singapore, Hong Kong) POSB Smart Buddy

Consumer and SME


Disrupt incumbents digibank | Tally
(Growth Markets)

Digitalise for profitability


• Audit Reimagining Audit
Other Businesses1 • Cash Management Treasury Prism
• Wealth Management iWealth
• Strategic Marketing

1 Corporate Bank, Private Bank, Markets, and Others


2
44% of the bank: High performing and rapidly digitalising business
Consumer and SME (Singapore, Hong Kong)

2017 income: S$11.6bn Pre-empt disruptors


• Rapidly transforming to digital
• Gaining market share, creating new income streams
• #1 in Singapore in mortgage, auto loans, cards, banca today1
S$5.1bn
Income Cost-income ratio ROE

11%
CAGR 2 49% 43% 22% 24%
38% (2015) vs Group: 4% 2015 2017 2015 2017

44% (2017) • Jewel in the crown


• Likely to grow income at double-digit
• Has potential to contribute ~50% of the bank’s income in 5 years
2017 figures annualised based on 1H17, where applicable
1 Ranking for mortgage, auto loans, cards based on balances (source: Credit Bureau Singapore, Sep 17);

Ranking for bancassurance based on new business weighted premiums (source: Life Insurance Association, 9M17) 3
2 2015-2017
First bank to develop methodology to measure digital value creation
Consumer and SME (Singapore, Hong Kong)

Two distinct segments based on


2017 income customer behaviour
Digital • Digital (D): predominantly online /
• 23% CAGR mobile interactions
49%
• 27% ROE
(2015)
44%
• Traditional (T): predominantly offline
• 11% CAGR
• 24% ROE
interactions
60%
Traditional (2017) We have been progressively helping
• -2% CAGR our customers adopt Digital behaviours
• 19% ROE

The Digital segment is growing faster,


with superior ROE

2017 figures annualised based on 1H17, where applicable; CAGR refers to 2015-2017 income
4
Agenda

01 Robust and well-tested methodology to measure


digital value creation

02 Digital segment demonstrates clearly superior financial


and operating metrics

03 Rigorous business planning to drive digital adoption and


progressively reduce cost-income ratio (CIR)

5
Robust, well-tested methodology based on customer behaviour

Three behavioural criteria for “Digital customers”

1 2 3
Product purchase More than 50% of More than 50%
or segment financial of non-financial
upgrade via OR transactions via OR transactions via
digital channels digital channels digital channels For each customer, all
associated income and
all associated costs are
completely and
accurately attributed
• Account opening • DBS Remit • Add / delete payee
• iWealth • Pay bills online • Change personal
details

Customers must re-qualify on a rolling 12-month basis

6
P&L for Digital and Traditional segments based on customer view

Consumer and SME (Singapore, Hong Kong) End-to-end P&L constructed


following a set of principles
Traditional Digital • Digital and Traditional customers
identified based on banking behaviour
Income Income
• Complete attribution of all income
streams and costs
Cost Cost
• Direct • Direct • Full reconciliation to Group financial
• Indirect • Indirect
• Overheads • Overheads statements

Profit Profit • Granular data to ensure methodology rigour

CIR CIR • Time-tested over three years

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Agenda

01 Robust and well-tested methodology to measure digital


value creation

02 Digital segment demonstrates clearly superior


financial and operating metrics

03 Rigorous business planning to drive digital adoption and


progressively reduce cost-income ratio (CIR)

8
Superior returns from Digital segment

2017 profit and loss (S$bn) Total T D Digital is material


Customers (m) 5.9 3.6 2.3
39% of customers contribute
Income 5.1 2.0 3.1
60% of income and 68% of
Costs 2.2 1.1 1.1 profit before allowances
Profit before allowances 2.9 0.9 2.0

Key indicators Digital is more valuable


Income per customer (S$’000) 0.9 0.6 1.3 2X income per customer
Cost-income ratio (%) 43 55 34 20pp lower CIR
Return on equity (%) 24 19 27 9pp higher ROE

Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable; numbers have slight rounding differences
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Consistently superior returns from Digital segment over time

Profit and loss (S$bn) 2015 2017 2015 2017


D D Share of total (%) Digital increasingly material
Customers (m) 1.9 2.3 33 39
Strong growth momentum
Income 2.0 3.1 49 60 – driven by customer
Costs 0.8 1.1 40 48 migration and uplift in
income per customer
Profit before allowances 1.2 2.0 58 68

Key indicators Differential over T Digital increasingly valuable


Income per customer (S$’000) 1.1 1.3 2X 2X Higher income per customer
Cost-income ratio (%) 40 34 -18pp -20pp Lower CIR
Return on equity (%) 25 27 +8pp +9pp Higher ROE

Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable; numbers have slight rounding differences
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39% of customers contribute 68% of profit before allowances
Digital share of customers, income and profit before allowances

33
Customers +6pp
2015
39 2016
2017
49
Income +11pp
60

58
Profit before
+11pp
allowances
68

0 10 20 30 40 50 60 70 Digital share (%)

Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable; numbers have slight rounding differences
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Digital customers have consistently lower CIR and higher ROE

CIR (%) ROE (%)

60 58 30
55 55 27
T 27 D
25
50 25
40
40 35 34 20 19 19
18 T
D
20

10 20pp 20pp Delta 5 Delta


18pp 8pp 8pp 9pp

0 0
2015 2016 2017 2015 2016 2017

2017 figures annualised based on 1H17, where applicable; numbers have slight rounding differences
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Digital customers’ superior CIR and ROE driven by four key factors

• Lower cost-to-acquire

• Lower unit cost-to-serve

• Higher income per customer year on year

• Consistently faster growth in income per customer

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Digital customers: Lower cost-to-acquire

Front office cost-to-acquire per account, 2017


Consumer SME

54%
43%

T D T D

2017 figures annualised based on 1H17, where applicable


14
Digital customers: Highly engaged; multiple times more transactions…

Customer-initiated transactions per customer, 2017


Consumer SME

60 389

16x 6x

Online channel 64
4
Offline channel

T D T D
3,521 2,255 Customers (’000) 84 81

Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable; numbers have slight rounding differences
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…so higher absolute cost-to-serve, but lower cost-to-serve as a
percentage of income
Income and cost-to-serve per customer, 2017

Consumer SME

12,068
Income

838 5,552
Income

418

1.5x Cost-to-serve 1.7x Cost-to-serve


T D T D

2017 figures annualised based on 1H17, where applicable; income per customer excludes lump-sum income not tracked at customer level
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Consumer: Consistently higher income from broad-based engagement

Multiple over T 2015 2016 2017 2017

Income per customer 2x 2x 2x Products 1.7x

838
1.6x Other lending
2.6x Credit cards Deposit balance 1.5x

3.4x Mortgages
418
2.2x Wealth and others
Loan balance 3.6x

1.5x Deposits

T D Investment balance 2.0x

2017 figures annualised based on 1H17, where applicable; income per customer excludes lump-sum income not tracked at customer level
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SME: Consistently higher income from broad-based engagement

Multiple over T 2015 2016 2017 2017

Income per customer 2x 2x 2x


Products 1.7x

12,068
3.6x Treasury
2.3x Trade finance

Cash Deposit balance 2.6x


5,552 3.2x
management

1.4x Loans

Loan balance 1.3x


T D

2017 figures annualised based on 1H17, where applicable; income per customer excludes lump-sum income not tracked at customer level
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Digital customers: Consistently faster growth in income per customer

Relative income growth for same customer cohort, 2016 v 2015


Slower than overall Moderately slower than overall Faster than overall

Consumer SME
T 1 D 2 T to D T 1 D 2 T to D
Total Total
Deposits
Loans
Mortgages Cash
Credit cards management

Other lending Trade finance

Wealth and others Treasury

% of customers 65 28 7 65 28 7

1• Existing Digital customers (D): Faster income growth


2• Newly migrated Digital customers (T to D): Also show faster income growth
19
Agenda

01 Robust and well-tested methodology to measure digital


value creation

02 Digital segment demonstrates clearly superior financial


and operating metrics

03 Rigorous business planning to drive digital adoption


and progressively reduce cost-income ratio (CIR)

20
We have changed the way we run our business

• Increase customer acquisition through wider distribution


Acquire
• Lower acquisition cost

• Eliminate paper, create instant fulfilment


Transact
• Decrease cost

• Drive ‘sticky’ customer behaviours, cross-sell through contextual marketing


Engage
• Increase income per customer

21
We have changed the way we run our business

From To

• Branch-led • Ecosystem strategy for wider outreach


• Feet-on-street • Data-driven digital marketing and search
Acquire engine optimisation
• Digital onboarding

• Paper-heavy • Paper-less, straight-through processing


(“Design For No Operations”)
Transact • Brick and mortar channels
• Seamless, omni-channel

• Product-focused • Embedding ourselves in the customer journey


• Generic engagement approach – driving ‘sticky’ customer behaviours
Engage • Contextualised research and marketing for
cross-sell

22
Acquire: KPIs set and tracked across products to drive results

KPIs Examples

Consumer Increase digital acquisition share: Online deposit account opening


• Deposits
Digital share of deposits onboarding
• Cards
• Loans 43%
• Equity
• Unit trusts 11% 32pp
• General insurance

2014 2017

SME Increase digital share of: Online deposit account opening


• New account opening Digital share of deposits onboarding
• Banker’s guarantee
• Loans
64%

Increase subscriptions: 27% 37pp


• IDEAL – online banking platform

2014 2017

2017 figures annualised based on 1H17, where applicable


23
Transact: KPIs set and tracked to drive results

KPIs Example

Consumer Migrate transactions to digital: Cross-border payments: Customer-initiated


• Deposits
Volume of transactions (m)
• Remittance
• Loans 6.1
• Equity D
• Unit trusts
4.5

SME Migrate transactions to digital: 2.9


• Cash
• Trade 1.7
• FX

Design for “no-ops”: 0.5 0.4 0.4 0.3


• Cash and trade processing T
• Loan creation, disbursements and servicing
• Account opening and maintenance 2014 2015 2016 2017

2017 data refers to full-year forecast across segments for Singapore and Hong Kong
24
Engage: KPIs set and tracked to drive results

KPIs Examples to drive ‘stickiness’

Consumer Increase number of: Omni: Instant points redemption, budget tracking, etc.
• Digitally engaged customers
• 30-day, 90-day active customers

Improve customer satisfaction: 2.5x


• Internet banking Average spend
• Mobile banking per Omni user

SME Increase number of: Contextual marketing: Drive cross-sell and up-sell
• Digitally engaged customers
• BusinessClass members and activities 30
• Visits to DBS websites Campaigns
Increase share of:
• Internet banking login frequency ~S$1bn
• Mobile banking usage Incremental deposits

25
Upside in Digital customer base to drive progressively lower CIR
Consumer and SME (Singapore, Hong Kong)

Digital share of customers (%) Cost-income ratio (%)

50-60 43
<40
39
33

2015 2017 Aspiration 2017 Aspiration

Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable
26
Summary: Digitalisation driving significant value creation

01 Robust and well-tested methodology to measure


digital value creation

02 Digital segment demonstrates clearly superior


financial and operating metrics

03 Rigorous business planning to drive digital adoption and


progressively reduce cost-income ratio (CIR)

27
Creating shareholder value
from digitalisation
Chng Sok Hui
Chief Financial Officer

17 November 2017

The presentations contain future-oriented statements, including statements regarding the


Group’s vision and growth strategy in the light of anticipated trends as well as economic
and market conditions. Such statements necessarily involve risks and uncertainties, 28
which may cause actual performance in future periods to differ from projections.
APPENDIX

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2015-2017 Profit and loss

2015 2016 2017


Consumer and SME
(Singapore, Hong Kong) Total T D Total T D Total T D

Profit and loss (S$bn)


Customers (m) 5.9 3.9 1.9 5.9 3.8 2.2 5.9 3.6 2.3
Income 4.1 2.1 2.0 4.9 2.2 2.7 5.1 2.0 3.1
Costs 2.0 1.2 0.8 2.2 1.2 1.0 2.2 1.1 1.1
Profit before allowances 2.1 0.9 1.2 2.7 1.0 1.8 2.9 0.9 2.0

Key indicators
Income per customer (S$) 708 537 1,056 821 578 1,244 858 568 1,306
Cost-income ratio (%) 49 58 40 44 55 35 43 55 34
Return on equity (%) 22 18 25 23 19 27 24 19 27

Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable; numbers have slight rounding differences
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