When digital banking isn’t enough: here’s why digital banks need to diversify their offerings

Disclaimer: Opinions expressed below belong solely to the author.

Singapore’s position as Asia’s top financial center makes it a hotspot for the banking sector. In 2022 alone, a total of 131 banks have planted their roots in Singapore, and only four of them are local banks.

But digital banks do not seem to be fazed by the prospect of swimming with the sharks- on the contrary, these latest additions, are also trying to compete with well established and reputable traditional banks that have been in operation for years.

With traditional players digitalising their offerings and upgrading their services, digital banks need to go above and beyond to stand out and differentiate themselves from them.

Top banks in Singapore, such as DBS Bank, have been offering comprehensive internet banking services since the 1970s, while OCBC Bank launched its mobile banking portal in 2006.

So how are digital banks trying to stand out, and how successful have they been in doing so?

The importance of a phygital experience

On top of offering digital portals and apps, traditional banks also have physical branches and ATMs, while digital banks don’t. Although digital banks aim to cater to the tech savvy generation (Gen Zs and millennials), more market share can be captured by traditional banks by catering to different audiences with different preferences.

While the older generations generally tend to prefer going to physical institutions to carry out financial services, digital nomads also value a ‘phygital’ experience. A ‘phygital’ experience entails both physical and digital experiences.

According to a study done by PwC, Singaporeans feel that human interaction is needed for higher value and more complex financial transactions, such as wealth management, emergencies, and mortgages.

With the majority of Singaporeans heading to physical branches to carry out high stake financial transactions, where does that leave digital banks?

Singaporeans feel way more comfortable carrying out simple transactions such as money transfers, credit card transactions and time deposits online. However, opening up another account at a digital bank just to carry out these transactions when these transactions can also be carried out online through a traditional bank’s online platform or app makes digital banks seem redundant.

“To be honest, I don’t feel the need to switch to a digital bank. I don’t see how a digital bank adds value to me,” said Jeremy (not his real name), a 21 year-old HR intern.

Is there really any difference between a digital bank and traditional bank, other than the obvious physical presence of a traditional bank?

Less overhead costs, higher interest rates?

Arguably, the cost of operating and setting up a digital bank would be far less compared to operating a traditional bank. With the lack of a physical presence and overhead costs, digital banks will be able to provide its customers with better interest rates and benefits, according to Investopedia.

So part of what these digital banks can offer, at least theoretically, is higher interest rates for customers.

But is that really the case in Singapore?

From an analysis done by Singsaver, interest rates offered by GXS and Trust Bank in general do not make that much of difference as compared to traditional banks in Singapore. In fact, Bank of China’s savings account, the SmartSaver Account , offers a base interest rate of 0.1 per cent per annum, higher than GXS’s interest rate of 0.08 per cent.

As it turns out, the interest rates of the digital banks do not significantly differ from traditional banks- and some of these traditional banks even offer better rates for their savings accounts if a customer were to sign up for other services or accounts within the traditional bank.

On the plus side, however, both of the digital banks in Singapore, Trust Bank and GXS do not require a minimum deposit or balance.

Typically, opening up an account with a traditional bank would require some amount of an initial deposit. A minimum balance will also have to be maintained.

However, consumers can already open accounts with traditional banks that do not require a minimum balance, such as the CIMB FastSaver account. The same applies for minimum deposit requirements, with traditional bank accounts such as the OCBC Frank Account that waive this requirement..

With all these in place, how exactly can a digital bank entice customers?

Placing the customer on a pedestal

Digital banks will need to compete with already existing mobile banking apps and online portals of traditional banks.

For now, the only thing that would make or break the customer retention and customer attraction of both traditional and digital banks in Singapore would be how customer centric the banks are.

The user interface (UI) and user experience (UX) of their apps and online portals, which place customers at center stage, play an essential role in this, according to Professor Zhao Shengdong, associate professor for advanced computing for executives at NUS.

Based on a survey done by management consulting firm Sia Partners, customers look for simplicity and aesthetics in a mobile finance app. Many discontinue their use of finance applications due to slow operation, outdated app functionality, and an unfriendly interface.

Traditional banks have seen major backlash in the past, due to the frequent crashing of their mobile banking apps and online portals.

Just last year, DBS saw its worst disruption in 10 years, as reported by The Straits Times. Its mobile banking service went through a multiple day outage, enraging and worrying customers.

Although that may seem like a pain point that digital banks can take advantage of, most traditional banks have upped their game and investments into their digital foray.

For instance, last year, UOB announced that it will be investing S$500 million to ramp up its digital capabilities across ASEAN, as it aims to more than double its digital retail customers by 2026. DBS also announced last year that it would put aside S$300 million to go towards improving its digital and intelligent banking capabilities.

With traditional banks focusing on technological improvements, it won’t be long until they catch up and provide top notch services.

Other than that, personalised financial experiences also matter when it comes to providing a customer centric experience. The key to this lies in data and AI technology.

Amit Agrawal, who has over 20 years of experience in the financial services industry, views that data accrued by banks will be essential to build a 360 degree view of its customers to provide them value in the services banks offer.

“For example, banks can provide guidance to customers on what they can afford, where they should live and how they can save for next holiday by analysing income data shared by them to banks.”

That being said, traditional banks are also not resting on their laurels when it comes to personalisation.

DBS has invested S$300 million in infrastructure, talent, and technology with the aim of create more hyper-personalised experiences for its customers, while UOB’s mobile banking app TMRW leverages on AI to provide personalised alerts, reminders, and spending and saving recommendations on top of predictive insights based on a customer’s spending and saving patterns.

These traditional banks also have a large customer base, enabling them to harvest data from a larger pool.

In this already saturated and highly competitive market, digital banks may be forced to exit if they can’t keep up.

How can digital banks stand out?

Differentiation is the key to stand out in a highly competitive market.

66 per cent of PwC’s survey’s respondents have stated that they want digital banks to provide non-financial services alongside their usual services – something like a superapp. Gen Zs, especially, have demonstrated a high level of interest.

The respondents showed interest in the integration of non-financial services comprising eCommerce platforms, financial education, travel concierge services, and personal life coaches, with a digital bank’s platform.

Among these non-financial services, eCommerce platforms and financial education services were found to be the most appealing across Singapore.

Lifestyle and eCommerce offerings

With seven in 10 Singaporeans planning to travel overseas in the next month, the most desirable feature in an eCommerce platform within a digital bank include travel ticket purchasing.

On top of that, for travel concierge features, a whopping 66 per cent of Singaporeans desire 24-hour emergency phone support during their travels, followed by the ability to directly book hotels and flights and FX wallet accounts.

Leveraging on the travel industry boom, eCommerce service providers and superapps such as Grab have also launched their own travel features.

Alongside travel ticket purchasing, health care and illness consultations have also come up top as the most desired eCommerce feature. Telehealth services to provide diagnosis, treatment and consultation, among others via remote technology is expected to grow by 10 times by 2025.

The growth of the travel and telehealth sectors, fuelled by the pandemic, could provide an opportunity for digital banks to disrupt the banking sector and differentiate themselves from traditional banks.

Other than that, Singaporean customers also desire attractive deals and coupons for shops and restaurants, followed by a platform to shop online. PwC’s report explained that digital banks can join hands with third party services to provide Singaporeans access to lucrative deals.

Singaporeans value financial literacy

According to the report, over half (56 per cent) of Singaporeans are interested in digital banks providing educational videos on financial products and investing tips, as well as access to analyst and market reports.

Other than that, around 44 per cent of them would be interested in interactive training sessions and 31 per cent of them have showed interest in key opinion leaders (KOL)’s sharing of investment trends and market insights via webcasts.

Similarly, savings and investment advice tops the list of desired life-coach features. According to the report, “these results show that Singapore customers are particularly interested in increasing their financial literacy and seeking advice in order to achieve their financial goals”.

With one in three young adults in Singapore not confident in their ability to manage debt, a study done by Citi Foundation and SMU’s financial literacy programme for young adults found that there is a need to put more efforts in place to improve Singaporean’s financial literacy and resilience.

“I’m definitely not confident in my financial abilities,” said Bob (not his real name), a 25 year-old management trainee.

“I took up business back in university, but I still feel uncomfortable about investing as I don’t have the knowledge to do so. I don’t want to lose my money because of my lack of knowledge and dive straight into investing.”

Digital banks can take advantage of this space, by offering a subsector within their banking apps to enhance the understanding of Singaporeans.

What does the future hold for digital banks?

“I don’t think that I will be signing up for a digital bank any time soon. I can apply to open a bank account, apply for a loan, report a stolen or lost card all online, so unless digital banks can offer me with something different, I don’t see the need to sign up for one,” said Jack (not his real name), a 30 year old accountant.

Echoing his sentiments, many others also don’t see the need for digital banks in Singapore.

“Why would I sign up for a digital bank when I can get the same services from [a traditional bank]? ‘Digital bank’ seems like a glorified phrase for a mobile banking app,” said Amanda (not her real name), a 23 year old marketing executive.

Outside of Singapore, however, top digital banks have seen success due to their diversified offerings.

For example, Liv Bank, a digital bank launched by Emirates NBD, a bank owned by the government of Dubai, saw success due to its combination of lifestyle and financial offerings – essentially, a superapp. Liv Bank allows for cross border payments, and provides offers for dining and activities, as well as recommendations for places and activities.

While it is still too early to tell, unless digital banks can offer something evolutionary or different services than what already exists in the market, digital banks could potentially be wiped off of Singapore.

Feature Image Credit: OCBC, GXS