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Major HK bank continues with digital transformation but will not set up digibanks

A major bank in Hong Kong’s digital transformation is bearing fruit with more customers transacting digitally and at the same time is helping to drive costs down, its chief executive was reported to have said in a recent news report.

However, the bank will not create digital banks, nor will it be applying for an Internet bank licence in Hong Kong, the chief executive stated recently, 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 the chief executive was noted to have said.

This news comes despite the fact that many large banks across the world are now undergoing both digital transformation as well as setting up digibanks. Both India and Indonesia saw the set-up of digibanks recently, and the United Overseas Bank said in August that it plans to launch a digital bank for its ASEAN customers.

The chief executive reportedly stated that the bank does not intend to create a bank outside of the conventional bank to pursue purely the banking digital strategy. The bank’s leadership 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 smaller market share.

The CE added that decision-makers at the bank also do not think that it [setting up a digibank] is the right approach. The Indonesia branch 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.

It was noted that 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.

In the past five years the bank increasingly invested in technology as it pushed towards digital transformation throughout the bank. Technology spending, excluding IT staff costs, has risen steadily to 11.3 per cent of total costs, the CE noted.

In the first nine months of 2018, expenditure on technology was HK$1.87 billion, against HK$2.44 billion 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”, the CE added. The bank is also committed to spending HK$113 million on educating its staff on their digital knowledge and it starts on the ground.

The bank’s leadership thinks that digital technology 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.

While the teller headcount has fallen by 15 per cent, there has been no attrition as the company always retrains its people to do other things. Moreover, sales has improved three times, and in Singapore, the bank has 2,700 sales staff who are digitally equipped.

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

Previously there was quite a lot of manual processing for remittances, including customers’ needing to queue at a bank counter to fill in forms; digitalisation has, thus, helped cut costs significantly.

The bank has hopes to see 60 per cent consumer digital customers for all its core markets; it aims for small and medium enterprise (SME) digital customers to hit 70 per cent.

Digital consumers who have used Internet or mobile banking at least once in the last three months now make up 48 per cent in first-half 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 digital consumer customer is two times more than the non-digital customer, while revenue from SME digital customer is three times more.

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