DBS’s consumer bank in Hong Kong continues to rely on technology to give it a competitive edge. Now it is turning its digital sights on removing the last technical hurdles to opening accounts for non-residents.
The licensing of virtual banks in 2018 was one impetus for the bank to invest in digital solutions. The work DBS put in to prepare for that wave of competition stood it well during the shutdowns of face-to-face business during the Covid pandemic. For example, it can open accounts faster than other traditional banks, says Isaac Kong, the bank’s head of digital.
“The big change came from payments,” he said, citing DBS’s introduction of electronic laisee (red-packet money), following the precedent of WeChat Pay, and this proved a success in attracting new business.
Today the bank’s consumers rely mostly on online methods for many of its products, including equities trading and remittances, as well as local payments.
Now that the border to mainland China is open, the bank is doubling down on digital to win market share.
Although the majority of the consumer business is catering to local depositors, DBS is positioning itself to chase two opportunities: offshore accounts, and wealth accounts for customers residing outside of Hong Kong. It is relying on digital solutions to grow its presence in both.
These are challenging. Offshore accounts are mostly aimed at people from mainland China, who must be present in Hong Kong to qualify for an account. They have to show up at a branch. They have to pass through a more complicated know-your-customer process.
Wealth accounts also require guiding people through investment-suitability tests and the paperwork required to open brokerage and fund services. As with other banks and brokers, there is then the challenge of scaling solutions that are meant to be customized.
Let’s get phygital
DBS’s approach hasn’t been to go all-digital. It’s not a virtual bank and it does have the advantage of having branches. Rather, it is trying to blend the service so the ‘online-to-offline’ experience feels smooth.
In some respects this is a continuation of what Kong’s team has been doing since he joined in 2017. He likens the digital role to a “journey architect”. A lot of his work is connecting the dots internally, so different departments and systems talk to one another. For example, equities trading isn’t just about automatic execution. It involves a log-in, a front end, the foreign-exchange piece for overseas stocks, and filing data for reporting purposes.
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Now he is focused on how to knit together a proposition to make offline accounts as digital as possible, so the ultimate visit to the branch is as brief as possible, and ideally comes with a human touch.
Banks have to adhere to the Hong Kong Monetary Authority’s regulations around offshore accounts. They are also not allowed by mainland regulators to market their services within China. DBS will still need a means of pulling potential customers its way.
DBS will need to run proof-of-concepts in a regulatory sandbox with the HKMA before it gets the go-ahead to further automate onboarding and related processes. Kong declined to comment on what kind of projects the bank is currently testing.
One focus, however, is on the data behind a potential KYC process. A mainland person might be able to begin the account-opening process on their phone, so that DBS can pre-populate the relevant forms, including for taxation. This can cut the ultimate visit to the branch down from several hours to 30 minutes.
The goal, though, is to eliminate face-to-face onboarding, if its tech ideas satisfy the internal risk teams and meet HKMA approval – a genuine “if”.
“The issue isn’t wet versus digital signatures,” Kong said. Proving the applicant is present in Hong Kong is one aspect, as is KYC. “We need a golden source of information” that is official and recognized by Hong Kong authorities. Mainland-based oracles may or may not pass muster.
The coming wave
Today this is not a critical issue. The number of mainland people visiting bank branches in Hong Kong is still small. Local banks focus their digital onboarding efforts at local customers, partly because offshore accounts still have the in-person requirement.
But banks can see the prospect of a big wave: millions of people could apply for a Hong Kong offshore account over the coming years. A look at the insurance industry, which in Hong Kong lives and dies off of mainland customers, is one bellwether.
Therefore, these digital solutions will become necessary, if the industry is to meet this opportunity with the required scale. But banks have to be careful they don’t create vulnerabilities in the local industry. “I have no idea when we can roll out our PoCs,” Kong said.
Beyond Wealth Management Connect
One of the reasons why more mainlanders may be keen to open a Hong Kong bank account is for wealth and educational purposes. Regulators in both jurisdictions have recently launched Wealth Management Connect. This scheme allows banks in Hong Kong, such as DBS, to sell locally domiciled mutual funds to mainland buyers via partnerships with mainland banks. And the traffic goes both ways, although the main demand is “southbound” buying of Hong Kong funds.
Wealth Management Connect also requires a golden source of truth regarding customer data and KYC checks. Kong declined to comment on whether DBS has received approval for its solution from Hong Kong regulators.
But the funds allowed in this program are very low-risk and vanilla. People opening an investment account, however, can access many more securities, funds, structured products and derivatives, based on their wealth and risk profile.
An offshore account is not the same as an investment account, but DBS has made wealth the focus of its consumer banking business in Hong Kong, so Kong’s team is looking at how to enhance this digitally, including for cross-border business.
Kong says DBS can open an investment account for a local customer in about 20 minutes, versus a day or longer for other banks. That’s fast considering an investment account requires a lot more background checks than a deposit or savings account.
This speed has been his team’s focus for several years, and he is looking at how to take that further to serve offshore investors. “O2O and ‘phygital’ integration will be key,” Kong said.
And AI on top
His team is also using artificial intelligence to support the bank’s relationship managers for wealth clients. The idea is to automate the drudgery so that an RM’s time with a customer is focused on advice and improving the personal relationship. It’s also central to detecting fraud, investigating customer complaints, or preventing cyber attacks.
At the same time, he is using tech to enable one RM handle 500 to 1,000 customers. Using tech to get rid of the tedium of account opening and client service, including handling complaints, is a competitive advantage.
Although the bank is exploring new generative AI models, those have yet to become products. What AI is doing, however, is taking over the original role of the digital team as “journey architect”. It is the new tool to gather and analyze data, and deliver it to the RM so that the online-to-offline experience works – and those accounts get opened.