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Singapore OKs virtual banks, but UOB already has one

Dennis Khoo’s strategy for TMRW offers lessons for would-be virtual banks in Southeast Asia.

Dennis Khoo, TMRW

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DigFin sat down to lunch* in Singapore last week with Dennis Khoo to talk about mobile banking in Southeast Asia. The next evening, as your correspondent flew back to Hong Kong, Singapore’s finance minister announced the government would issue five licenses for virtual banks.

Singapore’s UOB is now four months into its digital bank, TMRW. Khoo is now CEO of TMRW Group, the legal and managerial entity behind the mobile app-based offering. TMRW is the second solely mobile/tablet-built banking app in Southeast Asia, having launched in Thailand; DBS digibank operates in Indonesia.

(To be pedantic: online banking is traditional banks' web-based service; digital banking is mobile-only service from a bank, e.g. TMRW; virtual banking is, technically, services from non-banks.)

TMRW has no immediate plans to expand back to Singapore. “Our priority is markets with big populations,” Khoo said, although UOB will apply some of the lessons from TMRW to its online banking service in Singapore.

Nonetheless, Khoo’s vision for TMRW raised some useful lessons and challenges for anyone, bank or non-bank, looking to dive into mobile-based banking in the region.

Who’s your target?

First, Asean offers a lot of potential growth. The biggest segment in financial services in Asean ex-Singapore is unsecured lending, which accounts for up to 70% of revenues in some markets. There are 400 million millennials in the region. Half of Asean’s adult population is unbanked, but most of these people have a smartphone.

However, TMRW is not chasing the unbanked or people reliant on the cash economy. And it is not trying to amass a large customer base by serving as their third or fourth bank. This sets it apart from other digital rivals.

Our goal is to establish a fan base that recommends us

Dennis Khoo, TMRW

“We are going after being people’s main bank account,” Khoo said. This is a much costlier proposition. People in general simply don’t switch banks. To lure them requires both a great experience and very competitive pricing.

“Our goal is to establish a fan base that recommends us. After we have that, our costs will come down,” he said. TMRW could try to generate millions of users right away, but it’s more likely that these would be dormant accounts.

“Neo-banks like Monzo started small, but they geared up and are now valued at £2 billion,” he added.

Begin with a bundle

Neo-banks like Monzo and Brazil’s NuBank gained traction in the wake of either popular hatred of traditional banks (post-GFC) or oligopolies that provided terrible service. In Asean, however, banks are trusted and capable.

Therefore, just trying to compete on price won’t work. TMRW’s strategy has been to offer a bundled product right away, instead of focusing on one thing and try to upsell others.

Engagement means going beyond transactions

Dennis Khoo, TMRW

It launched in Thailand with a basic trio for depositors: current accounts, savings accounts, and credit cards. The “extra” is not a product but the ability to give well-rounded advice, tips and alerts that customers find useful.

The goal: engagement

Khoo’s strategy is built around engagement, which sounds pretty fuzzy to traditional bankers. Khoo says however that other attempts at digital banking fail because they are too focused on cross-selling, instead of creating a useful dialogue with users.

It is using technology, including predictive analytics, to help users be better at managing their financial life. Open banking and APIs allow TMRW to aggregate all kinds of spending and payments activity that it can interpret and feed back to users.

“Engagement means going beyond transactions,” Khoo said. “The new axis of competition is about insights, and measuring how much customers enjoy these.” Engagement, even simple things like ‘likes’ on bank-created tips and other content, generates data, which drives further engagement.

Over time, it is meant to lead to cross-selling more naturally. TMRW is now in the process of rolling out basic wealth-management services.

Engagement also means working with customers to tailor service. For example, because digital banking is tied to a user’s phone (using tokens to mask personal details like phone numbers), users can request things like alerts if they’re spending too much in a given month, or even hard limits on how much they can withdraw from ATMs.

Finally it also involves gamification and other tricks to try to make the experience fun. For example, TMRW users play a SimCity-like game to build a futuristic city as they grow savings. As it rolls out wealth management, it is looking at how to turn concepts such as compounding into a game.

Beyond RoI

For most banks this kind of user-centric, long-term strategy is unthinkable. It doesn’t fit into traditional notions of returns-on-investment and meeting quarterly earnings expectations. Khoo says UOB has come under fire from securities analysts who think TMRW is going to be costly. 

He does have measurements, however. The most important is active customers, which TMRW defines as four transactions per month. These people then get targeted for engagement, which then creates data patterns. From there the bank will ask questions that are similar to net promotor scores (NPS) surveys. Khoo says the bank has yet to understand how big is the referral opportunity. “We’re just four months in,” he said. But the better the NPS, the more likely the bank’s cost of future customer acquisitions will decline.

This does require a leap of faith. TMRW might have an app that’s far better than traditional banks’ online services, but it’s not Facebook; it’s not connecting people to their buddies or families. Rather, it is trying to stay ahead of other banks, and potential competitors like Grab Financial or Malaysian payments company Razor, which have expressed interest in Singapore’s virtual banking licenses.

Khoo says backing from the very top is necessary. “UOB’s founders are still active in the business,” he said. 

(UOB’s chairman is Wee Cho Yaw, a billionaire businessman whose father, Wee Kheng Chiang, founded the bank in 1935. Wee Cho Yaw’s son Wee Ee Cheong is deputy chairman and CEO.)

“They can understand that TMRW is a long-term business.”

*Sear Steakhouse. Very good!

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Singapore OKs virtual banks, but UOB already has one