Piyush Gupta, chief executive officer and director of DBS Group, talks to Brandon Chye about the future shape of central bank digital currency, and helping clients adapt to digital disruption.
Brandon Chye: Over the past five years, DBS has undergone a digital transformation. What prompted this shift? How do you see DBS’ capabilities in payments and banking developing over the next five years?
Piyush Gupta: We started our digital transformation in 2014. At the time, technology was disrupting entire industries, whether telecommunications, transportation or retail. We knew that banking would not be immune, given that it is the most ‘digitisable’ industry of all.
We viewed big technology companies as a benchmark, but we realised that there were five fundamental differences between these firms and DBS.
They acquired customers digitally, fulfilled transactions instantly, and emphasised cross-buy rather than cross-sell. They focused on building customer loyalty through partnerships instead of dealing directly with consumers, and had data-first operating models.
Learning from these companies, over the past few years, we focused on building capabilities in these areas. We have made good progress on digital acquisition, transactions and customer engagement. But much remains to be done on ecosystems and data, two priorities going forward.
BC: What are the important technologies that will shape the payments and remittances landscape in the coming years? How has DBS approached creating an in-house innovation model to integrate these technologies?
PG: Blockchain could be a gamechanger in cross-border payments. It could alter settlement processes, from the centralised ‘hub and spoke’ model, which can take up to two days to complete transactions, to real-time settlement across borders. This could give rise to digital or cryptocurrencies that serve the function of value transfer.
In Singapore, cash usage is declining. DBS has introduced a number of digital payment solutions such as DBS PayLah! and PayNow. We are experimenting with the Monetary Authority of Singapore to see how we can leverage blockchain domestically. An example is Project Ubin, whereby the industry and MAS came together to test the feasibility of a settlement system using distributed ledger technology to enable instantaneous settlement of payment and securities transactions.
BC: On the external side, banks are fundamentally client-centric organisations. How has DBS approached the digital transition with customer bases such as small- and medium-sized enterprises and large corporates?
PG: Instead of making our products and services the starting point, a few years ago, we started embedding ourselves in the customer journey. This involves first mapping it, whether they are an SME or a large corporate client, and identifying the business problems they face, in order to better address them. This required changing our employees’ mindset, from being ‘inside-out’ to ‘outside-in’. This transformed the way we work. We have also been educating our customers. It is difficult to drive behavioural change, but the Covid-19 pandemic has accelerated the digital transition.
BC: In recent months, there has been much interest in central bank digital currency, at both retail and wholesale level. The People’s Bank of China’s digital currency electronic payment is one of the most notable initiatives being trialled. Should banks see these developments as a risk for disintermediation, or an opportunity for innovation?
PG: CBDCs have potential, but come with many challenges. In domestic markets they could, over time, replace cash. In countries like China, where Alipay and WeChat Pay have made mobile payments ubiquitous, cash is almost obsolete. CBDC has little added value if electronic payments services have already replaced the use of cash.
There is an even bigger issue. If consumers hold an account directly with the central bank, this could heighten the risk of a classic bank run, weakening the banking system. In the extreme, if everyone in the country has an account with the central bank, the banking sector could be disintermediated, leaving the onus of credit formation on the central bank. This is one of the biggest risks and drawbacks that CBDCs pose. With regards to wholesale CBDC for cross-border transactions, it may be difficult for counterparties abroad to accept this payment method. However, a network of central banks willing to exchange and settle each other’s digital currency might be viable. Several experiments of this nature are under consideration. We see its potential in boosting the speed and efficiency of cross-border payments and securities trading and settlement, and would be open to being involved in such pilots.
BC: Banks’ move into the digital realm raises questions about data management, financial regulation and compliance. How has DBS approached this challenge, especially when encountering fragmented regulatory frameworks in cross-border operations?
PG: Data sharing across teams and countries is important for many financial activities, such as combating money laundering, or balance sheet management. This is why we endeavour to work with regulators to ensure that our data sharing is efficient.
In cases where there may be concerns about the cross-border sharing of data because of, say, national data protection rules, we will work with the relevant authorities to address sensitivities, such as through tokenisation or data masking.
Brandon Chye is Economist at OMFIF.