Episode 22 - Dennis Khoo - Author, Driving Digital Transformation and the allDigitalFuture Playbook (taP), Managing Partner, allDigitalfuture LLP

Speaker A: Hello everybody, and welcome to the next edition of the Banking on Innovation podcast. What a pleasure it is to have Dr. Dennis Koo, our first guest from Asia Pacific, where there's so many exciting developments occurring in banking in that region. Dr. Koo is, uh, a leading digital operating executive speaker and author and he's based in Singapore. He specializes in digital innovation and leadership. Dennis was previously group head of the Tomorrow Digital bank as part of UOB and previously head of consumer banking at Standard Chartered Bank. Dennis, welcome to the podcast.

Speaker B: Thank you, Jody. Thank you for having me.

Speaker A: It's so lovely to have you. And uh, thank you for joining all the way from Singapore as well. So Dennis, you've operated in multiple markets throughout Southeast Asia. How do you characterize customer expectations and banking that's different in Southeast Asia. And where do you see that banks in Southeast Asia are leading versus other parts of the world?

Speaker B: So, interestingly, I think if you were from outside, uh, Southeast Asia, Asean, and because one may have some knowledge that is quite a diaspora of countries at different stages of economic development. M. So one might think that it's not, or the banking industry is still growing, it's not so competitive. But actually that's quite far from the truth. In fact, uh, in Southeast Asia, the banking industry actually is very competitive. And I would say that, uh, you look at the countries in my view, Singapore, Thailand, and probably closely followed by Malaysia, probably rank very, very high globally, uh, in terms of their uh, uh, digitalization and the ability to uh, really bring the services online and reach out to customers that way. Uh, and not very far behind, uh, would be the rest of the major Southeast Asian countries like Indonesia, Philippines and Vietnam.

Speaker A: I'm curious as to what you think has caused or maybe promoted this massive uptick and change in digitalization in Southeast Asia. Is it customer behavior driven, Is it market forces driven, Is it regulatory? What's really allowed some of the, in some ways leapfrogging or the significant growth around digitalization and as a byproduct, the need for banks to be very digitally savvy.

Speaker B: Well, Jodi, the different forces in different countries. So I would say that, um, in Singapore it is more the focus on the whole, uh, digitization, productivity, customer service, customer excellence. Um, and Singapore has much fewer banks. So they are the three major local banks in the rest of Southeast Asia actually there are a lot more banks. So I think in the top 10 of each market they are fairly competitive. Uh, but in the other countries the population is also larger. So there was a realization, uh, from the country and the regulators as well that and many studies have shown this, and I indicated this in my book, right, that GDP can go up by half a percentage point to 1 percentage point if you uh, begin to have less and less unbanked. And because some of the communities are rural in uh, the past where it was brick and mortar, it didn't make sense. You really couldn't sustain the profitability of that bank in quite a spread out area uh where uh, the overall average incomes are lower. But with Digital all that goes away. So there's also a realization uh, that this could benefit the country enormously. So we found actually regulators were very supportive and at the same time because of the competitive nature, you know, when one uh, of the big players does something, the rest of the players are very cognizant and they want to catch up quickly. So it's not by no means uh, a very sleepy industry. Uh, like in a case study that we may have all seen of no bank in South America where the majority of the leading banks were actually ah, very late in responding to the digital chat by Nubank.

Speaker A: Yeah, that's really fascinating. It's also maybe speaks to the pace of development when you have alignment between the regulatory regime and customer expectations and banks motivation when those line up. Well then you can see this more rapid digitization, more rapid customer adoption and really enabled by the regulatory regime as well.

Speaker B: Well absolutely, because banking is such a key industry. I believe banking will always be regulated because there's such a close link between the money, the leverage that uh, deposits allow for lending and therefore the danger of uh, too rapid an expansion of money supply or credit. And that is very linked very closely to the government and whether the government tries or the government falls. So all that entire package I think is mixed, uh regulation. And most people coming for example from other tech industries don't realize this, that regulation is a very big component. And when we first set out uh, that was one of the key concerns I had. But actually I found that um, in the cause of building Tomorrow by uob, uh actually we managed. The regulators also were very cooperative in terms of realizing what this could do and the benefits it could bring.

Speaker A: Very savvy in terms of how you approached it. Let's talk more about that. So you were the managing director and the head of Tomorrow, which was the digital bank as part of uob. Can you share the background and the motivation behind Tomorrow and how is the proposition set up to win versus the legacy banks?

Speaker B: Sure. So this started sometime in 2016. So you have to roll back the context to A time where uh, there was concern by the boards of many banks that the fintechs, and maybe not even fintechs, the tech companies for example, in rhythm or in some uh, industry that's not connected uh, with banking, could start encroaching on uh, the banking industry. And that was also the time that Apple Pay, Google Pay and all these kinds of uh, various, I would say, middlemen were coming in from the tech industry. So there was concern that banking was about to be disrupted in a very big way. And um, for uob, um, it's unique in the sense that it is probably the only true uh, ASEAN bank because it had made important uh, investments during the Asian financial crisis. So it has uh, fully owned subsidiaries in almost all the major ASEAN markets. And uh, it's uh, one of the big three in Singapore, but it's also the largest foreign bank in Malaysia and close to being at that time the largest in Thailand. And so digital was seen as a way to expand outside Singapore and really fulfill the uh, value creation of those investments that were made and in Singapore as a way to defend against the new tech fintech companies that could, the thinking was at that time, start to encroach on the banking industry. And so that's how in terms of the context it started. And in 2017, uh, we started, and the interesting uh, answer to your question is that we actually started from scratch. And one of the, I think wise decisions we made was we just assumed that we would have to view this from a completely different lens. And so we started not having a preconceived uh, notion going in of how we would differentiate. And so we had to discover the differentiation from scratch and try not to make any assumptions. Uh, because you know, we were bankers, we would naturally make some assumption that it would be this or that. And once you make those assumptions you go in already for direction that's cast. And so for the first, almost the entire year of 2017, uh, we were actually developing, uh, over the course of a year, uh, a sharper and sharper and sharper, uh, vision of how we would differentiate. And actually differentiation is quite hard because of the context of what I already mentioned. It's relatively competitive. You're not in a situation where the large banks are complacent, the service is very, very poor, um, they were relatively competitive. If you think about banking, it's one of the most difficult uh, industries to compete because in a way it's like telco and power as a utility. And so if you think about power, it's very Hard to. I mean, it's either power's on or powers off. Right? So it's more the generation of power and the grid. And if the grid and generation are there, then what's the difference between, you know, utility, uh, A and utility B? As long as, uh, you know, there's electricity in my home, there's no difference. You could almost say the same of telcos. And so in banking it's all about can I transfer money? And the money transfer system, you know, you can't restrict it. Right. You've got to have a network and everybody's got to be attached to a network. Otherwise the network is not much use. So if you take it from that context, it's actually not so easy to think about how you're going to differentiate. It's not like, you know, the uh, computer, uh, device or a camera. There's always some other nifty feature you can come up with to satisfy either the amateur user or the pro consumer user. Ah. Or the professional user.

Speaker A: You talked about as part of an entry strategy, both in Singapore as well as in Thailand, that you may have developed some initial hypotheses, but that you were very open to the market feedback and receptivity. So share, if you will. Dennis, what pivots or adjustments did you have to make at tomorrow based on market response both at home in Singapore as well as, uh, in Thailand?

Speaker B: So first, Joey, as kind of an intro to the approach, we did a lot of primary and secondary research. One of the things we learned if we did, uh, something in the personal financial management, we would have to make it really very simple because banking is really a means to an end. You're not really interested in banking itself. You're interested in, uh, getting your money. You're interested in seeing your salary come in. You're interested in investing or whatever it is. But banking just is, uh, a means to an end. So that was, um, one of the learnings. Um, there were many, many of these, uh, learnings, uh, overall, uh, and when we put them all together, we ended up with really three levels of differentiation. At the bottom is really doing the basic banking really well. And that means onboarding is super easy. Transacting is super easy. Um, granting credit, you try to make it as effortless as possible. Uh, all these very basic things. Everything's online and everything's digital. And you want to build it so that there's very little problem. You have to build it, they have to try, they have to like it, and then they have to, uh, move more and more of the deposits and transactions over and they start to borrow. So it's quite a long cycle. So you've got to get that right. Otherwise customers feel that there's no reason to set up a new relationship with you. And so we had to develop a first, uh, blueprint, a first roll up with very high standards, and finally the use of data to prevent problems from happening in the first place. Right. Like, we know that, uh, there's a debit coming, it's going to fail tomorrow. We can alert you instead of letting the debit happen, you don't m. Have enough funds. And then, you know, the fine is levied. And then you call up the call center, uh, and then the call center already costs, you know, $50 by the mere fact that you called. And so the whole thing just, you know, degenerates into a, uh, bad experience where the bank doesn't really make anything out of it as well. It just loses money. So that was what we, we ended up with through a lot of, a lot, a lot of work.

Speaker A: Yeah. Ah, so many good learnings in, in what you said. But at its, at the core of it, it's, you know, you've got to get the basics right in banking. It really earns. It, uh, you then earn the right to do something differentiated on top of that.

Speaker B: Exactly.

Speaker A: So let's, let's fast forward to today, Dennis, and uh, I'll ask you to. You're so, so learned and, and wise in this topic. So I'll ask you to put your kind of advisory hat on and let's look at how zoom out as well, and look at the penetration of challenger banks globally. You mentioned nubank, which has had amazing penetration in Brazil and moving to Mexico, Revolut, of course, great penetration throughout Europe. Um, innovative institutions like Starling, which is, uh, both a bank and a. And positioning itself as a technology firm as well. So where do you think that challenger banks need to excel to win business from legacy banks? And where do you see that happening? Um, whether in Southeast Asia or globally, where do you see it happening? Very well.

Speaker B: So, I mean, first, I would say in terms of the context, right, it is core. Quite, uh, a challenger bank is the right term because it's quite a challenge. Um, you can't bring up half a bank. You've got to bring up the full set. And so where you start is quite important in countries where the standards are low, um, the banks really have been complacent. They don't care about customers. Those have easier starting points. So Nubank is a great Example, but where you're talking about Starlink, they're competing in a relatively sophisticated, uh, relatively competitive market in the uk. Of course there's room for improvement, but I would say that it's harder because your entire footprint, you've got to equal the capabilities of the existing competitor and then differentiate from that point onwards. In other words, what I'm saying is that your point of difference is different in different geographies. So I would say that for most challenger banks, the difficulty in getting it right is okay, how do I deliver? Uh, and my metric was double the net promoter score. Right. So if you're in your country, the best three banks, the average score is 10, then you got to double, triple it to 30. And so if you have a country with high standards, like what we face in Thailand, it's very challenging because if someone's at 50, I mean you can't triple, uh, because there's no Such thing as 150 and just to reach 75, 80, it's a very big challenge, uh, to get the entire experience right. And one of the difficulties is that the banks are big banks have the ability to invest. So when they see the startup, hey, they've done this and it's very nice, they can do it in nine months, right? They can do it in a year max. And so that thing is always moving, that bar is always moving. And so actually it's very challenging for the challenger banks in the set point. And also it's an industry where you put in all the costs and the annuity comes later when you big enough pool of customers. The annuity is great because a lot of banks still make 50% cost to income ratios. So it's very profitable. But that takes time when all your costs are in because you've got to have the right systems, you've got to pass all the compliance hurdles. So it's a difficult industry from that standpoint, which sometimes from a casual observer, they think it's very easy, we just digitize everything and we'll be the winner.

Speaker A: Well, you've shared a great blueprint, but I think the caveat that comes with it is it's all about the execution.

Speaker B: Always to me and I've said this many times to clients. Right. Um, it's an industry of a simple strategy but brilliant execution.

Speaker A: Yeah.

Speaker B: Mhm.

Speaker A: You've spoken about moving beyond digitalization and we've talked about this concept of cognitive banking. I'd like to hear your perspective. Uh, how do you, how do you explain what cognitive banking means to the banking industry? And why does it matter?

Speaker B: Great question. So if you go back to that kind of pyramid, the three layers, the first layer is, uh, great transactional banking. The second layer is great service when a problem does happen. And the third one is, let me even prevent a problem from happening using the data that I have. So if you look at that pyramid, it is inevitable that banks will get better and better at the first layer. And so, uh, it's a matter of time before everybody does transactions on the mobile phone. It's just a matter of time. In fact, in some countries, uh, accelerated during COVID it's already happened. As you get the basics better and better and better, it's fully digitized. You then have to make sure that your customer service prompts don't usually happen. But when they do, we give you great service and learn how to engage using data. So the battlefield is shifting, and this is where cognitive, uh, banking comes in. Being able to, I mean cognitive to me really is about understanding you need to uh, engage before you can really provide great experience. And really cognitive banking is a weapon for engagement. And in fact, uh, uh, as we get this conversation, what is the difference, uh, uh, executives who are listening may ask between personalization and engagement? To me there is a difference. And to me the focus should be engagement first in order to achieve personalization and not the other way around. The personalization context isn't as easy as like in Amazon, where, okay, this is what you are browsing. This is what people similar to you are browsing also browse at. The relationships are not that simple. And so the executives that are thinking about uh, uh, this area, they've got to first think about those relationships. What are you actually trying to, uh, do that's above this basic transactional piece? And that's where this whole power of being cognitive, understanding first and understand using data, uh, and this is where I think, uh, personal ethics has really excelled.

Speaker A: Yeah, it's so well said. Uh, at its core it's about understanding the customer needs, whether it's explicit or implicit, based on some kind of transaction they're trying to perform. And then, as you said, using that then to be smarter in terms of how you engage. And that really becomes a form of personalization.

Speaker B: Exactly. And that's really the way to think about it.

Speaker A: Yeah. In that regard, what do you see, Dennis, as the evolution of customer expectations around personalization in banking? Clearly they're receiving personalized experiences from the variety of other, uh, very prominent brands outside of banking. What's their expectations and how's that expectation evolving within banking.

Speaker B: Well, the interesting answer to that question is that I would say that it's quite a different industry in the sense that in the utility industry you focus on the basics. Right. Uh, did my salary come in? Did I get paid? Um, did my transaction go through? Um, do I need a higher credit limit because I'm going on holiday? Is my credit limit sufficient? Consumers are really focused on the basics. Their expectations of banks delivery plus the bank actually is quite low. So in other words, if uh, you can do well in customer experience and using data to prevent prompts, customers are really surprised. So it's good and bad in that sense that they don't have that kind of expectation. But the banks that manage to deliver the expectation, they will feel, well this is really something very different. Uh, this particular bank is able to do and able to deliver. So that to me is the context, I think again a slight difference that makes a very big uh, difference in execution in terms of how you think about it.

Speaker A: Yeah, really it allows customers to be more in control. As you said, delivering on these moments of truth are probably what makes a difference in terms of, of driving that NPS score up. So let's take another, let's take another situation where a customer may have an extra $5,000 that they should put away because it's more than enough to cover their expenses. Uh, and the bank should be able to interpret this as part of its understanding of customer transaction data even if the customer doesn't know about it. How should this advice now be delivered within the context of digital and or banker? How can this intelligence now, this cognitive banking approach be delivered through both digital and the banker experience?

Speaker B: So this is a great question and it has a quite complex answer. First is, um, how much should you invest? This is one part of the solution, how much you invest given uh, your salary, uh, your income and your expenses. So I think the technology is there to prompt and I would say that this is quite a low hanging fruit because today most banks are not reporting. I don't know if you check your bank, whether it's doing it, but certainly where I am, few banks uh, are actually adding up uh, all your total inflows and outflows and telling you on a monthly basis this is how much more or less in terms of your personal balance sheet.

Speaker A: Yeah. And if we translate that to, let's say the more mass market, it's really about delivering advice at scale and doing it efficiently just around your day to day banking because most people just need better help and better anticipation and uh, advice and uh, encouragement around their day to day banking. And that's what's difficult to do efficiently at scale when you just have humans and uh, humans that aren't armed with kind of the advanced data and analytics that will allow them to, to deliver that specific intelligence for that customer. It may be as simple as, uh, look, you should be in, you should be in our premium checking product because of your transaction activity. It will actually save you more money if you were in our premium transaction, uh, account. It's that kind of, you know, personal guidance. But it needs to be armed with the data and the analytics and the tools that will allow a banker or the digital platform to inform the customer that this is a better solution for them.

Speaker B: Banks have to balance, right? If I'm making more from a client, if I advise a client that if he goes to a product that makes less fees, then the bank makes less, of course the client is happy. But how does the bank make this trade off? Right, because all those fees together still amount to potentially, if you're a very large bank, a substantial amount of income. So understanding those use cases, whether it's product selection, uh, whether it's for example, just helping someone, uh, who's not wealthy, mass market, like you say, save more, uh, that is difficult because you go into actual transactions and see that, oh, he's eating at a lot of restaurants, uh, uh, how can you deliver advice in a way that doesn't put him off? Because if you tell him, hey, don't eat at any restaurant at all, then that might also not work because then how am I going to enjoy myself? I love food. Uh, so how do you deliver that kind of, uh, personal financial management advice? So I think there's a lot of different pockets. They tend to be hard in the sense that for example, uh, not all of our transactions are uh, digital payment. So the extent to which you still use cash, then there's leakage. And when there's leakage, I don't have the complete picture. When I don't have the complete picture, I need to qualify because I can't give you the entire picture of your personal finances, which makes advice harder. So to me, if I sum it all up, it's all about the whole test and learn of engagement, of getting data, uh, of trying something out. And that's why in tomorrow we built something called, uh, Engagement Lab. And when you pair engagement lab, cognitive banking data, uh, and this whole mindset that, well, I'm not really 100% sure how to serve customers better, uh, let me learn rather than coming from the standpoint that, hey, we know everything about the customer because we have all this data, uh, and therefore we can direct. I think that's the wrong approach from my experience, because banking data tends to be broad and not deep. And sometimes you need deep data. And the best way to get deep data is just to ask the client, engage the client, get the data from the client, combine it with the data that you already have, and that allows you, it puts you in a position to, uh, understand the use case you want to deploy and measure the reaction coming back. And those that do well, then you accelerate in a big way. So I think this will be the competition of the future.

Speaker A: So, Dennis, how do banks get started on this cognitive banking journey and this ability to better understand customers, to use the transaction data? Um, uh, inquire with the customers more about what they. And confirming some assumptions and then delivering advice as part of it. How do they get started on this journey?

Speaker B: I think the starting point is right from the top. You're thinking, how can we always make banking easier? How can we make it better? Uh, how can we know more about customers? If you don't have that ethos at the top, then banking is about more product, more fees, uh, about risk. Of course, managing risk is very important because it's a leveraged industry and the regulator. And then you forget the client. The client is, especially in consumer banking, you're just a digit somewhere. So that's really the starting point to me. M. From my experience, you need to come from the top. You can't have an organization where the people at the bottom are all very customer centric, but the top doesn't care. It's got to come from the top. And when you have that, uh, environment that is very natural because banking is a service, it's by experience, then that whole thing about what we just discussed naturally kicks in. But if it's not from the top, then it doesn't happen. Right. Because in the end, no, no, the product's more important. Oh, no, no, no. Uh, uh, credit is more important. No, this is more important. The client is the client. Right? He'll always be there. So then I think, uh, you don't get the focus to work on the small things and thread all these small things together into great experience.

Speaker A: Dr. Koo, you're a real visionary. This last question is going to be right up that alley. What do you think customers will expect from the banking industry in the next three to five years for which the industry is not well prepared?

Speaker B: I think the next big, uh, frontier that Banks need to solve once they have, uh, solved. The basic projecting experience is how can I make banking so good, right? If you have any major incident, I'll call you. You can reach me anywhere in the world through IP telephony. If you travel, you, uh, don't have to repeat anything you say, because I always. And then use data to prevent problems. Because using data to prevent problem is an extension of service, right? Instead of when a problem happens, I solve it very fast for you so that you feel very happy. Because money is an important thing, right? One of the things about banking is that money, there's no one that says money is not important whether you're rich or poor. And so then it's just an extension of if I call you and say, hey, I prevented this, I prevented someone from taking money, I prevented whatever, you feel very good. So I think there's this, there's this scale and I think that's the next frontier. As customers experience, uh, digitization and digital service in other industries, uh, they are going to come expect this banking. And in banking, it's harder to deliver for all the reasons that I've mentioned in our chat today. And executives in banks need to get their heads around this and how they can deliver this truly good experience.

Speaker A: Well, Dr. Koo, I wanted to thank you. You've given some great insights on markets specifically in Southeast Asia. Uh, what's really unique about, uh, the challenges and the opportunities there. And then I think everybody really appreciated your comments around. It's really the stringing together of multiple incremental improvements that creates the breakthrough, breakthrough in experience. Breakthrough in NPS score is breakthrough and differentiation. So thank you for sharing your wisdom and so much experience. And thank you for being our, uh, first Asian Pacific guest on banking on innovation.

Speaker B: Jodi, it was my pleasure. Was great talking to you and um, thank you so much for inviting me.

Speaker A: Please follow us on LinkedIn and@personnetics.com.