If you’re an incumbent bank, here’s how you can be a challenger bank

I would argue that for many of us, using digital services is not unfamiliar. Covid-19 has simply increased our dependence on and accelerated the frequency with which we use digital services.
This continual behavioural shift towards digital is not new, especially in the banking industry. Doomsayers for incumbent banks have always been around. These voices are even louder now with the proliferation of financial technology firms (Fintechs) and especially after the global financial crisis in 2009.
Fintechs are often touted as the disrupter of incumbent banks, which are said to be too big and too weighed down by legacy to be innovative. “Lite” financial outlets, such as neo-banks or digital banks, are said to be displacing their incumbent counterparts. If you are a traditional bank, your days are numbered.
United Overseas Bank, where I work and head our digital bank business, is seen to be such an incumbent bank – big, traditional and with legacy systems.
And yet in the past year alone we have been recognised by the global banking industry for our digital transformation initiatives including the launch of TMRW (pronounced “tomorrow”), the Asean region’s first digital bank for the digital generation.
Designed and built in a little over a year, TMRW was launched in Thailand in March 2019 and expanded into Indonesia earlier this year.
TMRW runs on a new business model that focuses on customer engagement as our primary performance indicator instead of revenue or profit. Those are important – we run a business after all – but our model hypothesises that if we deepen engagement, the bottom-line benefits will follow.
But what’s new here? Many traditional banks have launched digital banks. Many of these banks have also shuttered their digital bank operations or have admitted that their digital banks have not performed to expectations.
On the contrary, TMRW has shown in just one year of operations that our new business model works and is bearing fruit. In Thailand, a market with one of the highest digital banking standards in the Asean region, TMRW has the third highest net promoter score (NPS) among all banks.
NPS (which tracks how likely customers will recommend a brand to their friends and family on a scale of one to 10) is one of the key indicators of customer satisfaction, loyalty, and more importantly engagement and advocacy.
It is a very stringent measure as NPS only recognises customer advocacy if customers indicate nine or 10 on the scale. Customers who indicate a six or below are considered detractors, which affects the net promoter score. Three in four of our customers have become our advocates, referring TMRW to their circle of influence.
There is a need to challenge the status quo even if you’re a successful and growing traditional bank today. Our customers are increasingly going online and the next generation of customers who are digital natives will likely choose digital-first or digital only channels.
Every bank is different and has its own sets of challenges and business objectives. I have listed three principles which we took that have helped UOB to meet its strategic digital objectives.
1. Make the case for change:
Be a catalyst for mindset change within the company.
Any new initiatives require investment, time and more importantly the buy-in of all your stakeholders, from the board to your senior management team, for long-term success. My team and I were able to count on the support of the senior management team who saw TMRW as a long-term strategic investment and trusted us with the time needed to develop a business model and to build a full-fledged digital bank from the ground up.
2. Don’t be afraid of a blank slate:
We built TMRW for regional scale within just 14 months. We were able to do so because we took the time we needed to develop a robust business model in which we were confident and which offered us a clear blueprint on which we could build our digital bank quickly. This is easier said than done as there is always a pressure and a temptation to go to market as soon as possible.
We studied leading global and local banks and talked to experts around the world even as we workshopped and developed our unique digital bank model that could be scaled easily across diverse markets.
After much research, design thinking and testing, we concluded that data-driven insights, rapid learning and feedback loops are the new currency for success in tomorrow’s retail banking landscape. The bank of tomorrow needs to be customer- and engagement-focused. Simplicity is key, which means a digital bank must be targeted in what it offers and for whom it serves.
This also means it cannot stand alone to serve a universal set of customers across different life stages, but should coexist with existing traditional banks offering digital banking as part of their omni-channel strategy. Digital banks and digital banking should serve different customer segments and are likely to have different growth trajectories.
3. Integrate your customers into your business model:
Progressive companies today are already focusing on ensuring a customer-centric experience. We believe that the customer experience is not just an element of the future of service. Instead, a service-driven business such as banking should rethink its business model where customer-centricity is the goal rather than a by-product.
That is what UOB did for TMRW. We invented a new business model we call ATGIE to power our new digital bank. Designed to start small, to lower the cost to serve and to scale quickly in the medium term, ATGIE stands for Acquire, Transact, Generate data, harness Insights, and to use these insights to Engage the customer. Through a flywheel effect in which customer engagement is deepened with every interaction, TMRW is able to grow the number of quality customers organically through advocates and to keep the cost of acquisition down.
The current pandemic has accelerated a consumer shift towards digital bank and digital banking services at an unprecedented pace, and customer expectations for a superior digital experience will continue to grow in tandem. It’s never too early to start thinking about how you can serve tomorrow’s customers, but it can be too late.

Dennis Khoo is head of TMRW Digital Group, United Overseas Bank.