Dennis Khoo spent most of his 20-year financial services career running retail banking franchises across Asia for UOB and Standard Chartered. He blends his business management experience with a deep technological background, having started as a hardware and software engineer in HP for over ten years.

At the end of 2016, he moved from heading the personal financial services division of UOB in Singapore, to lead its newly set up digital banking group, TMRW, and launched its first digital bank in Thailand in 2019, followed by Indonesia. UOB recently announced a SGD 500 million ($366 million) investment into unifying its digital capabilities onto the TMRW platform and to expand it across ASEAN with the aim of doubling its digital customers by 2026.

Khoo was picked in mid-2020 as CEO designate of a new digital wholesale bank in Singapore formed by a “Bytedance, RVC, SBI” consortium. It however was not selected for a licence. He is now the managing partner of a startup business management consultancy, allDigitalfuture, that advises institutions across industries on digital transformation.

The following are the key discussion points: 

• The driving force for a digital bank like TMRW – Higher experience, lower costs
• KPI is minimum experience score not minimum viable product
• Disruption from business model innovation, technology R&D or process differentiation
• Differentiation based on experience elevates “process” as the main factor of competition
• The industry is not sufficiently horizontally integrated for platforms to help acquire customers
• Demographics is key to determining the potential to scale
• Digital banks like traditional banks must manage the balance sheet well
• Every incumbent needs a digital bank experiment
• The sustainability of digital only banks
• Does a wholesale digital bank model makes more sense than a retail one?
• The aim is to help increase the probability of success

Here’s the full transcript of the interview:

Foo Boon Ping (FBP): Now, in 2016, 2017, you were asked to head TMRW. At that time when you started the digital bank, what did you have in mind? Or what did the bank have in mind when you started the digital bank? What was the objective starting then? Why start a digital bank? You recently wrote a book “Driving Digital Transformation”, the difference between digital banking and creating a standalone digital bank? Back then what was the driving force for TMRW?

The driving force for a digital bank like TMRW – Higher experience, lower costs

Dennis Khoo (DK): I think the first thing was that the future is very likely going to look very different from today. And therefore, one of the things we wanted to figure out was how do we respond in the future that will look very different. And as we begin to look at it, one thing that we felt was very significant is that digital banking and digital bank are very different constructs. And once you understand that they are very different construct, then you understand also that it may lead to potentially different futures. And the key difference in my mind is that digital banking is really a channel, just as a branch, ATM, call centre, internet banking, mobile banking, mobile app banking, these are channels, right. And the purpose is to serve customers at lower costs. And to get them to self service so that it is lowers costs. This however, doesn't adequately address what a digital bank does.

And in our thinking, a digital bank is really looking at higher and higher experience costs, which means better, better engagement, better and better experience and lower and lower costs on a continuous basis. And we don't feel that digital banking alone will be able to respond to the threat or correspondingly the opportunity to use a digital bank in a market where we were small. So, part of understanding there is to understand that if you look at a bank. Typically, in a large local bank, regional bank, we have hundreds of products, typically have not been decommissioned, and because of competition, you have started sub segmenting, creating more and more products more and more targeted at smaller sub segments.

As a result that, the product explosion, the complexity of the back end system also become fairly complicated. And most people are operating backend systems that are not segregated from the standpoint of the client, the country and the global code. And what that means is that, you know, every time you put in enhancement, you test everything from scratch. And as a code gets more and more complex, longer, longer, the testing, the implementation of any changes actually becomes very unwieldy, very complex and takes a long time. And then you layer that the fact that there are at least 50 to 100 backend systems in any large local regional bank. And then you overlay the fact that you have at least eight channels, it is actually very, very complex.

And therefore, the extent to which you can improve experience significantly at lower, lower costs is rather poor. And then if you accept that thinking, then you come to the conclusion that actually, digital banking is not a means of defending against a digital bank attack, or digital banking is not efficient and effective means of gaining share in a country where you are the challenger bank, wanting to gain share from the existing incumbent players, and this was the rationale to rethink the future, rethink our participation, both from defensive where we, UOB is a large local bank, and where UOB is a foreign bank player.

FBP: Back then 2016, the landscape was still very different. The perspective about fintech and about disruption is quite different. Standalone digital banks haven't actually taken root yet. There weren't many of them like they are today. What were the early measures of success that that you think you need to achieve? Was it an experience based one? Is it a customer engagement based score? Or is it the need to acquire scale quickly?

KPI is minimum experience score not minimum viable product

DK: So interestingly, the answer to the question from my experience, and my perspective, actually hasn't changed. The playbook isn't very different, although there's a lot more competitors now. The first thing you need to achieve is a very high experience score. Let's say we use net promoter score as a possible measure of the experience score. If your experience score is not high, then you have a problem, because banking is really, try first, and we incentivise you to try first, and we'll make money from you much later. If the experience is no good, you already paid to try but you get a lot of inactive customers.

And a lot of incumbents who have tried to enter experience that problem. And they had the same problem in their incumbent business. So getting a very high score, what I call the minimum experience score is absolutely critical, is a fundamental is the ante to play. Because let's say if the average net promoter score in the country is 15, for example, you need to target 30. If you don't target 30, don’t achieve 30, there's no point in launching. What is the value of being first, when your experience is so poor. It will destroy everything. And after people's perception that is poor, it's very hard to reverse that perception. And why is it so hard to reverse perception?

Because people generally have the, perhaps incorrect view of how digital bank would compete. There is no single thing that you're going to do that will make customers come over, other than give everything away for free. Which, of course, is not tenable. It's not viable in the long term. And therefore, the most critical thing is really to make sure that the experience difference very high, so that when someone tries, after you've given them some incentive to try, they will begin to move more and more their funds over. And the way banking works is that is what you're hoping for is that the primary bank and the secondary bank have just taken up with you switch in the long term. Nobody switches overnight. It is just impractical.

But over time, the secondary can become the primary, and the primary can become the secondary, if your experience is good enough. I don't think that has changed. That is everything. And not only that, but you need to build a platform that can deliver that in an efficient way without having to then say later it or we design it wrongly. And it cannot continue to let us improve the experience further, because as you get up the path to profit, you begin to realise that it is going to require a lot of volume. If you require a lot of volume, as you ramp up volume, if you don't have a corresponding improvement in your experience score, you may need to increase your incentive.

And therefore your cost to acquire will go up and your cost to acquire goes up, then your marginal contribution is heading towards a positive direction, it may fall back negative again, and therefore, you're trapped in a profitless situation. That's why I articulated in my book, you're not after minimum viable product, you're after minimum experience score. And that minimum experience score requires you to take a number of pet peeves, things that are not done very well string them together and orchestrate end to end that is the best experience that you can find in the country. And if you do that, then people are likely once you incentivise them to try to stay and be active. That formula I don't think has changed.

FBP: And with TMRW you created a new business model called ATGIE, acquire, transact, get data, insights, insights, engage. It's kind of an incremental, steady model. Not quite a disruptive model. Back then there weren't many digital banks to model after. If we take the example for today, the digital bank such as Kakaobank, in the region itself, you have digital bank, more recent like LINE BK. Their model seems to be to acquire at scale, 5 million customers in six months. LINE BK 2 million in four months. Does the different starting point impact the design? How do you design a business to scale very quickly, versus one that is built on incremental improvement in experience.

Disruption from business model innovation, technology R&D or process differentiation

DK: That sounds like a very simple question, it is hard to answer. Because there are a few different parts that you need to understand. First, what is a disruptive business? For simplicity, I would categorise any new business you want to do into three categories.

The first would be a true business model innovation. In a true business model innovation, the way you make money must be different. And then you find  most people are making money the same way. So that it cannot be a business model innovation in that context. In a digital bank, you are making money the same way. You're basically making fees, which are less and less and less because of competition, and therefore the majority of the money you make is from the difference between the deposits pricing and loan pricing. So you make money same way. So it's not a business model innovation in that context.

Secondly, could it be an area where science is moving very fast. You have a lot of R & D capability, breakthrough. It doesn't pass that because frankly, there is no big development in technology in banking, with the exception of blockchain. You have to go way back to figure out what was the previous development before that.

And therefore, you realise that the majority of businesses in the real world 90% fall in the third category, which is higher experience and lower and lower costs. Which means is really a process differentiation. You're going to have to put in a lot of new processes to make the experience very good. The question is at what speed can you acquire? Naturally, if you can get yourself in a situation where your competitors are really backward, that means their net promoter score potentially is negative, of course, then your hurdle rate is also high. So if your industry net promoter score is negative 10. If you want to be double that, that's just 10. So your work is a lot easier in such a country. You find in a country where it is 30, it is very difficult.

FBP: So if we were to give an example of a country, let's say South Korea, we talked about Kakaobank being two, three times of what the other banks.

DK: In that sense, they had a leg up because the rest of the banks are nowhere near in experience. Then of course, it helps that you have a mother that can imbue you with very good genes. So, their good gene is everybody knows Kakao. And if everyone knows Kakao, your marketing is much less. If your marketing costs is much less, and the standards are not very good, and your standard is pretty high. The formula is there. So, the formula hasn’t changed. It is just the speed of acquiring has changed. Now, if you are not Kakao, you don't have the kind of mother, your parents are regular men in the street

FBP: Your parent is a regular bank.

DK: Then it is the hard yards of acquiring. And the best way to acquire is to make people recommend, to make people say that banking should always have been this way. And that's the formula. And that's why your advocacy score needs to be very high. So regardless of whether your genes are good, or your genes are not so good, your advocacy score must be high, is just that you get an accelerant, a catalyst, that they allow you to climb to millions very quickly. And then you're fortunate, you're in a lucky situation.

FBP: So, talking about creating the experience that is two three times of NPS score, type of experience, and whether that is intrinsic within the organisation, or you need to bring that or kind of graft that in from external

Differentiation based on experience elevates “process” as the main factor of competition

DK: I would say, and it is a sweeping statement, so it's not going to be true in all cases. In general, my experience in banking tells me that it's hard to find it in banking. You might find it in some parts of a consumer bank, but I think it's rare to find it. And therefore, if you study the net promoter scores of most banks in most countries, most banks are laggards in net promoter score. You might have a few like Commonwealth Bank of Australia that traditionally are very well known to be very focused on experience and net promoter score. And if you overlay that with the fact that if you look at how banks have traditionally competed, the six Ps of competition for a bank, any service organisation, would be people, place, product, price, promotion and process. That's a typical service company’s six Ps.

The key is therefore that people have fallen by the wayside, place has fallen by the wayside, product, if you're entering through transactional banking, and there are very good reasons why you need to enter through transactional banking, is commoditised. What you're left with is really three other Ps of which price and promotion, you are trying to use sparingly because interest rates are very low. Margins are very compressed. How much more can you give? You have a bit more room in a sense if you are a low-cost producer. Now, I must say that, it's probably very hard for any incumbent bank to be the low-cost producer because then you need to have dual axis change.

Remember, I mentioned higher and higher experience and lower and lower costs? I will say that back in 2017, I only tackled one axis, which is higher and higher experience because I think to tackle two axes simultaneously is quite difficult. But increasingly, you have to do that because the incumbents cannot withstand the onslaught from the challengers with completely streamlined product, new technology. And if you look at Mybank, and Webank, they would be going down to $1 per customer operating costs per year. So that becomes a very serious consideration for any large incumbent trying to defend against an attack from the bottom. Back to the six Ps story, you're back with the last P which is process. And most bankers still haven't understood this transformation. That is the key transformation is happening. And process is still done usually in the bottom 1/3 of the company.

It is an obsession with detail. One of the best companies that is very obsessed with detail is Apple. Apple, if you think about it, is experience at lower and lower costs. If you look at the laptop, the laptop isn't really a business model innovation. You make money the same way? Is the science moving very rapidly? No. It's higher experience at lower and lower price. In order to do that, it's back to detail, process. And you need to have the DNA, you need to be very obsessed about the small things, because there's no one big thing.

You need to build a platform that can scale. And fundamentally, it depends on who you're targeting. For the majority of people, they're targeting the digitally savvy younger clients, and therefore the income you can make from them right now is low. If the income is low, or for that matter, you are targeting the unbanked or the underbanked, then your revenue is small, your revenue is small. In order to make profit, your costs must be low. That is a prerequisite and it is mainly tied to the fact that your costs can not be low if your process isn’t good. So process is required for both low cost and high experience. And this is a facet of the capability that I would say that generally banks are not very good at and not very interested in.

FBP: How did TMRW tackle that? Did you go through that “roll up your sleeves”, get on to improving your own processes or you work with fintechs? And now the common thing is platformalisation, platform as a service?

DK: I look at it very differently. If you are trying to optimise the bank's balance sheet through a platform, it is really increasing your sales, your reach. You're not fundamentally doing anything to change your competitiveness, which can be dangerous later on, because you over rely on a platform as your main, perhaps, chief source of growth. So that can be very dangerous.

FBP: Does that free the bank to do the acquiring part and the platform does the client fulfillment?

The industry is not sufficiently horizontally integrated for platforms to help acquire customers

DK: It doesn't, because you are reliant on the partner to bring the customers. You become reliant on the partner for acquisition. And I don't think the industry is sufficiently horizontalised. And in my book, I contrast the horizontalisation of the computer industry versus the same effect in banking. I believe it will take a much longer time. So that model works if I'm a bank that I feel I'm not very good at UI, and I don't really enjoy the processes. What do I do? I'm safe. People trust me, they put their deposits with me, they know that I manage risk well, and therefore, that's what I do. I manage risk well, I take deposits.

And I know what risks to take, I watched the bad debt, and I choose the right partners to help me utilise the balance sheet. And if you're going to do that, naturally, I think your margins are going to be compressed, because you need to work with other people. And therefore, you need a lot more scale. And I don't think that you can do that easily in banking because we don't have the standards that allow the scale. Whereas the standards were established globally in the computing industry, and therefore allowed that scale. And banking is still extremely country specific. I think that it is going to be hard to go completely that way. It doesn't mean you can't use a large platform as a way to get digitally active customers who sign up for your product, doesn't negate it. But what is your competitive advantage long term?

You have to think about your competitive advantage long term. And it is very far away before the horizontalisation can occur and you have this problem where you are still bound by the country border. Then you need a big population to do that. Some countries have the sufficient population to scale. And in some countries, you will not be able to do that. You still have to go back and think about that. And when you think about that. How am I going to compete? I have to produce better and better experience and lower and lower costs.

FBP: In your book, you mentioned the potential for challengers is a market where there is a high level of underbanked or underserved customers. Now if you look across the region, those jurisdictions that have come up with digital banking licenses are pretty small markets that are pretty well served, Hong Kong, Singapore, even Australia doesn't have a big population, the digital banks are really struggling. You are familiar with markets like Thailand which has 70, 80 million, big enough population. Indonesia much bigger. Talk about those markets and how incumbent digital banking versus standalone digital banks will develop in the large markets like Thailand, possibly Vietnam, Indonesia, even the Philippines.

DK: The signs are very clear there. You look at Brazil, we have Nubank, you look at China with Webank and Mybank. You can take a leaf from there that. For example, a country like Indonesia will go that way. You probably get a challenger formed. And then the question is how can incumbents defend? And in my book, I analyse it from the standpoint of disruptive innovation theory. These are the innovation theory. For those of you readers who are not very familiar, has been used extensively by Clayton Christensen. And it's been used in many industries.

Basically, what it says in a nutshell is when you have a business that has a technological core, and you attack from the bottom of the pyramid, the incumbents are always disadvantaged, at the end lose. And the industries that he has highlighted, very famous example, the integrated steel mill versus the mini mills in disk drives, showcased that the incumbents will always protect their best customer and ignore the customer that are marginally or not attractive, and therefore, they will cede the market.

Demographics is key to determining the potential to scale

But because the industry has a technological core and the technology can improve very rapidly, the attacker can move upwards very quickly and squeeze the incumbents. It is very likely from all the evidence that you can see on disruptive innovation that's happening in other industries that this is happening in banking. And therefore, the big incumbents need to think about this, because in 10 years’ time, it'll be impossible to defend against this attack.

The best way to think about it is, “How am I going to improve my experience and my costs, so that I can defend against this?” Because if your experience is very high, the cost is already very low, then the advantage that the challenger bank has is reduced significantly. And therefore, your ability to delay, this threat will become much more viable. This is the play, I believe in the large countries that have large underbanked, unbanked. Now, is it possible to play this out in a smaller country? I think it is, but it's much harder.

Number one, your population is smaller. And let's say like in the case of Singapore, you don't have any underbanked or you don't have any unbanked. Therefore, you're going to have to appeal to likely younger, millennials. And it's possible that this could also be kind of a disguised bottom of the pyramid attack. Because these are then customers, say, “They don't make much money. We can always get them back later in their life when they acquire wealth, then we get them back”. If you have a deep enough pocketed player who is thinking very long term, there's a possibility. But you need to be very wise in terms of how you design it because you cannot get back your annual fixed costs. Your annual fixed costs can only be defrayed by the number of customers in the country. And the number is not big, so it's much harder than if you were to do it in a larger demographic, where you have a lot of unbanked, underbanked.

FBP: Compared to 2016, when fintechs and even big tech companies were a real challenger, a real disrupter, now they are more of an enabler. It is a more open market. Also, regulation has come around. The regulators are leveling the playing field, restricting the fintech more and leveling out for the incumbent banks. What kind of player would have more success? Is it a big e-commerce or social media backed platform that decides to apply for licence and scale quickly? And how well can incumbent banks protect their base?

DK: The answer to that first question is, you need both. If you have a player that has a large number of customers, but they don't know how to build and run a bank, today building and running a bank is a very different kettle of fish. And if you look at a lot of ecommerce sites, they are not made for simplicity, because you want the customers to linger around, buy more stuff. That's not the case in banking. You want it to be very clean, very smooth. Come in, get your stuff, done and leave.

FBP: Or not even come into the bank? You want to embed yourself somewhere? Well, everywhere?

Digital banks like traditional banks must manage the balance sheet well

DK: There's a difference between payments, getting a loan, and being a bank. There's a difference. And sometimes people don't quite get the difference. Balance sheet management will always be there. You can see from even who we think to be the best examples, in China, saying the wrong thing, because you are not managing the balance sheet. You are simply matching. And no matter what, management of the balance sheet is very important, just as managing your personal balance sheet is very important. That is not going to change, because if depositors don't get their money back, governments are in trouble. The government, the regulator, is always going to be very concerned about the viability, and the prudential concerns of managing the industry. Balance sheet management needs to be there.

FBP: The approach to looking at the customer segment seems to have also evolved. As a bank, you look at your business segments, your consumer segments, so on and so forth. Now, with ecosystems, platforms and so on and so forth, there's an evolution where the existence of peer to peer is a reality of extending that relationship between business and business and customers, B2B to B2B2C, that even if you serve consumer, a business can be your customers as well. Both ends of it can be your customers. And the revenue stream is different as well. How does that change your balance sheet management?

DK: I am answering the question in two ways. Of course, if you can do both consumer and SME. In SME, key is credit. There will always be demand for good SME bank. But can you do the credit? Do you have the data? If your market allows, yes of course. For example, Starling, doing both makes you a lot more profitable, more attractive, if you can handle the credit. On the other hand, if you're talking about B2B2C, my own personal involvement, we partnered with a company called Pintec. When it gets big, it'll be regulated. Look at China, when they got big, they got regulated, the whole market evaporated overnight. That's the thing about financial markets that people have to realise, that if you're big and you become a danger to the system, you're going to be regulated. It's a temporary thing, it's not going to exist forever. And there would be something wrong, because then your risk equation is wrong. If a B2B could manage risk better than a bank, then there's something wrong with the way the whole thing is set up. Right. I think, yes, B2B2C can get some traction. If it gets too big, it becomes a bank and will be regulated.

FBP: And then in China that's being regulated because of the exposure.

DK: It will happen everywhere. The foundational reasons for why it happened are the same.

FBP: And in terms of the segments. For the wholesale part of the business, between institutions. Even as a digital bank, you can serve other banks as well, like Webank. Although it has 100 million customers and more, it serves other financial institutions, in terms of being an intermediary, to them as providing funding. And Webank itself acquiring customers.

DK: That's really a balance sheet equation. If you don't have the balance sheet to acquire so many customers, therefore, if there was a way to have a more fungible balance sheet situation where you could partner, other people, it's really a balance sheet equation. If the opportunity is there, then you're basically just increasing your balance sheet by having partners.

FBP: Your book is called Driving Digital Transformation - Lessons learned from building ASEAN first digital bank. And there’s a very nice foreword, written by Mary Huen, CEO of Stanchart Hong Kong, former colleague of yours. She talked about it calling out a lot of the dilemmas, of the incumbent banks, a lot of hard decisions that they make. You mentioned in the book, that the greatest barrier is bureaucracy in the bank. Tell us more, especially COVID-19 has accelerated this whole digital transformation. How much of it is reactive? And how much of the digital transformation that you see is really strategic and long term?

DK: I would say that the industry is still in transition. You can see that from the fact that you are able to count in your pair of hands, the number of incumbents that have put up digital banks. And some banks are still saying, “No, there's no need, digital banking is good enough”. I think banks are still finding themselves. As far as this is concerned, they haven't come to the realisation of what is the battle of the future. So, you understand what's the future, then you are better able to gear up for that future battle. I think few incumbents have successfully launched digital banks. Basically, the platform needs to be crafted very well, if you have a platform that is not crafted well then you cannot scale.

FBP: As a separate organisation, run separately, own management.

Every incumbent needs a digital bank experiment

DK: Fundamentally, because you can hear from what we were discussing much earlier, that there is this big cultural change, six Ps to one P. So, instead of the focus on product, promotion, pricing, … you need to focus a lot on design, design process, and technology. And to understand, for example, design thinking, Lean Six Sigma, and agile. All these require a cultural change. That's the reason why you need to have a unit that is doing this. On top of that, I'll just mention one more thing. It is impossible for the bank to lower their costs in the mothership. For all those reasons I mentioned, the complexity and all that together. You're going to build a daughter, and rationalise your products and transfer everything over. I don't see any other method that you can do that. For all those reasons, banks will begin to realise in the next five years that everybody needs a digital bank experiment.

FBP: Based on what we just described, would you say TMRW is a digital bank or more of a digital banking, versus a MOX (Stanchart)?

DK: In my opinion, of course, I can't speak for UOB. But when I was there, it was built as a digital bank. The only thing is that

FBP: But still a part of the balance sheet of the mother bank.

DK: That's good. Because if you look at what Stanchart is trying to do in Singapore, with NTUC, that's exactly what they're doing. They're using the mother bank's balance sheet, without having to cough up another SGD1.5 billion ($1.1 billion) in capital. So that's capital efficiency. That's good. What you need to watch out for is that the mother doesn’t suffocate the child, which is common. If you look into my book and the section on the companies that made it, the incumbents that defended an attack from the challenger., There are only two that I could think of. We're not talking about banking. One is canon, the other is Fuji.  What canon did was they formed a separate unit to do digital cameras, because they were afraid that the film division would snuff out the new child. Because the incumbent divisions always say, “Look, it's a waste of money. Give this child so much money, it's so long term, give it to me, I'm struggling to expand, and I need that money”.

The resource allocation becomes a problem for the top team and for the CEO. And that's the thing you need to guard against. You need to keep that separate. But there are many good reasons for keeping internally because of efficiency, balance sheet efficiency, people efficiency, because you don't need a full finance function, don't get a full treasury function. There are actually many good reasons for keeping it internally. But you need to guard against the bureaucracy, the politics, the poor allocation of resources, given the internal happenings. That's the thing you need to guard against.

FBP: And when you talk about these examples, sanctioned experiments that are happening in many jurisdictions. Many industry players are watching the outcome of them and deciding on their own digital future. In Hong Kong, the neo, challenger banks. In Singapore, they're supposed to have launched but haven't yet, probably next year. How do you see how they will impact incumbent banks? Is it correct to assume that there seems to be this thinking in the industry that digital banks aren't doing well. If you look at the examples in Australia, Xinja gave up its licence, 86 400 got acquired by NAB. There's no point setting up a standalone digital bank. We will all become digital eventually. Nothing will change. And the field is being levelled up by regulation.

The sustainability of digital-only banks

DK: I think in the big countries, Brazil, Korea, 90 million population, Indonesia, it's a foregone conclusion in those markets. We are basically talking about the smaller markets, can it sustain because it's basically a business that requires large demographic.

FBP: When you say it is a foregone conclusion, it is there is a future for standalone digital banks.,

DK:Yes. These standalone banks will compete and incumbents need to be careful, otherwise, they will be squeezed out of business. But it's a very long-term play, it's not like the phone industry. In my book, I contrast that in a manner of five years, you can be top to bottom right out of the business in five years. I don't think that's likely to happen in banking. It is going to happen probably in the 10 to 15 years mark. right. In that sense, it's a very long-term play. And it's more insidious in a long-term play because you ignore it. And then by the time you realise it, you actually can't do anything about it because it has taken many years to reach a position where the attacker has very high experience at ever lower costs, and you cannot replicate that overnight.

I think in those countries, it's foregone that all the big banks will think about this and need to be prepared for it. In the smaller countries, it is a question of viability. It is not that you cannot build something desirable. But is it viable? The design needs to be very clearly thought through, you need to really understand very clearly what are the 20 pet peeves? How do you string it together so that you create an experience score that is double? Therefore, be very careful about what you pick to invest in, what you don't. By doing that you also have very manageable annual fixed costs. And once you are able to do it, you can still make a difference. But again, it's long term. Therefore, is harder, and therefore the conclusion is not so clear.

But my book articulates a formula that if you follow that formula, your probability that you will not make the most obvious mistakes, and therefore have a much higher likelihood that you can get to the path to profit in the fastest possible way, is there. We should follow that clear model,

FBP: That model is based on ATGIE, acquire, transact, get data, insights, insights, engage?

DK: Not so much that. The model is based on the fact that you have to design it properly. The ATGIE, what you mentioned, model is the third differentiator. The first differentiator is that the transactional banking must be very good, the experience score must be double. The second one is that there's a lot of service improvement you can do. And there's a lot of capability you can acquire and continuously learn to make it better. For example, using chatbot, making the service better and better and better, at lower and lower costs. And the final bastion is use data to be more proactive, to increase the experience even further. And that's where ATGIE comes in. There are three levels of competition, the first two are going to happen to the best five banks in the digital space are going to achieve it. It's a matter of time.

FBP:  If we look at the standalone digital banks, there are quite a number of them, versus the incumbent spun off digital banks, what are the banks that you like? That you think are doing the right thing?

Does a wholesale digital bank model makes more sense than a retail one?

DK: Well, I think Starling has done a good job. I think they're going for quality customers. And I think they've thought through the whole way money is made. And they know that loans is the key and therefore the focus on SMEs, so I think I think the basic strategy premise is good,

FBP: Not quite reaching profitability yet.

DK: As far as I know, they have been declaring quarterly profit. They might soon reach a year where they have annual profit. So, they're quite close to reaching that level. And then you have the ones in the big countries, the Nubanks of the world, In Indonesia, potentially with a combination of Gopay and Bank Jago, you have the same setup. These are the ones that have the right parentage and the DNA. If they can get the design and the process right, then they will become very formidable. They will be very hard to compete against because their business model is superior to the incumbents. The rest of is not very clear. People can say there is bias but I think for incumbent banks, there is TMRW by UOB, there is MOX. I think they are there.

They don't have the kind of parentage, so it's harder. But if it's being used for offensive reasons, you may not need a very big base. Because you are competing against the alternatives. The alternative might be a very small bank because most foreign banks in the context, is actually quite small. The gap between the smaller local bank and the biggest foreign bank is actually a very big difference. If this gives you the ability to acquire five million customers, you're going to make money in the end. Anyway, you already have a licence, what are going to do? Unless you going to sell. And you can't use the old method, from that perspective, the justification for an incumbent is very different from the justification for a challenger.

FBP: In Hong Kong, it seems promising because it's not just a Hong Kong play, it is a Greater Bay Area play.

DK: You have the demographics here.

FBP: How would the digital banks whether they are retail or wholesale do in Singapore?

DK: Well, the reason why I decided to participate in the wholesale bank licence application was because I think the underserved market is equal to SMEs. But you need data and you need a credit underwriting machinery that is very different from what you have today. I think that's attractive. I think fundamentally the retail digital space is not attractive as a market small, there’s very little unbanked. It is very long term. It's very difficult. Yes, you can cookie cutter the platform. But it's a separate business unit everywhere. It's not a global business. It's not like Google, Facebook, and all these software companies where it's totally global, this is not the case. So, between the two, I would pick SME.

FBP: Wholesale. And it is a space that has got quite a number of fintechs, the like of Validus Capital, that are already serving the whitespaces that the big commercial banks aren’t serving. It will be interesting to see how it pans out. Talking about your more recent venture, All Digital Future. Interestingly, there are two parts of your book. One part are the lessons learned. The other part is the roadmap. The All Digital Future playbook. Tell us a little bit about this particular venture and how it connects to this book.

DK: As I wrote the book, I realise that there are many companies, not just in banking, doing digital transformation. Digital bank is simply a very big, very complex digital transformation in an incumbent bank. And this is being repeated in every single industry, because I think today if anybody's asking why I need to digitally transform then I think the business is lost. The question is no longer why. “What” is. Unfortunately, the state of affairs is that there're too many people who think they know what, and so when you Google, you find that there's all these clichés, “Ensure that you have top management support, hire the best team”, and stuff like that, which frankly, is not helpful at all. The key is really “how?”. Realising that, I created a methodology called the All Digital Future playbook that takes my learning and generalise it in the methodology that can be applied across any industry. And what I discovered in this process is that it became very obvious why the failure rate is between 70% and 95%. of all digital transformations don't meet their objective.

In fact, in 2018, IDC projected that of the $1.3 trillion spent, $800 billion is actually wasted in some white elephant initiatives, because it's complicated, there's actually no method. There are a lot smaller approaches, design thinking, agile, lean change management. Something that takes all these different myriad approaches and puts them into a complete playbook for the most senior executive in charge of the transformation and his direct team does not exist. And then when you think about it, and you go through the experience I've had where you have to deal with such complexity, and also the circular interactions within that complexity, everything affects everything else. You then feel that there is value in creating something like this, that can really impact businesses, and therefore have big impact in the world, if I can get this methodology adopted and pervasive, in a way. And that's really why I set up the company to do that.

FBP: Writing the book and creating All Digital Future from the perspective of someone who has done it. How much of a help is it? Or how much of a hindrance is it? Help, obviously, because you've done it hindrance is, are you limiting this based on your experience versus a wider empirical look into what other banks are doing?

The aim is to help increase the probability of success

DK: It's a great question. I think the fundamental principles of what I'm talking about from a playbook perspective, I think they're rather universal. The playbook has four dimensions. And when you tell anyone about these four dimensions, they will say, “yes, okay, makes sense”. You got to look at customers, you got to produce something desirable, that customers want. You have to look at the business selling something viable, you've got to ensure that you can feasibly bring it to life, which means you need capability, people, leadership. At this level, it's very logical, very sensible, that this is what you do. But the next level down, each of these dimensions will further break into elements. There are 19 elements, and these 19 elements break into 56 considerations.

By the time you reach level two, level three, there's an exponential complexity. From that perspective, understanding the map, being able to tailor this map to your situation. I think the principles are universal, it doesn't really matter whether you are industry A, industry, B, these are the considerations you need to go through. Therefore, from that standpoint, from a situation where you have no map, imagine looking for treasure with just a compass, and some very cryptic information about where it lies, versus you now have map. You still can get lost, but the map increases your probability of success significantly. And that's the play, as the executive in charge of any transformation, your job is to increase the probability of success. And very learned people, more learned than me, who have seen it, have easily told me that look, just by implementing half of it, you're going to double your chances of success.

FBP: With that roadmap, it guides the way to success. And thank you so much, Dennis, for spending time with us.

DK: It’s a pleasure. Those were great questions, and made me reflect and I had a great time. Thank you. Thank you very much.