Finance

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Forget the lending book. Dismiss the wealth-management aspirations. It's DBS Group Holdings Ltd.'s embrace of technology that could be the next big driver of shareholder returns at Southeast Asia's biggest lender.

DBS's announcement Thursday that it now has the world's largest application programming interface platform for banking, with users including McDonald's Corp., may appear at first like marketing gimmickry. Being able to use the bank's Paylah app to buy a burger is hardly revolutionary.

Yet going down the API route may be smart. By throwing itself open to third-party developers, DBS is no longer constrained by its own imagination. Letting people play with the building blocks means it loses nothing by being the banking engine for lots of dud fintech ideas. However, if a partner succeeds, DBS scores big. 

To see how, consider Qudian Inc., a Chinese online micro-lender that had a successful IPO in New York last month. Qudian gets to make tens of millions of small, short-term loans by simply being part of the Alipay app network from which it gets its customers, as well as their credit scores. In return, Ant Financial, the banking affiliate of Alibaba Group Holding Ltd., gets 9 percent of Qudian's interest income. 

Network Effect
Qudian's consumer credit transactions have been driven by its links with Alipay
Source: IPO filing

By fashioning itself as Singapore's Ant, DBS could one day be offering a third-party robot wealth-advisory solution that competes with its in-house DBS Treasures offering. It might even want to own a part of such successful rivals.

Singapore has decided to relax the strict anti-commingling laws it imposed after the Asian financial crisis. Back then, the city-state's regulators wanted to prevent banks from piling up risks by getting into other businesses. Now, the thinking is changing.

Technology is shrinking lenders' traditional moat. The U.K. has set up Open Banking, whose goal is to enable customers to take control of their financial data and share it with organisations other than their banks. Back in Singapore, the flexibility to invest as much as 10 percent of shareholders' funds in permissible non-financial businesses is one more reason for DBS to make some unconventional moves.

Shareholder returns, which haven't gone anywhere for the past 20 years for Singaporean banks, could use some out-of-the-box bets.

Fresh Thinking Needed
Singapore banks' return on common equity has mostly moved sideways for two decades
Source: Bloomberg

As DBS CEO Piyush Gupta competes with Alibaba's Jack Ma for dominance of payments in Southeast Asia, it's time perhaps for him build his own ant colony. Or at least an Ant-like colony of many industrious partners. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Hong Kong at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net