SINGAPORE (Sept 25): The digital transformation efforts of Oversea-Chinese Banking Corp is a necessity rather than a competitive advantage for the lender.

While the form and function of the digital initiatives are very similar to other banks, the push is necessary to ensure customers remain within OCBC’s banking ecosystem, say analysts who attended its investor day.

Cost avoidance and efficiencies are expected to arise as a result of technology spending which represented 11% of costs in FY17, up from 8% in 2013. Management expects cost-to-income ratio (CIR) to gradually trend towards 40% four to five years from now. As of 1H18, CIR stood at 43%.

DBS plans to have its CIR reduce to less than 40%. The target will be gradually achieved via investments in technology, reduction in the number of physical branches, as well as minimising the need for tellers.

Although OCBC still relies on third-party technical capabilities to execute any innovations, OCBC is on track with its three-year $20 million OCBC Future Smart programme which aims to develop the digital skills of its 29,000 employees.

Partnerships with fintech firms also expose employees to new capabilities and the digital culture of startups which take time to inculcate, adds management.

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However, hurdles still stand in the way of OCBC’s digital drive.

In a Monday report, CGS-CIMB Securities’ analyst Lim Siew Khee says in the adoption of technology -- especially in payments -- end-users face too many similar alternatives which dilute the stickiness of each platform. Another challenge faced is getting customer consent to use personal data collected by the bank.

Physical branches are here to stay as customer behaviour has not changed as a number of old-school clients have been resistant to the digitalisation efforts by the bank.

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Still, despite the increased hacking attempts, management is comfortable with its current cyber security infrastructure, comprising 6% of technology costs.

Year to date, shares in OCBC are down 8.3% to $11.46 or 9.6 times FY20 forecast earnings.

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