Is fintech overrated? DBS, OCBC, UOB see record profit, seek reinvention amid uncertainty

Earlier this week, the Monetary Authority of Singapore announced that it plans to increase deposit insurance coverage per depositor to S$100,000 (US$74,000) from the current S$75,000 (US$56,000).

If implemented, 91% of all depositors will be fully covered by deposit insurance.

While neither the banks nor the Singapore authorities will want to admit that the former are “too big to fail”, the reality is that DBS, OCBC, and UOB form an integral part of the Singapore economy and benefit from the city-state’s protection.

Their track record, diversification, and record-breaking profitability also give them an immense advantage over fintech startups, many of whom saw an opportunity to disaggregate the components of traditional banking and offer targeted solutions and better services.

A few years ago, 76% of banking respondents to a PwC survey feared that some part of their business was at risk from fintech startups.

However, the latter now face the prospects of downsizing amid an unfavorable macro environment.

Record profits fueling digital investment

Last year, DBS, OCBC, and UOB all racked up all-time highs in profits.

Collectively, the three banks recorded total income of US$29 billion and net profit of US$14 billion in 2022. This represents a five-year compound annual growth rate (CAGR) of 5.6% and 7.4%, respectively.

While these are not startup-level growth rates, they are steady and coming off a much bigger base, providing the banks with the returns they need to compete with fintech upstarts.

They’re also no slouches when it comes to investing in tech. Over the four years through 2021, DBS made digital investments of US$3.6 billion. It then announced that it would invest US$222 million in 2022 to grow its digital and intelligent banking capabilities.

According to OCBC, it invested over US$185 million in the first phase (2019 to 2022) of its seven-year Digital Core Roadmap to accelerate digital transformation. In the second phase (2023 to 2025), it expects to invest another US$222 million.

OCBC’s main branch in Singapore / Photo credit: OCBC

Not to be outdone, UOB announced in 2021 that it was investing up to US$370 million in digital innovation initiatives to double the retail customers it serves digitally across Southeast Asia by 2026.

For comparison, fintech startups in Singapore have raised over US$6 billion between 2018 and 2022.

Fintech firms dwarfed by banks

DBS most highly valued

Structural improvement due to digitalization

AI, crypto, and acquisitions