Unobank secured a digital banking license from the Bangko Sentral ng Pilipinas (BSP) in June, adding to the roster of lenders offering all-online services.
Backed by Singapore-based financial technology firm UNO Asia Pte. Ltd. along with world-leading technology companies, UNObank is the third bank that was granted a digital bank license by the BSP: the first two being Overseas Filipino Bank, a unit of the state-owned Land Bank of the Philippines, and Tonik Digital Bank, Inc. (Philippines), another Singapore-based bank.
UNObank looks to create a “full-spectrum” digital bank in Southeast and South Asia. With the Philippines serving as the pilot site for this program, the bank is looking to “bridge the gap” in the country’s financial inclusion story by offering products that allow Filipinos to “save, borrow, transact, invest, and protect their finances easily, with speed and ease” through one app and one card.
The bank’s mission, if achieved, will contribute to achieving the BSP’s goal of bringing 70% of the adult Filipino population into the formal financial system from just 29% in 2019. UNObank is expected to start operations in the country by the first quarter of 2022.
To know more about UNObank and their “AI-first” approach to banking, BusinessWorld reached out to the bank’s Chief Executive Officer and Co-Founder Manish Bhai to share his thoughts and insights.
What were the factors considered in choosing the Philippines as the pilot market for the full-service digital bank?
Our goal is to create the first credit-led full-spectrum digital bank for South and Southeast Asia.
When we looked at the landscape of South and Southeast Asia, we found that the Philippines was the most appealing market for a few reasons:
If you look at the macro backdrop of the Philippines (and this is pre-pandemic), the Philippines had a GDP (gross domestic product) growth of 6%, and was among the highest growing GDP countries in this part of the world. We also considered that 70% of the adult population is unbanked, which is close to 50 million people. The consumer credit to GDP penetration is one of the lowest in this part of the world with only 10% of the people borrowing from the organized sector.
On the flip side, when you look at the market and the tailwinds of the Philippines, it was very promising, with digital adoption rates being one of the highest in the region, as demonstrated in the use of social media statistics.
We also looked back over recent years for data with respect to adoption of financial digital services, and in terms of account opening with wallet companies or with a few virtual banks, it was very positive.
On top of our findings, we had a sense that the BSP would prove to be one of the most progressive regulators in the region, as they have.
So, our assessment was the Philippines is going to move the fastest, and because it had a very dynamic regulator, we put our entire faith into it and bet on the Philippines. That was the driver.
As banks look to upgrade their digital capabilities, what do you think makes UNOBank stand out in this regard considering your status in the market as a new entrant?
We believe that our strongest differentiator — in terms of our strategy — will be credit-led and technology.
Globally, there are approximately 250 neobanks today, and only a handful of them offer credit, because credit is the most difficult part of the equation. It requires a deep understanding of the credit ecosystem: credit origination, risk management, process management, and collection. The end-to-end system is much more complex than a deposit base, or life stage-based package. And that’s the strategy which we are going to bring to the Philippines.
There’s a huge unmet need in this area because the consumer credit to GDP penetration of the Philippines is just around 9%; whereas it is at around 20% in Indonesia, more than 50% in Vietnam, and some 80% in Malaysia. So from that perspective, if you look at the Philippines, the penetration is pretty low.
In your website, it says UNObank employs an “AI-first approach to banking.” What does this mean exactly? Can you provide specific instances that illustrate said approach?
Technology is one of our biggest differentiators. We are a greenfield bank — we bring no baggage. We are building everything from scratch. [The bank] is cloud native and we have the advantage of choosing the best and the latest… [W]e are absolutely confident that by the time we launch, we will have the most recent and advanced technology available until that time, in this part of the world.
Our Intellectual Property is built around orchestration, around personalization, around data, and around analytics. Data leads the way for strategic moves — to create a new service, respond to customer preferences, or comply with regulations — in all instances. Today, data is central to the effort. The way we can reshape and repurpose data is key to our ability to predict trends or meet expectations. We are choosing technology that includes artificial intelligence, natural language processing and machine learning which will help us to build insights into the data we collect, and will give us the speed we need to compete.
What products and services do you plan to offer in the local market, and how would you differentiate these offerings from those provided by other banks?
We plan to launch a full-spectrum digital bank by providing one trusted single interface to make your entire financial life cycle journey easier and simpler. That is, an app, on which one can save, borrow, transact, invest, and protect to meet all your financial needs. There will be a savings transactional account, a deposit account and full-suite of personal finance management options. Our focus stays high on personalisation, speed and ease facilitated through innovative solutions like one universal card.
Who do you consider your target markets for your banking products and services?
Our primary target market is the mass and mass affluent segments across the Philippines and include both the unbanked and the under-banked. We are creating a bank online for people that may have only experienced technology with their mobile phone. Largely, the ecosystem for introducing a digital bank is not fully ready, significantly because all the people we are trying to reach are not yet comfortable in using a digital product.
How do the current challenges faced by the local banking industry (such as growing nonperforming loans) and the economy (in the recovery phase) account in your expectations on how UNObank will perform in the next few years? What are these expectations?
The pandemic has, without doubt, worsened the credit portfolio quality in many countries and has led to a slowdown in lending. That said, we are seeing a strong recovery underway in many countries. Banks and other financial institutions in lending will definitely be exercising more caution.
On the other hand, the divide between the unorganized sector and organized sector is huge in the Philippines and the unmet needs are vast. The potential size of the market is large enough for multiple players to coexist and grow. Though our plans look aggressive in isolation, as a proportion of the overall market, they are still modest.
Upon your entry into the Philippine market, what challenges do you expect to encounter and how would you plan to solve them?
Our key target market is the unbanked. Some of the reasons that people remain unbanked is that they have a lack of enough money, lack of documentary requirements, or that they simply refuse to open a bank account. But something else we know is even though, by and large, the unbanked make payment transactions, they lack the understanding that they could transact those payments digitally with a bank account… [o]r the benefits of savings. So, education of the unbanked will be a challenge. And we plan to have multiple training sessions, effective use of social media and digital modules and short videos that help people understand the benefits of banking efficiently.
Secondly, establishing trust with a purely “digital bank”‘ is something that people need to get comfortable with. People who have never used a digital service before need hand holding. People still want to work with people, and not a nameless ubiquitous interface. There’s still a need for a bank to be humane.
For example, people get stuck in an onboarding journey, they get nervous when they do not see “a person” to speak to. So when it comes to engagement and servicing, we will still need to offer human touch. Although we will use sophisticated algorithms and dynamic decision making to manage, along with automated messages and calls, we will have a contact center and feet on the ground to complement our digital services. Our approach to digital bank is that while on one hand, we use a tremendous amount of technology to streamline processes and facilitate service delivery, on the other we won’t eliminate the need for humans to work at the bank.
Thirdly, much of the unbanked in the Philippines are also undocumented. KYC (know your customer) and onboarding tends to be a challenge. We are applying state-of-the art and sophisticated strategies like video KYC to enable quick onboarding in a regulatory compliant manner. Thankfully, the BSP has also embarked on the National ID program. The national IDs are non-transferable cards to be issued to all Philippine citizens or resident aliens registered under the National Identification System or PhilSys. When a person registers to open an account with UNObank, we will be identifying that person as a customer by referencing their National ID.
How does your bank ensure customers that your online platform is safe from cyberattacks?
We have the advantage of choosing the best and the latest technology and building our architecture with the very latest knowledge of best practice. Our technology stack will differentiate us, and we are very carefully choosing who our vendor partners are, so that we can build the most robust technology stack that’s possible today.
How do you ensure that outages and downtimes in your app are kept at a minimum?
As I’ve mentioned previously, we are completely cloud native. Under the present cloud architecture, being built on the latest technology stack, we are emphasizing speed and ease, which respects our vision of simple and better banking.
Although we are making choices to deploy technology that delivers the highest possible uptime, how high that uptime is not just dependent on our own choices for technology: there is the issue of reliable infrastructure. We are dependent on governments and telecommunication companies to build robust infrastructure that ensures access. There needs to be stable broadband networks that offer affordable and accessible internet services for all. We need data centers in the Philippines that are built to international standards and can deliver reliable and stable infrastructure to reduce latency.
UNOBank has been quoted as saying that it looks to help “bridge the financial inclusion gap in the Philippines and eventually Southeast and South Asia.” What do you think is the cause of this persisting gap, and how does the Bank look to solve this problem?
There are three issues at stake here: education, infrastructure, and identification. Each of these needs to be overcome to bridge the gap. Education of the unbanked that they can use a digital bank to save and spend; that they need identification and should adopt the National ID; and we need data centers and broadband infrastructure installed to deliver our services.
What do you think are the biggest risks faced by digital banks such as UNObank, and how do you plan to mitigate or eliminate these risks?
One of the greatest risks is around cybersecurity. Digital organizations are constantly under threat from hackers and these are compounded when the users are not very vigilant about the potential risks. Ensuring that our systems are consistently secure and safe is one of the highest priority. These risks are mitigated by over investing in robust technology, control systems and the right talent.
Another risk to watch out for is the appropriate pace in growth of the national infrastructure that supports the internet, mobile communications, customer identity, [and] anti-money laundering controls… The way to effectively manage these is to constantly and consistently keep engagement with the regulatory bodies and contribute both in terms of suggestions and bringing global innovative solutions promptly to the country.
What activities does the bank plan to undertake once it starts operations? What outputs and outcomes do you look to produce and achieve within year one of your operations here?
We have a firm belief in the leverage and power of the ecosystem. Our growth will depend on new and innovative partnerships that ultimately bring utmost convenience to our customers and help them meet their financial needs all across. We see potential to partner with almost every other fintech (financial technologies) in the Philippines. We do not view them as competitors but enablers who can help do “even better” for our customers.
While we will launch with simple products around savings and lending, over the next year, we will be regularly introducing newer products and solutions around Insurance, wealth management, auto loans and payments.