Vivek Deshpande, Hong Kong Managing Partner at Payments Consulting Network, recently caught up with Henry Aguda, President and CEO of UnionDigital Bank to talk about their approach in providing innovative and convenient digital banking solutions to meet the needs of its diverse customer base.

UnionDigital Bank is a leading player in the digital banking space in the Philippines offering a range of innovative and customer-centric financial solutions. By prioritising the utilisation of technology to improve the banking experience, the bank has established itself as a key player in the industry in a short time since its launch.

In this exclusive interview, we speak with the President and CEO of UnionDigital Bank, who shared insights into the bank’s journey, its unique value proposition and his vision “to make banking accessible to every Filipino in the world, wherever they are”.

V: How does UnionDigital Bank differentiate itself from other banks in terms of its focus on financial inclusion, and how do you ensure accessibility for the community?

H: We are UnionDigital Bank, or as we’d like to call ourselves “The UBEH Bank”. As a subsidiary of UnionBank, we proudly serve as their second engine, with a key focus on providing essential banking services to underserved communities and unbanked Filipinos who have difficulty accessing traditional banking systems.

At UnionDigital Bank, we are committed to financial inclusion and creating positive impact on the lives of every Filipino, everywhere. As part of the larger Aboitiz Group, we weaponise our ecosystem, leverage its expertise, and work collaboratively to achieve our dream of a financially inclusive Philippines.

Our mission is clear – we strive to provide accessible and personalised banking services, products, and financial knowledge to every Filipino, no matter where they are in the world. As a fully digital bank, we aim to empower our customers with the tools and resources they need to achieve their financial goals and truly uplift their lives.

Our strategy this year is to make lending accessible to the numerous underserved segments within our existing ecosystem. We envision our farmers, taxi drivers, Overseas Foreign Workers (OFWs), corporate workers and the like having the freedom and ease to get a loan to better their lives, which is still difficult to avail through traditional banking channels.  

“We know that all banks measure Customer Lifetime Value (CLV) – we do measure that, but what we want to introduce is ‘Customer Lifetime Prosperity (CLP)’ – in other words, we want to show how our clients are moving up the financial food chain! That to us is financial inclusion.”

-Henry Aguda, President and CEO of UnionDigital Bank

In terms of services offered, aside from the usual Savings and Time Deposits, we offer lending products, Credit, and of course Payments. We have a lot of merchants/dealers on our app. An OFW can use their UnionDigital account as their transacting account to pay their bills (school fees, utility bills etc.) in Philippine peso currency.

V: You mentioned financial inclusion as the driving force behind UDB’s existence. What does financial inclusion mean to you?

H: The term financial inclusion has become a cliché. A lot of banks claim it, but we want to be very intentional about it. We want to measure it and show the market that we are making a dent. We know that all banks measure Customer Lifetime Value (CLV) – we do measure that, but what we want to introduce is ‘Customer Lifetime Prosperity (CLP)’ – in other words, we want to show how our clients are moving up the financial food chain! That to us is financial inclusion. If we make tons of money as a bank, we are a good business. But if our customers are not better off because of the business that we have, then we cannot claim financial inclusion.

If we do not measure CLP, then we cannot be serious about financial inclusion. We have 34 data scientists as part of our parent group Aboitiz and I have tasked them to come back to me with a metric for CLP.

V: Do you consider Fintechs and Payment companies (eg. Wise, Nium, Air Wallex) as your competitors?

H: As one of the six Bangko Sentral ng Pilipinas (BSP)-licenced digital banks in the country, our competitors are digital banks such as Maya, Tonik, GoTyme, UNO, and OFBank. Through a moratorium, the BSP has limited other new entrants in the coming years, which gives an opportunity for healthy competition among the six of us.

V: What payments services do you offer to your clients? And how does UnionDigital bank look at this trend of partnerships among banks and payment companies?

H: Right now, we are focused on Peso Net and Instapay. In the Philippines, these account for majority of payments. Regulators are also pushing for initiatives to make Instapay and Pesonet available globally to OFWs – which we will make available to our clients as and when these services are available.

If there are other payment services such as Paypal and others they prefer, we will look at it on a case-by-case basis and onboard it.

The nice thing about being a subsidiary of Union Bank is that we inherit all the payment relationships they have! So maybe after a year or so, you will see all of them onboarded. Eg. Gcash, Paymaya, Dragonpay – whatever is offered by our parent bank will be made available to our clients by end of this year.

V: What would you say is the key strength and differentiator of UnionDigital from the rest of its competitors?

H: Being part of the Aboitiz ecosystem. Unlike other digital banks who essentially had to build their functionalities from the ground up, UnionDigital Bank has the “unfair advantage” of being parented by a universal bank, UnionBank, and grand-parented by the Aboitiz Group. This means that we’re leveraging on a tradition of innovation that UnionBank has left behind, as well as the determination of the “techglomerate” of the Aboitiz Group. We’re also harnessing decades of data from the Aboitiz ecosystem that helps inform our customer profiles and product offerings.

Focus on middle to lower–income base. While other digital banks have attacked the market through the highest interest rate, the swankiest app with tons of features, we’ve decided to “serve the underserved.” This means targeting the lower to middle–income class as our customer base – the largely unbanked community in the Philippines that UnionBank does not normally target.

V: What were your key achievements over the last 9 months since you started operations?

H: As we leverage our strong ecosystem, one of the things we were able to successfully drive is our record-breaking loan growth.

We were able to close 2022 with 4.8B pesos in loans. We practiced this in offering our loans and were able to attain 217% growth in our portfolio last year, which means we enabled more low-income segments of the market to have access to credit, and for many, it is their first access to credit.

We will leverage data and analytics to gain insights into customer behavior and preferences, enabling us to tailor our services and offerings to their unique circumstances. We have already adopted this in our approach to loans where we used existing transactional data to offer loans that are appropriate to the needs of the underserved.

• We initially decided to launch UnionDigital within partners in the Aboitiz ecosystem first but have since soft launched to the public very recently.
• We will continue to explore new business models and partnerships to expand our product offerings and reach new customer segments. Embedded finance is something that we want to aggressively promote in the Philippines. We have already started with this by forging a partnership with mWell, they’re the country’s first fully integrated and fully digital health and wellness platform.
• UnionDigital Bank is seen to grow by high double digits as its consumer loans have yet to peak. The digital lender’s strategy of prioritising loans instead of deposits was key to making it profitable within less than a year of operating, Edwin Bautista, President and CEO, UnionBank said
• Mr. Bautista said UnionDigital disbursed P3 billion in consumer loans at end-April, up from P2.8 billion as of March and P2.5 billion at end-February.

V: What are the key metrics you use to measure success? How are you managing your Cost-to-Serve?

H: The bank is highly valued by its shareholders due to its intense focus on maximising capital efficiencies and profitability.

UnionDigital Bank has only 120 people. Half our people are in Technology and Product. The other half are in Risk, Audit and Governance. We not only want to aim at highest profitability and be the fastest growing, but we also want to have the highest regulatory compliance. That’s our commitment to the regulator.

We love partnering. The best thing about our platform is that it is highly extensible. So we are experimenting with others in the eco-system. We lend our balance sheets to partners who probably understand a specific customer segment the best and they do the loan origination and the underwriting. So that’s how we keep ourselves very lean.

Gone are the days of the super app. We will have a lean feature set in our UnionDigital bank app but we will be embedded in other apps including a Health app, Utilities app, or a Shopping app. That’s how we will keep the cost-to-serve very low.

V: What innovations do you have on your product/service roadmap for the next 12 months?

H: I am really passionate about CLP and as soon as our data science team pins this down and comes back with a measure, we will share it with the industry. We want to be the first bank to do this, and hopefully, it is something the regulator will start demanding from all the banks, making it something accountable as a target to most digital banks. So we can then have CLV to match with CLP which will be great for the industry. Second, is Embedded banking and extensibility. People talk about super apps, but we will now come up with a super tile rather than a super app. So UnionDigital Bbank will be a tile that will be appearing in several other apps (it doesn’t even have to be branded as UnionDigital Bbank app – it can be white labelled).

The third area we are working with is the concept of the thin core. We believe a bank doesn’t need to have one single, monolithic core. We will come back with multiple thin cores having several product catalogues such as SME banking running on a thin core and Agricultural banking running on a separate thin core. Thin cores that are made for a specific purpose and all their financial ledgers will run on SAP. We will redefine how banking infrastructure happens. All these are API driven, microservices and all the books reside in SAP.

V: What are the trends you anticipate in the next 2-3 years, and what objectives do you have for this transformation period?

H: In terms of trends, clearly, it is Digital payments. According to a survey by the BSP, 77% of adult Filipinos used digital payments in 2020, up from 46% in 2018. Mobile banking usage also increased from 27% to 55% during the same period. This trend is set to continue as the country seeks to promote financial inclusion through technology, and digital banks continue to innovate and provide convenient, accessible financial services to Filipinos.

The big one we are working with all the other digital banks, the universal banks, the Bankers Association of Philippines, and the Philippine Digital Banks Association is the creation of a common cybersecurity framework that will allow us to share blacklists, whitelists, share xxx across everyone. And create a common cyber response unit. We still see a lot of phishing, and a lot of fraud occurring today, so we are working together with other industry players to address it as that is perhaps one of the biggest deterrents to online banking today.

Second area we are working on at an industry level is to come up with a better way to push digital payments further. Encourage QR code payments pervasively as a replacement to cash and the CBDC initiative.

V: What have been the main contributing factors for the increase in Digital payments?

H: First reason is the regulators who have done a very good job advocating for digital payments – Instapay, Pesonet and QR code payments.

Second is the pandemic which has clearly contributed the largest. Currently digital payment penetration is 55%, more than double the target the regulators had set! It is mostly domestic so far. Cross-border payments will be next.

V: What key criteria or features should a client consider when evaluating a Digital bank?

H: This is applicable not just for digital banks but banks in general.

Choose a bank that you can trust and will have the simplest articulation of your product construct. The bank you choose depends on the service you want.

If you are looking for a Time Deposit, you can go with UnionDigital. We have the best rates and the simplest construct. Other banks can have a lot of pre-requisites which can make it difficult for the customers. Bottomline, you need to bank with a bank where you don’t have to read the fine print. If its lending – check for its access and efficiency. Go with a bank that allows you to borrow where you want. If you want to borrow to pay your utility bill, find a bank that’s already embedded in your utility provider.

Second, look at the lineage. Choose a bank which is known for prudential management of your money, and strong regulatory compliance.

Finally, find a bank that can best articulate what they want to do and actually does it.

Choose a bank that is accountable for fulfilling its mission and can be held responsible if they fail to do so.

• While our competitors focus on expanding user bases, deposits, or app downloads, our focus to grow our loans and deposits base first gives more opportunity in the future to innovate.
• It’s important to opt for a digital bank that is backed by a strong and reputable parent company, as this can provide assurance of stability, security, and reliability. The parent company’s heritage and track record can also indicate the digital bank’s ability to offer innovative solutions, excellent customer service, and long-term financial benefits.
• We want to make an app the genuinely works for the unbanked market base, and that means not necessarily going all out on high-end features. We have tried to make phones that work on simpler operating systems.

About the author: Vivek Deshpande, Managing Partner, Hong Kong with Payments Consulting Network.

Vivek is a leading Sales and Client Experience industry expert based in Hong Kong. He has 25 years of leadership experience in diverse industries including Banking, Consumer Products, IT and Engineering across functional areas ranging from Sales, Supply Chain, Strategic Planning and Customer Service. In his last role, Vivek was Managing Director and Regional Head of Sales, APAC at HSBC for its Global Payments & Cash Management business. He possesses extensive international experience having been based in Hong Kong, India, and Thailand in leading regional roles with significant exposure to APAC markets.

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Payments Consulting Network is one of the media partners of Seamless Asia 2023.

Vivek Deshpande will be a distinguished panel speaker at the Seamless Asia 2023, presenting insights on “Driving Financial Inclusion in Asia Through Payments.” Henry Aguda will also be a panelist for the session titled “New Kids On The Block: Meet the Challenger Banks Changing the Game in Finance.” Seamless Asia 2023, taking place in Singapore on June 27-28, is a premier event that brings together payments, banking, and e-commerce industries. Check out the agenda in advance.

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