In this recently published Q&A interview with International Banker magazine, UnionBank President & COO Edwin Bautista shares insights on the Bank’s stellar performance and focus on growing its digital banking capabilities.
We are joined today by Mr. Edwin Bautista, President and COO of UnionBank, one of the largest banks in the Philippines. Our discussion will reveal more about UnionBank’s stellar performance, as well as the bank’s drive to be a financial-technology leader. In addition, we will discover what the general state of banking in the Philippines is like, at present.
Mr. Bautista only took over as the President/COO at the beginning of the year, so we’ll also find out more about the bank’s new leader.
Mr. Bautista, welcome….
Let’s begin with UnionBank’s commercial-banking business, which has been one of its most successful operations over the last few years. The engine of growth within this business seems to be small and medium-scale enterprises (SMEs). What, in your opinion, make SMEs choose UnionBank over other banks in the Philippines?
We have always been known as a provider of expert cash-management solutions. We immerse ourselves in the communities we serve in order to understand our customers’ pain points. We use the insights and learning to innovate and customize our cash-management products to best suit the different needs of our customers.
And your retail-banking division has also delivered consistent excellence in recent times. What would you say are some of the unique qualities that make retail banking at UnionBank stand out from the bank’s competitors?
Ever since the beginning, we have differentiated ourselves from our banking peers in the way we approach retail banking:
1. We have separated customer-relationship management from operations to the extent that the reporting lines of these two functions will meet only at the President/COO level. We believe this is important to ensure that each group is focused on delivering its mandate.
2. We have leveraged on our strength in innovation anchored on customer centricity. We are able to establish corporate relationships with our desire to continuously fine-tune our cash-management solutions to cater to and even anticipate the different needs of our customers. This strategy has enabled us to link the supply chain of our anchor clients and penetrate different segments within a community.
3. Lastly is our Digital Transformation Strategy. While other banks build branches to expand their retail presence, we aim to build a digital bank to service our mass-market customers.
Yes, it certainly seems clear that UnionBank is prioritizing the growth of its digital-banking capabilities. How prepared do you believe the bank is to keep pace with ongoing developments in financial technology (fintech)? And do you expect UnionBank’s banking model to be significantly disrupted by fintech going forward?
Fintechs are here to stay, and they are already disrupting financial services through faster, more convenient and more efficient ways of transacting. This is why digital transformation is a must.
In 2015, we upgraded our core-banking and Internet-banking systems. The next phase is to enhance our processes surrounding the technology upgrade to improve user experience. We aim to put in place the “best-in-class hygiene” necessary for us to be digital. The objective is to ensure six-sigma reliability and availability, 24/7 banking operations and straight-through processing of transactions.
Digital transformation is also necessary for us to further enrich our partnerships with fintechs. We have realized that there is room for both fintechs and banks to coexist; fintechs will need the support of banking infrastructure. We continue to build our capabilities in order to make it easier for our IT systems to interact with fintechs, particularly our ability for Application Program Interface (API), cloud computing, as well as information, and cybersecurity.
Do you see fintechs gaining significant prominence in the Philippines in the coming years? If so, in what particular areas (for example, marketplace lending, robo-advisory, etc.)?
In the Philippines, fintechs are more prominent in the payments gateway. These involve mostly online purchase of goods, bills payment, and remittance.
Now, turning towards some of the specific initiatives with which UnionBank is involved, one of the bank’s strongest commitments is to increase financial literacy in the Philippines, mainly through its SmartBanking brand, and with a particular focus on SMEs. How successful has this been to date?
We have found success through our partnerships with fintechs and other innovation experts in promoting financial literacy through our various corporate social responsibility initiatives.
In the past, we partnered with a telco to introduce mobile-money cash management to a micro-finance company called Tulay sa Pag-unlad, Inc. (or TSPI), whose borrowers are mostly mothers in the rural areas. In 2015, we launched the UREKA Forum, which is the biggest e-commerce mass-conversion program for business in the Philippines. At the end of the one-day workshop, each SME participant was able to set up their shop online and operate their e-commerce portal.
We aim to continue our partnerships with innovation experts to bring financial literacy to the different regions in the country.
Indeed, and arguably one of the biggest challenges faced by the Philippine banking sector in recent years has been the attempted expansion of financial services into those different regions you’ve mentioned, especially ones with relatively large unbanked and under-banked populations. Is this a major concern for UnionBank, and has there been much of a drive by the bank to expand financial inclusion and accessibility in the country?
Through our subsidiary, CitySavings, we have established banking offices in rural areas to extend credit. At the same time, CitySavings has an ongoing partnership with Pera Hub (formerly called PETNET). Through this partnership, Pera Hub will be able to facilitate loan applications through their outlets nationwide.
On the part of UnionBank, this is where digital transformation will come into the picture. We aim to target the unbanked and under-banked sectors through the digital channel, where it is not feasible to set up banking offices.
Yes, and while that remains one of the key challenges, it seems as though one of the brightest contributions to the Philippine economy is the amount of remittance payments coming in from Filipino citizens working abroad. How much of a presence does UnionBank have in the remittance space, and how effective do you think the bank currently is at facilitating ease and convenience of such payments?
We have an existing partnership with Western Union, a leader in worldwide money transfer. This partnership provides us presence to facilitate remittances from Global Filipinos.
What we have done is to facilitate the ease and convenience of domestic remittances through our Barangay Remit Program. This program further expands the reach of Western Union for money transfer beyond first-class cities and municipalities in the Philippines. In this program, we leveraged on technology through the development of a mobile application that makes money transfer more cost-effective and accessible.
Now I’d like to ask about your own association with UnionBank, Mr. Bautista. It has been just over six months since you took the reigns as UnionBank’s President/COO. Although that’s a relatively short time, have you managed to set any goals for both the bank and personally for you to achieve over the next few years?
My mandate is clear. I am here to transform the bank for the digital economy. I have set three objectives in the short-to-medium term.
1. Digitize the bank;
2. Launch the digital bank; and
3. Partner with fintechs.
How would you describe your own style of leadership?
A leadership quality that will guide the organization to transform itself. We are embarking on a digital transformation that requires an adaptive and agile form of leadership. As a leader, I must win the hearts and minds of my colleagues. Agility and flexibility are very important as we take on a meaningful transition process.
And is there any specific area within the bank that you would particularly like to improve going forward?
While we have gained significant traction in terms of growing our earning asset base, we recognize the fact that our market share has not significantly moved over the last five years. We know that our balance sheet still has substantial room to grow, and we want to fast-track that growth.
Yes, I imagine that growth must be of particular importance to you. But how well-positioned is UnionBank at the moment to be able to consistently achieve such growth going forward, particularly with regards to retail and commercial banking?
Our achievements in recent years have placed us in a very good position to sustain our growth momentum.
1. The bank has outpaced the industry’s five-year compounded annual growth rate in terms of customer loans.
2. In 2015, the bank recorded its highest loan growth in history, where we posted a growth of 29 percent, which is more than twice the industry’s growth rate for the year.
3. We expect a growth trend in profitability in consideration that our revenues are now comprised mostly of recurring income.
4. We remain among the most cost-efficient banks in the Philippines.
5. Our business model of focusing on recurring income, while managing the cost of service delivery, will be sustained, resulting from our digital-transformation initiatives.
What, in your opinion, will be some of the major changes and/or developments in the Philippine banking industry over the next few years?
The positive economic outlook in the Philippines will be attractive for investors. This will boost business sentiment but will intensify competition. Local players will continue their expansion to increase market share, while foreign players will look for domestic partners to enter the Philippine market. Regulations will be stricter in order to protect the interests of investors and consumers. This will be capital-intensive for banks and add to the cost of doing business. Competition will come not only from banking, given the entry of fintechs. Customer behavior will continue to change, given the availability of technology. As a result, customer expectations will change, and they will demand real-time processing of their financial transactions.
Digital transformation is our response in order for us to compete in customer acquisition and deliver our brand of unique customer experience, while managing the cost of servicing our customers.
One of UnionBank’s stated visions is “to become one of the Top 3 universal banks in the Philippines by building a bank of enduring greatness”. The bank is striving to achieve this mainly through its FOCUS 2020 initiative (“FOCUS” refers to the bank’s five key strategic imperatives—Financial Value, Operational Excellence, Customer Franchise, UnionBank Experience and Superior Innovation). Would you say that UnionBank is on track to achieve FOCUS 2020’s goals in a few years’ time?
We are on the right path. We have identified and are currently working on putting the necessities that will get us to FOCUS 2020. Everyone in the organization is gung-ho on achieving our objectives. Even our parent, the Aboitiz Group, is supportive of our aspirations. We are confident that it can be done.
Well, we certainly wish you all the best in achieving those objectives, Mr. Bautista. Thank you for your time.