Aboitiz-led Union Bank of the Philippines (UnionBank) is pursuing a three-point plan that will digitize its operations and bring it onto a level playing field with the “fintechs,” or financial technology-girded foreign rivals.
In a roundtable discussion with The Manila Times on Tuesday, UnionBank President and Chief Operating Officer (CEO) Edwin Bautista said the main threat to local banks amid the more liberalized banking industry in the country is the entry of fintechs and purely digital foreign banks in the Philippines.
Fintech, or financial technology, is an emerging industry composed of companies that use new technology and innovation with available resources in order to compete in the traditional financial services market.
“The world is changing. And the electronic world is not going to go away. And if the banks would not prepare, we would be gobbled up by digitization, either by fintechs or foreign banks who come in purely digital – because if you come in purely digital, you have no branches, your cost is low,” Bautista said.
“So the most that a local player can do is defend its share in the market but don’t make money. A purely digital bank coming in, who doesn’t have the branch cost is the main threat,” he added.
Engaging with fintechs
UnionBank’s approach to this threat is to execute a three-point strategy that will transform its operations into digital technology, put up a digital bank and engage the fintechs in catering to the local market.
“Plan A is that the whole bank gets digitized. The whole idea is we want to be in the digital age in terms of operations and technologies,” he said.
Plan B, Bautista said, is to launch UnionBank’s own digital bank by using the EON brand. UnionBank is launching its own products that will block foreign digital banks to come in.
“Why are we doing this? The first time they come in, there will be the novelty factor. For example, they will come in with facial recognition. So we are relaunching EON brand as a digital bank with the first “selfie” banking in Asia, which is really facial recognition,” he said.
“Those were some of the things that we were doing, so when they come in, they’re going to come in with similar things. So the novelty factor in the market is no longer there,” he said.
Lastly, he said UnionBank’s plan is to engage with a fintech company instead of treating them as competitors.
He said the advantage of fintech is, they take advantage of this regulatory arbitrage as their cost is lower because they are not exactly a bank.
To engage, not compete
“The whole approach is, we engage them. We are finding out that most of the fintechs coming here needed a partner bank. They realize that the faster way to grow is to ride on the infrastructure of a bank,” he said.
Bautista explained that issuing electronic money in the Philippines requires a license from the Bangko Sentral ng Pilipinas (BSP).
“There are rules and it takes time to get a license and there are requirements. So for them, the easiest is to partner with a local bank that has an existing license. More fintechs are adopting that idea,” he added.
Asked how this digital transformation would play at UnionBank’s profitability, Bautista said they expect this strategy to “have maximum impact in the future but it will lower the bank’s cost in the near term.”
In terms of expansion, Bautista said the bank has no plans to have additional branches this year, as their main focus is digitization.
“We will have no branch expansion. Right now we have 304 branches. The only discussion now is how to transform the bank and how will it look differently in the future” he said.
Instead of putting up branches, Bautista even said that in the future, UnionBank may trim down the number of its branches as most transactions will be done electronically.
“As we increase our digital capabilities, it will always follow and start to go down. It will change overtime but with no rush,” he said.
In 2016, the bank posted a record profit of P10.1 billion, followed by a net income of P2.21 billion from January to March this year.