Banking a revolution
As president and CEO, Edwin R. Bautista’s greatest fear is waking up one morning to find that the bank he has helped steer and nurture into one of the Philippines’ most dynamic, profitable and innovative banks, has become irrelevant. That the McDonald’s, Starbucks, 7-Eleven, Ministop or even Watson’s outlet a block away from his high-perched, elegant and sprawling Ortigas office has overtaken its business.
To placate that fear, Edwin has launched what could be the most revolutionary transformation a local bank has undertaken—go digital.
To do that, it has been procuring and harnessing various kinds of technology—blockchain, robotics, AI. Also, UnionBank has aggressively poached from larger companies wizards of technology and the digital game, given them lofty positions and lucrative deals to convert the bank, from analog to digital. The IT team is led by Chief Technology and Chief Transformation Officer Henry Aguda, a telco and IT veteran.
“It is not just technology,” says Bautista, who has been with UnionBank since 1997, first as a senior vice president after hugely successful stints as a marketing whiz kid at Procter & Gamble, American Express International, and Citibank. “It’s about people. Our culture at Union Bank is people first—our shareholders, our employees, our clients, our communities.”
Transformation began internally. Employees had to be taught the innards of digital banking, how to do coding, how to execute, how to deal with customers, and how to stop or blunt hackers. So UnionBank invited among the best minds on the topic to lecture employees.
UnionBank believes that to expand the bank, you don’t need to build brick and mortar branches, because later, if not sooner, people will simply refuse to visit their bank.
Thus, the bank has only a third to half (304) of the branches of the three leading banks BDO (1,103), Metrobank (704), and BPI (821). In fairness to BDO, Metrobank and BPI, whose branches sit cheek by jowl with each other on busy Ortigas Avenue, each of their branches averages P3 billion in deposits, enough scale to operate a branch.
UnionBank management thinks branches will soon become irrelevant. Because the smartphone can do just as well, and most probably at lesser cost, what a regular branch does. So UnionBank is re-purposing its employees, as marketers of its services, from bank tellers and managers. They become loans and investment officers and financial advisers.
“Everything is on a smartphone. People are used to downloading apps or e-commerce and streaming movies. That’s the lifestyle of today and it will be so in the future,” Bautista figures. “We need to weave a complete digital flow from your device to the bank to the clearing house back to different banks back to the phone all in that one click.”
Not going to a bank at all will actually benefit the depositor or customer. Because such a visit usually costs money. “A bank is a high-transaction cost because of the number of tellers needed,” explains Bautista. The challenge then is to capture the customer who is not visiting his bank and service him. Otherwise, he will go to a remittance center, a 7-Eleven, a Starbucks, a McDo, or a drug store to do his banking.
UnionBank has delivered on the digital promise. It says 90 percent of its transactions are now digital, from 20 percent five years ago. It has reaped awards and profits for the effort. It is AsiaMoney’s Best Digital Bank for 2017. The same year, Union was cited as the Domestic Retail Bank Year in PH by Asian Banking, Best Universal Bank by Capital Finance International, and Best in API (Application Program Interface) Innovation by Infosys.
UBP posted a net income of P8.4 billion in 2017, compared to the P10.1 billion recorded the previous year. Excluding one-time gains from securities trading, core income was up by a robust 30.4 percent to P8.2 billion from P6.3 billion in 2016.
Return on equity was 12.4 percent, and return on average assets was 1.5 percent. UnionBank also continues to be one of the most cost-effective banks in the industry with cost-to-income ratio of 53.9 percent.
Total assets reached a new high of P622.1 billion, up 18.6 percent. Total loans grew 19.4 percent year-on-year to P281 billion. UnionBank’s loan portfolio is diversified, with consumer loans accounting to more than one-third of total loans. Total deposits rose 18.9 percent from a year ago to P447.6 billion.
“We are pleased to continue making major headway on both our business and digital transformation strategies. Financial results were driven by recurring income across all customer business segments,” says Bautista.
Simultaneously, he says, they were able to attain milestones on the user experience front:
1) EON Digital Bank as the first with selfie-banking feature in Asia;
2) The UnionBank mobile app and web versions with enhanced transactional capabilities; and
3) The launch of our concept branch, “The Ark,” that introduced the “future of branch banking” in the country. Amid investments in various digital initiatives, the Bank continues to sustain very solid profitability results.
For 2018, UnionBank sees profits rising further.
This year will likely be ‘very good’ for the bank, driven by continued loan and securities growth and expansion of the balance sheet, says Bautista.
Total resources could easily hit P700 billion this year, he says, up from P622.1 billion in 2017.
Lending activities are projected to sustain a growth of 25 percent this year, much faster than the industry pace. In December, bank lending in the country grew by some 19 percent.
Consumer and small businesses now account for 70 percent of UnionBank’s revenue but by volume, they account for slightly less than 50 percent. The higher revenue contribution reflects the higher margins from these segments, Bautista says.