How UnionBank is Powering the Future of Banking Through Innovation

Union Bank of the Philippines, also known as UnionBank, began operations in 1982 and was granted to operate as a universal bank a decade later. Its digital transformation strategy and commitment to the customer experience has earned the bank multiple prestigious ‘Best Digital Bank’ accolades.

Union Bank of the Philippines President and CEO, Mr. Edwin R. Bautista, was interviewed by Global Banking & Finance Review editor Wanda Rich, when he revealed how the bank managed operational risk during COVID-19 while supporting continuous services for its customers and disclosed some of the huge steps they are taking in fintech development to make financial services more instinctive and accessible.

First to be discussed was the bank’s performance over the past year, which has held firm despite the many challenges presented by the pandemic and its effects. “The bank has surpassed the globally challenging year with strong 2020 results,” Mr. Bautista confirmed. “We set aside credit reserves due to COVID and still recorded a net income of Php11.6 billion in 2020. This translated to a return on equity of 11.5%, significantly higher than the industry’s 6.6% average.

“The bank started 2021 strong, posting a net income of Php4.7 billion in the first quarter, which is 79% higher than the same period in 2020 and 53% higher quarter-on-quarter. This was despite additional provisions as credit buffer.

“As of the end of March 2021, total assets were at Php747.3 billion, nearly flat versus a year ago. Total loans and receivables were down by 12% to Php344.9 billion, driven by weak demand for corporate loans. Total high-cost deposits were 22% lower to Php222.8 billion, as funding requirements were supported by low-cost CASA deposits.”

The driver behind such solid results given these circumstances was the level of preparation afforded to the bank, thanks to its robust digital strategy. “Our people were equipped with digital tools which allowed for a smooth transition and undisrupted operations during the pandemic,” he explained. “We managed to keep the majority of our branches open with full banking services, while ensuring that our people were safe and had the resources to continue operating the branches. Our app and digital platforms were also in place, which allowed our customers to continue transacting with us from the safety of their homes.

“Our agile mindset allowed us to launch innovations to help address customer pain points during the pandemic – 5g bank on wheels, sending money to remittance centres, mobile cheque depositing, and other services that helped to make banking from home easy,” he added. “This digital shift motivates us to continue enhancing features across our digital platforms. We recently launched InstaPay 2.0, which enables fund transfers by inputting your mobile number or email address. Also, small businesses can now open their business accounts and perform banking transactions digitally with the launch of our SME Business Banking App.”

As well as allowing the organisation to weather the conditions brought on by COVID-19, digitisation brings with it more overall benefits, particularly to its bottom line and how the customer experiences the banking process. “Our digital channels were key to our performance this year, particularly in onboarding new customers and sustaining the customer transaction despite the pandemic,” Mr. Bautista said. “As the pandemic accelerated the shift towards digital, the bank experienced great traction. As of March 2021, we saw a 3.3x year-on-year increase to 2.4 million; a 10x increase on digital account opening via the UnionBank Online App to 623,000, and a 3.8x increase in monthly transactions to 6.6 million. Moreover, several partners ‘teched up’ with the bank’s help, including the Department of Social Welfare and Development (DSWD) and the Bureau of the Treasury. Recently, the Supreme Court of the Philippines entrusted us to ‘tech up’ their Judiciary Payment System so that its stakeholders could make digital payments to courts nationwide.”

An additional shift UnionBank plans to make by 2022 is the migration of its IT infrastructure, from an on-premises environment to Amazon Web Services (AWS), the world’s leading cloud platform. “The migration is intended to accelerate the bank’s digital transformation, improve customers’ digital banking experience, and strengthen financial inclusion in the Philippines by bringing financial services to remote parts of the country,” he explained. “The bank will also realise a cloud-only IT transformation strategy, becoming the first major bank in the Philippines to be fully hosted in the cloud.

“When the migration is complete, the bank will run almost 400 mission-critical applications on AWS to further modernise its IT infrastructure, drive operational efficiencies, and innovate new services. We are also migrating over 900 virtual machines to VMware Cloud on AWS. In addition, we expect to benefit from increased staff productivity, reduced unplanned downtime, and increased business agility through faster deployment of new, externally-facing applications.”

UnionBank is no stranger to innovative solutions, collaborating with XLOG to launch the country’s first blockchain-enabled supply chain financing, embedded in a logistics platform. This provides buyers and sellers with an efficient way to do business through digital document presentment, settlement, collections, and an instant community-based financing programme. “This partnership enables those with a logistics business to have access to end-to-end logistics technology for operational efficiency, real-time monitoring, online documentation, and flexible payment arrangements on blockchain,” Mr. Bautista said. “We are firm believers in how blockchain technology can bridge gaps in different industries, which we have already seen disrupt the financial industry. With this partnership, we hope to innovate the logistics business by integrating the financial supply chain platform with the already advanced logistics platform of XLOG.

“The integration of both technologies means that shippers, freight forwarders and their service providers – e.g. shipping lines and truckers – can facilitate, monitor and complete their transactions in one platform,” he went on. “They can now cover possible gaps in collection and payables with service providers through financing. Shippers can also enjoy extended credit terms while allowing service providers to receive advanced payments through discounting.

“Moreover, service providers can easily grow their businesses and close bigger deals by extending longer payment terms to potential customers. The partnership will also improve the cash flow of the parties by enabling the early collection of receivables via financing.”

UBX, UnionBank’s fintech and corporate venture capital arm, has experienced tremendous growth since it was spun off in 2018, two years after the bank embarked on digital transformation. This bold step aligns neatly with the organisation’s overarching vision, as Mr. Bautista explained. “UBX is predicated on a future where financial services are invisible, seamlessly embedded into the experiences and activities that truly matter to businesses and people. It leverages compelling ecosystems and data to explore new possibilities, making financial services more instinctive and accessible.

“The company continues to build and invest in open platforms, as well as in technologies that allow others to innovate, adding value whether they collaborate or compete. The impact of financial inclusion can unlock the potential of businesses and people.”

He went on to describe how the digital platforms created by UBX provided access during the height of COVID-19 that may not have otherwise been possible. “All UBX platforms are digital, which allowed us to service customers despite the pandemic,” he said. “i2i is recognised as one of the Philippines’ largest and fastest-growing financial networks and facilitates easy transfers across the network of financial institutions. It promoted agency banking amid the pandemic through its mobile ATM service. UBX stepped up to the plate through i2i by digitally transforming community-based financial institutions via i2i, enabling nationwide digital cash transfers for its customers to send funds and payments to over 11,000 locations around the country. In addition there is Bux, an all-in-one payment platform, which enables easy payments to e-commerce businesses, and Sentro, a free online shopping platform with pre-integrated payment and logistics capabilities, which makes online shop building possible and made MSME products and services accessible during the pandemic. Finally, we have the internationally acclaimed SeekCap, the Philippines’ first same-day-approval loan marketplace for MSMEs. It gave MSMEs easy online access to funding sources for their business and operational requirements.”

More digital advances are yet to come, as is made clear by the creation of the Innovation Campus, a real property development that will support the bank’s innovation initiatives. “It’s a first-in-industry facility, which is being built on a one-hectare property in San Pedro, Laguna, and will act as a hub for research and development that will further boost the bank’s digital capabilities,” Mr. Bautista told Wanda. “In addition, the campus will house various centres of innovation within UnionBank, including our institutes on data science, artificial intelligence and blockchain, as well as the recently-launched Asian Institute of Digital Transformation (AIDT), which is in partnership with Global Learning Solutions Singapore. It is a dream come true and a testament to the commitment to innovation, on behalf of management and the Board, as a major strategic thrust of the bank and of our parent conglomerate, the Aboitiz Group.”

Aside from their commitment to technological innovation, Mr. Bautista believes that financial institutions have a key role to play in supporting social economic development in the Philippines, and he highlighted a number of significant ways in which they can contribute. “There should be continuous provision of credit/liquidity to key industries in order to fuel economic growth,” he acknowledged. “An aggressive push for financial inclusion/inclusive prosperity is also needed. The key to this goal is providing easy, affordable and sustainable access to credit to the unbanked/underbanked sector of society, especially those in far-flung areas. This can only be made possible, far-reaching and scalable if financial services are offered via digital means. Digital transformation is therefore important, i.e. helping to ‘tech up’ more individuals and businesses for greater financial inclusion. It’s also important to help promote financial awareness to more Filipinos in support of the BSP’s efforts.”

The discussion drew to a close with UnionBank’s plans for the near future, in pursuit of realising its long-held vision to become the superior digital bank. “Recently, we have been voted the Most Recommended Bank in Asia Pacific and among the most helpful banks in Asia Pacific,” he reported. “This was because of our efforts to assist our customers, the economy and our country during the pandemic which would not have been entirely possible without the digital capabilities borne out of our five-year transformation. We know that the pandemic accelerated digital banking. While we have several years’ head start in digital transformation, we are cognisant that other banks and fintechs will do the same as a natural tendency.

“However, despite the crisis, we do not intend to slow down or even just maintain our pace. Rather, we will accelerate our medium-term plans and bring it forward to today, given the rapid rise of digital. In fact, in our recent strategic planning, our Board has supported and even mandated us to do this acceleration to maintain our lead in the industry.

“UnionBank is going full-throttle in our digital transformation,” he continued. “The bank shall compress its five-year plans into two years by accelerating the digital onboarding of new customers. Our success today was a product of looking ahead into the future and preparing for the evolution of banking. With the recent regulations, the bank is gearing up for the entry of more digital banks and the anticipated shift towards an open finance environment. We shall continue to launch pioneering solutions and test new technologies.

“UnionBank continues to sustain its digital leadership, and was recently named Digital Bank of the Year 2021 by The Asset Triple A. We hold the distinction of being the first and only Philippine bank to receive the award four years in a row.

“We will continue to help “Tech Up Pilipinas,” focusing on promoting wide-scale digital transformation to our customers, partners and institutions,” he added. “We believe that this will allow all of us to weather this crisis and emerge more resilient than before. Together, we can power the future of banking and help ensure the renaissance of our nation.”