UNO Digital Bank is now live-testing its new digital bank in the Philippines with select individuals – “friends and family”, says Manish Bhai, founder, president and CEO.
Based in Singapore at parent group UNOAsia, Bhai says the recently licensed digital bank will provide a full suite of financial services in the Philippines, with lending to the fore.
The experience of digital banks worldwide suggests the few that become profitable do so on the back of lending, rather than transaction fees, deposits, or other services, Bhai says.
“We are full spectrum but based around lending, and we will pursue financial inclusion from there,” he told DigFin.
UNOAsia secured $11 million in a pre-Series A funding round led by Creador Private Equity to finance the launch of a full set of products by the Philippines entity.
Although the business strategy is aimed at lending, the products available now are deposits and transaction processing (eg payments). The bank will quickly introduce lending and insurance capabilities in the next few months, with investments to launch round out the product set within 12 months, Bhai said.
Bhai is an experienced banker, having served at Citibank and Société Générale in his native India as well as in Indonesia and Singapore. His last position in banking was as Citi’s managing director and Asia Pacific head of institutional FX sales. Bhai left in 2019 to co-found CoantumLeap Tech Ventures, which develops A.I. and other digital solutions for Asian financial institutions.
Bhai didn’t stay long: in early 2020 he teamed up with Kalidas Ghose, a former banker who since 2015 has served as CEO and vice chair of FE Credit, the largest consumer finance business in Vietnam. FE Credit has a lot of experience developing alternative data models to profile consumer creditworthiness.
- Read more:
- JG Summit and Tyme partner for Philippines digital bank
- What’s the Philippine play for digital bank Tonik?
- Open banking in Southeast Asia: Brankas builds local
Bhai and Ghose brought this combined fintech experience to set up a digital banking platform, UNOAsia. (Ghose splits his time with FE Credit, but that business has no relationship with UNO.)
Their goal for UNOAsia is to operate banking licenses in three or four Asian markets by the end of 2025, but for the next two years they will focus on the Philippines. UNO Digital Bank is represented on the ground by Benjamin Cross Sevilla, former chair and co-founder of local investment bank Altus Capital.
UNOAsia was keen to begin in the Philippines because, first, a license was available: the government has issued six digital banking approvals, with a light capital requirement of Php1 billion ($18 million, versus the more than $1 billion required in Singapore). The Philippines central bank licensed UNO in June 2021 and the business was incorporated in October; its soft launch commenced in June 2022.
Second, the country is badly underbanked, thus creating an opportunity for a bank that can traverse the archipelago digitally. According to Bhai, half the 110 million population has no bank account, and fewer than 20 percent have access to regulated credit.
“The unorganized sector is rampant,” Bhai said. This is because the Philippines lacks two ingredients: a system of identity, and an effective credit bureau. The country is building both, but these will take several years to roll out.
Bhai says UNO Digital Bank plans to use deposits and transactions to get people to use its wallet, build data profiles, and then rely on lending to scale. This anticipated growth will be supported by coming improvements in national digital infrastructure.
Build and buy
Some of UNOAsia’s venture funding will go to building certain proprietary systems: the analytics, modeling, and other aspects of customer experience and personalizing services. Bhai regards alternative data – derived from mobile phone usage, social media, bill payments, among other sources – as a competitive differentiator. It is not, however, a substitute for traditional financial documentation, so there is a limit to how quickly UNO will scale before the Philippines upgrades its credit bureaus and digital identity capabilities.
The bank is outsourcing any functions that can be accessed off-the-shelf as subscriptions, and which can be plugged in or jettisoned as needed. UNO Digital Bank is using AWS for cloud, Mambu for core banking, HPS for credit-card processing, and Oracle for reporting on anti-money laundering compliance.
The bank is also scouting for partnerships – including with other digital banks. It needs to build an ecosystem to generate customer leads or co-create lending offers.
Bhai says the company expects UNO Digital Bank can break even with three years. Reaching that goal will require the bank manages its costs. Customer acquisition cost (CAC) is one such metric that Bhai argues will be kept low if UNO Digital Bank creates a healthy ecosystem of partners, including fintechs, other banks, and customer-facing corporations.
UNO hasn’t announced a strategic tie-up with a local family-owned conglomerate, as other digital banks have.
Another factor is the cost of capital. For now, the lending book will be funded by the company’s equity (including money from its latest funding round) and by deposits. After a year or two, the bank will also consider tapping domestic and international capital markets. Bhai says in 2021, capital costs varied between 5 percent and 11 percent, although global interest rates have risen since.
“We must ensure our products are out there, that our systems work, that they are stable and secure,” Bhai said. “We must avoid mindlessly growing the lending book. It will take a year before we begin to really scale the business.”