Leveraging UnionBank’s legacy: A Q&A with UnionDigital Bank

By Lourdes O. Pilar, Researcher

UNION BANK of the Philippines (UnionBank) was the first listed bank in the country which secured a digital banking license for its unit, UnionDigital Bank, two years ago.

UnionBank, the banking arm of the Aboitiz Group, believes that setting up another digital bank unit is the more strategic plan, making the bank to “pause and re-create the ideal digital bank that will run differently having a different set of engines.”

The digital bank turned out to be the second engine growth for UnionBank.

With a mission to drive financial inclusion, the bank is dedicated to extend financial services to underserved communities by capitalizing on technology and decades of alternative data from the UnionBank ecosystem.

Since UnionDigital Bank’s launch in 2022, the bank has been focusing on serving the needs of the underserved communities by offering digital deposit and lending products and continue supporting the needs of these customers with additional products over time.

To know more about UnionDigital, BusinessWorld reached out to further explore what the digital bank can offer in the market, and other ventures they plan to have in the Philippines.

What follows contain excerpts of that interview.

As one of the six digital banks in the Philippines and the first and only digital bank backed by a universal bank, what advantages does UnionDigital have against other digital banks in the country?

As a subsidiary of UnionBank, we leverage on our parent’s legacy. UnionDigital draws on the strong heritage and extensive expertise of UnionBank, ensuring reliability and trust in its services.

UnionDigital is the second engine of growth for UnionBank dedicated to financial inclusion. As a digital bank, UnionDigital is uniquely positioned to extend financial services to underserved communities.

Our mission is to improve financial accessibility for underbanked Filipinos who traditionally have limited access to banking services.

We achieve this by:

Making banking services available to the unbanked, thus integrating them into the financial system.

Offering accessible credit solutions to those typically overlooked by traditional banks.

UnionDigital also has the competitive advantage of tapping an extensive customer base through the Aboitiz Group ecosystem.

What security measures have you developed to prevent illicit online banking activities? What are the tools that the Bank uses to protect its clients from fraud and anti-financial crime?

Our dedication to security is fundamental, deeply embedded in our corporate ethos through the principle of Security by Design.

This approach ensures that security measures are integrated seamlessly into every aspect of our banking operations.

We are also moving toward adopting the Zero-Trust Security Framework, a robust security model based on the principle of “Never trust, always verify.”

This model strengthens our protocols for managing data access, further securing our systems against unauthorized use.

UnionDigital builds on the requirements of the regulatory environment and is proactive in monitoring both security and fraud systems.

This ensures not only protection internally, but also and most importantly, for our customers.

According to the Bangko Sentral ng Pilipinas (BSP), digital banks are unprofitable due to higher nonperforming loan ratio at around 21%, compared to the banking sector’s 3.4%. As one of the digital banks in the country, how will you improve the loans you extended and improve your loan collection mechanism?

We continue to leverage data and analytics to gain insights into customer behavior, allowing us to tailor our loan offerings effectively.

For example, we analyze transactional data to understand the needs of our customers better.

Our strong underwriting models are continually improved as we gain more insights into our target customers.

We collaborate closely with other digital banks through the Digital Banks Association of the Philippines, sharing learnings on financial inclusion, particularly in lending to the underbanked segment.

At UnionDigital, the collection process is crucial not only for financial viability but also for maintaining customer relationships. We utilize various tools for collection, including automated systems and our partner agencies.

The central bank earlier said only two digital banks posted a net profit in 2023 and the sector posted a combined net loss. What does UnionDigital need to do to become more profitable in the medium term? For the long term?

UnionDigital is one of the two digital banks that posted net profit in 2023.

Leading market share in loans and deposits

• We closed 2023 with 49% market share in loan portfolio, while in deposit, we ranked second among digital banks with a 25% share.

• 2023 also marked a significant milestone as we achieved profitability, showcasing growth in revenue by 13 times to over P5 billion.

UnionDigital will be further expanding access to credit

Expanding our market reach and enhancing our product offerings will be pivotal.

Advancing our strategy for a deeply integrated “Super Embedded” App.

Concentrate on deepening customer relationships and fostering financial inclusion through our community approach and embedded banking.

• This approach is designed to integrate our services seamlessly into the digital lives of our customers, providing personalized and accessible banking experiences.

• By strengthening our fintech capabilities and leveraging strategic partnerships within the Aboitiz Group ecosystem, we are poised to maintain our competitive edge and foster sustained growth.

What are your plans for the rest of the year? What products and services do you plan to offer in the market, and how would you differentiate these offerings from those provided by other digital banks?

We will continue to expand our services to the underserved through our loan offerings and very competitive deposit rates. UnionDigital will also be tapping new communities.

There will be new products and features on the app, including an enhanced portfolio of loan options and the introduction of virtual cards.

As early as last year, the BSP has been thinking of lifting the moratorium on the grant of new digital banking licenses to allow more digital banks to operate in the country. How would UnionDigital adapt to remain competitive amid the threat of new players?

This environment encourages existing digital banks, including us, to continuously enhance our offerings, streamline user experiences, and adopt new technologies to remain competitive.

For UnionDigital, the evolving landscape represents both challenges and opportunities. The entrance of new players could pressure existing digital banks to innovate more quickly and efficiently to retain and grow their customer base.

However, it also presents an opportunity for us to differentiate ourselves by leveraging on our existing strengths, particularly our solid foundation with UnionBank as our parent company and the expansive network within the Aboitiz Group supporting us.

For us, the key to success will lie in our ability to adapt to the changing industry dynamics, invest in technology and innovation, and maintain a customer-centric approach.

This will not only help us navigate the challenges but also seize the opportunities presented by the expansion of the whole Philippine digital banking ecosystem.

What do you think are the biggest risks faced by digital banks such as UnionDigital and what did you or are currently doing to eliminate these risks?

At UnionDigital Bank, we recognize significant risks such as the digital divide within our customer segments, cybersecurity threats, regulatory standards, and operational challenges.

Many of our customers do not have data connections, which limits their ability to engage with digital banking services. To address these risks, we are developing inclusive technology initiatives, such as low-bandwidth solutions, and actively supporting government projects that promote the digitization of the Philippines.

Additionally, we continuously fortify our cybersecurity measures, maintain rigorous communication with regulatory bodies to ensure compliance, and implement robust operational frameworks.

These comprehensive efforts demonstrate our commitment to delivering secure, reliable, and accessible services, empowering every Filipino, everywhere.

To know more about UnionDigital Bank, visit www.uniondigitalbank.io.