By Lourdes O. Pilar, Researcher
“YOU DESERVE BETTER.”
This was the tag line that Security Bank Corp. (SBC) adopted as part of its rebranding campaign to build up its retail banking business four years ago. Prior to that, the Bank had been more known for its wholesale banking and financial markets businesses.
The Bank has come a long way since then. In April, Singapore-based banking magazine The Asian Banker named SBC as the “Best Retail Bank” in the country for 2018, surpassing the bigger banks that had bigger retail banking presence. The magazine noted the Bank’s efforts in building up its consumer banking business “as a strong third business pillar” alongside wholesale banking and financial markets.
Security Bank, the publication noted, stood out among its competitors in how it “strategically positioned itself as an innovative and customer-centric retail bank” by leveraging on technology and analytics, noting initiatives such as the Human Switch Kit and Online Account Application in removing barriers to entry and on-boarding new customers like requiring physical branch visits, completing numerous requirements and tedious processes.
Also noted was the Bank’s introduction of the Salary Advance (SALAD) loan facility. Launched in 2017, the lending scheme allowed employees of accredited companies to avail of short-term loans with affordable installments, which are not usually available from alternative lenders that offer risky terms of payment and higher interest rates.
With this in mind, BusinessWorld sat down with Abigail Marie D. Casanova, Security Bank’s Senior Vice President and Consumer Business & Operations Group Head, to discuss her in-depth knowledge about the new SALAD product, how it was started, and how the employee and the Bank would benefit from it.
SBC has been known to cater to corporate clients (i.e. wholesale lending and treasury), but in the recent years, it has made its presence known to the retail/consumer market. Why make such a move?
The Bank wanted a third pillar of business, and what else to complement and fit its current business if not retail. The retail business complements the Bank’s increasing depositor base where it can benefit from a strong consumer demand, better margins and a stable income revenue stream.
What was the motivation behind the Bank’s Salary Advance (SALAD) loan facility? What made the Bank want to enter into such a venture?
It started when we were studying the profile of our payroll clients. If you look at our payroll clients, the income levels are diverse. For the higher-income employees, it is very easy to cross-sell. But how do we reach out to the rest of them? That is where we thought of lending to the lower-income segment where options to borrow from formal institutions are less.
This segment usually goes to informal lenders or loan sharks whose interest rates are so high.
Why do they do it? They do it because there is ease of transacting. You don’t have to bring a lot of documents and then get disapproved. That’s not the case when they apply for unsecured or personal loans with banks or other formal lending institutions. We thought of giving them a better choice: a short-term loan with the same ease of transacting as the informal lenders but with lower interest rates compared to the loan sharks. We thought of removing the barriers to borrowing while mitigating our risks because we can deduct the loan amortization from their payroll. While the risk of lending goes to the Bank, the employer or the accredited company enjoys the hassle-free loan benefit for their employees.
The opportunity to help the lower-income, higher-risk segment is big. This endeavour is a double bottom line, meaning it is not only helping the Bank in terms of revenue. It also lets us serve a market that will lead to the financial inclusion of a marginalized segment.
I want to add that because of these efforts, we were recognized and awarded by two international publications: the Asian Banking and Finance and the Retail Banker International for Best Initiative and Product Offering in Financial Inclusion.
In relation to the previous question, were there external conditions that made the Bank want to provide salary loans?
Prior to offering SALAD, we already had a corporate salary loan product but this was processed in the usual way: you apply, you sign, you give some documents. But imagine a security guard with no time to go to their centralized Human Resources Department even if they have a salary loan facility. Imagine a BPO (business process outsourcing) agent who has different time shifts. Or a factory worker who stays in the factory eight hours a day. Those were the conditions or the pain points that we saw from this market that we wanted to solve. From these pain points, we conceptualized a product that is fully digital, straight through and without the common barriers of applying and getting a loan. We wanted to be the “Bale ng Bayan.”
How does the Bank attract customers in using SALAD over other banks’ salary loan facilities?
I can say that we are the only bank that offers a truly digital, straight through and 24/7 loan facility so this one tops the way the other banks process. We only require a one-time enrollment. Once the employee is enrolled, we send an SMS (short message service) that says: ‘You are now ready to avail.’ The employee can then text the loan amount and the loan term and within 10 minutes, he or she receives the loan proceeds into his her payroll account. So how convenient would that be? I think that’s the edge we have.
What are the terms of repayment for employees once they avail of the said salary loan? How many months is the loan payable and at what interest rate?
The repayment is through salary deduction, which makes it all the more convenient for the employee and the Bank. On the loan term, we can lend at a minimum of one month to a maximum of three months, but we are working to make it longer of up to six months or even a year. Interest rate is at 3.5% per month.
If you look at it in terms of a normal bank personal loan, the rate will be a little higher. Meanwhile, the rate of SALAD is similar to that of a credit card with all the convenience. But if you compare that to the informal lenders, or even the fintechs who are into lending (Financial Technology firms) or loan sharks, our rates are way lower.
What are the advantages in using SALAD as against borrowing from other “instant loans” providers? How does the Bank differentiate itself from other banks having a similar product?
On the banking competitors, we are the only one offering this kind of salary loan. The advantage is that it is fully digital, it is straight through. There is no documentary requirement needed and once enrolled, employees of accredited companies receive an SMS saying that their application is 100% approved. To top that, re-availment is also very easy because once their term ends, there will again be an SMS saying that they can re-avail and everything is done through mobile. On the other “instant loan” providers, our advantage is that our interest rates are much lower and credit risk is mitigated because amortization is automatically deducted.
How does the Bank, the employer, and the employee gain from such an arrangement?
I will start with the employee first. Whether the employee wants to avail of a loan or not, once enrolled, an instant loan is available that can be used for personal or emergency purposes. The convenience and the sure approval are the benefits that most employees appreciate.
So what’s in it for the employer? The employer outsources loan administration to Security Bank. Hence, no more processing of loans for employees and improved cash flow as they no longer need to lend to their own employees. And for some, this is like a retention strategy. We saw this especially for some BPO companies that are our clients.
As for the Bank, this is our business: we earn and we also help. We believe that it is not only the margins that we get but it is also the customers that we gain. Soon, we can actually introduce other products and services to them.
Similar to the previous question, will there be reward or incentives for employees of accredited companies who keep on using the loan facility and have a good credit history? If so, what are these?
Right now, we are working on our system limitation. We currently give discounts on processing fee and rates on a tactical or promo level. In the future, if we have enough data and system capability, we will definitely do dynamic pricing, term extension and higher loan amount. That is what we are looking at in the next few months.
On a similar note, how would the risks be spread amongst the three parties? Who would bear the most risk? The lesser risk?
The risk of default is all Security Bank’s. If the employee resigns and there is a balance to collect, the employer notifies the Bank. For some, the employer also remits the last pay of the employee. But mostly, it is the Bank’s responsibility to collect the remaining balance.
What are the considerations that the Bank usually looks in accepting companies that are looking for accreditation?
Normally, we look at companies that are established, have at least a hundred employees to avail of the salary loan facility, and also at the number of years in business. Our requirements are not so stringent. As long as the business exists, is legitimate and has its business papers, they can be accredited.
How is the traction for this loan facility in terms of adoption? How many companies (and employees) have applied for accreditation/availed of salary loans?
I can’t tell you the exact number but I can say that the adoption and the support has been very good. Year-on-year portfolio growth is at 200% whereas booking growth versus same time last year is at 265%. Now, we have seen triple the number of companies asking for accreditation. We have a lot of employees in our pipeline who continue to avail.
How big would you say is SALAD going to contribute in terms of the Bank’s earnings? How much does the Bank expect this to grow this year? What about in the next three to five years?
The plan of the retail segment as the pillar of business that will contribute a third of the Bank’s revenues is almost there. Within retail, SALAD is one of the important products that really bring in revenue stream. That’s as far as I can say.
Where does SALAD fit in terms of the Bank’s growth strategy and efforts to expand its consumer product offerings?
SALAD is right smack in the Bank’s strategy to do mass lending. If you follow SBC’s niche, it is the mass affluent that we target in terms of deposits and loans. However, when we started with SALAD, we saw that there was demand and there was a very good segment into mass lending.
What are other consumer products that the Bank is looking at right now especially in connection to promoting financial inclusion?
SBC has a fully-owned subsidiary called SB Finance, which is now poised to do mass lending. Through this subsidiary, we would really like to expand, especially in unsecured loans to the higher risk segments or to the customers not traditionally entertained or marketed to by Security Bank. We are planning to partner with telcos and fintechs to further understand this market so that we can offer financially-inclusive products and services.
Factoring in inflation, rising interest rates and the weak peso, how do you see the Bank’s retail expansion going forward? How about your outlook for the Philippine consumer market?
As far as the Bank’s retail expansion is concerned, I can say that it will be as aggressive as when we started. I don’t see any slowing down especially in consumer lending because the demand is strong. There may be a temporary increase in the cost of funds which will affect the margin but we will still continue to find better ways to deliver our products and services in the most consistent and cost-efficient manner so that we do not have to raise the cost of transacting or the interest rates for our customers.