The Bank of the Philippine Islands (BPI), one of the largest and oldest in the country, has always embraced a culture of change. The bank was the first to introduce through-the-wall 24/7 automated teller machines (ATM) in the Philippines in 1983. It was also one of the early adopters of phone banking in 1991 and online banking in 1999, when the idea has barely taken hold in the country.

Throughout the years BPI has steadily introduced new products and adopted new technologies and practices that aims to improve customer service. However, in 2016 the bank has decided that it is nearly reaching the top end of its capabilities and that the only way forward is to phase out old practices and undergo an aggressive digital transformation. 

Noel Santiago, chief digital officer, shares that BPI’s roadmap goes beyond just upgrading its technology stack. The bank has opt to apply digitalisation across the entire ecosystem, demanding massive overhauls in processes and bank culture.

This decision is now starting to show good results amidst the Covid-19 pandemic, as its digital customer base has nearly doubled from 2.2 million to 4 million, and boasts a 400% increase in transaction volumes compared to last year. The banks is now well positioned to take more risks, onboard more customers and deliver quality service.

In his previous position as UOB’s Senior Vice President - Head Retail Service Management, Group Technology and Operations he provided advisory in the planning and development of migrating UOB ATM cards with EMV chips in addition to mag-stripes to comply with the new regulations issued by the Association of Banks in Singapore. He also provided advisory and solution design in the development and implementation of UOB Mobile Cash.

Prior to this Santiago worked for DBS Bank where he provided thought leadership in business analysis and design of over 4500 business requirements across business units and core markets. He also formulated the Self-Service Operational Efficiency initiative which resulted to $1.8 million (SGD 2.5 million) cost savings per annum and set the stage for ATM outsourcing which resulted to an additional $4.3 million (SGD 6 million) cost savings for the bank. In 2000, he also helped implement the first cash deposit machine with an integrated passbook updating capability in Singapore.

The following is the edited transcript of the interview

Re-assessing capabilities and areas for growth

Foo Boon Ping (FBP):So today we are very happy to be speaking with Noel Santiago, the chief digital officer the Bank of the Philippine Islands (BPI).  BPI has been going through a digital reinvention and we're happy to be speaking with Noel. Tell us about your own experience in technology and in bringing your organisation through dramatic changes and what you bring to the role of digital reinvention at BPI.

Noel A. Satiago (NAS):  When we started our digital transformation in 2016, we took it upon ourselves to revisit our capabilities and said well these capabilities takes us to where we want to be. We know that the old ways will need to change. We all know that in order to compete in the new world, you can't compete with an old weapon.

NAS: In 2016, we did an inventory of all this. And based on this inventory, we took a call to action and we determined the areas that needs to be improved.

But most important Is our technology infrastructure. When we started, our digital capabilities was like in the days of BlackBerry or older. We were running our digital channels in the old world as if it was still the .com days.

So those are things that do work. It's not broken, it's running. But we know that it will no longer scale. It will no longer be able to sustain the demands of the new world, and the new customer segment that we're looking at. So we said, we're going to build our capabilities around this.

So we put up a roadmap. We selected 10 action items on the roadmap comprising of different organisational areas: our agility in developing products and services, our analytics in building our insight team, etc.  What is most important is the channel that the customer interacts with. So we took certain priorities. There's no point building a lot of new fancy products and services if we still have to face the customer like in the old days. Also the capacity is being put to the max, and you don't want to invest in building a new capacity on an old technology.

As we look at it now, especially in this time of pandemic, our decision 40 years ago is paying off. We have seen the growth of our customer base. Our digital customer base has grown 100%. From 2.2 million, it's now more than 4 million. We're gonna hit more than 100% by the end of this year. Our transaction volume has grown by 400%.

FBP: The country’s central bank BSP has started to license digital only banks. What do you see your own position as? Is it an incumbent defending your turf against all these players? Also what is most critical, getting the technology stack right, the organisation, or are you kind of reinventing the bank as a whole?

NAS: We took the decision that you can't choose between one or the other. It has to be both. There's no point putting up the best technology without people in the organisation being able to rethink the way they do things. The most important is the culture change.

It will not be coming from various parts of the bank, but rather it will be a composition of different people from different organisations. They will think of it collectively as what can we do better.

We're investing, that is a big change. Now, that's a big change in the old days. A traditional bank would only invest in something that this has a clear business case. And right now we are prepared to two invests Take a look. See the results and make a quick decision to continue or to stop. That's a big, big, big change in the culture.

Building the technology stack

FBP: Where do you see the key opportunity is for your bank?. The bank has been reported to increase online usage by 70%. How has COVID-19 changed or accelerated that opportunity?

NAS: The best influence in adoption is necessity. With the lockdown, the exchange of transactions, goods and services, had to be conducted virtually.

People who have reservations in dealing digitally before, have learned to adapt. They've done things they were not used to before. All of a sudden you have this proliferation of homegrown business that's now advertising their products and services over messaging apps over social media, and they're being paid by publishing their QR codes. We have seen that adoption and fortunately, the bank have invested early. We just kept on seeing the volume grow every day, and we just keep on enabling the customer to make it easy for them to sign up and enroll their account to become a digital customer.

However, the biggest thing that we did during this period is the constant reminder of how to protect themselves. If there was a growth in adoption, there was also growth in the reported frauds. So we were also aggressive in constantly reminding our customer how they can protect themselves, how the bank is protecting them, etc.

FBP: This whole move towards open banking and creating third party ecosystem. How do you see that playing out within the Philippine environment and how big of an opportunity is that in terms of acquiring more customers?

NAS: One of the pillars that we put up is the ability to have an open banking platform capability. We know the true definition of open banking is still not in the country, like in Europe, but we prepared ourselves for that. We are like a hybrid. We started with putting our open API's and letting our partners consume them.

We put ourselves at the center of the customer’s activities. We didn't really mind working with competitors. We call it “coopetition”. We work with fintech companies, we work with wallet companies. Our connections and our open API's today allowed us to connect more than 300 partners. So we were able to facilitate convenience to the retail customer as they patronise the public transport, including the connection to the toll fare systems. This pandemic demonstrated that those are really necessary. Now for the customer inciting. We also invested in big data that would allow us to create new services, we're now more targeted. It's not about creating new products. It's about understanding what the customers will need, how to best address them and when it's best to deliver those services.

FBP: Related to that is the technology infrastructure. What are your views about open architecture and how cloud ready is BPI?

NAS: We don't talk about it a lot. Not many know that we are in the cloud. We have a subsidiary called BPI Direct Banko that's running in the cloud. That's a full digital core banking platform. It's a complete platform. It's focusing right now on our micro finance and we're growing that business signal.

We're not going to the cloud just because everybody's doing it. It has to have a purpose for us. It has to be based on the objective of what we are trying to do.

BP: How have you been able to balance the benefits and perceive costs of being on the cloud?

NAS: Our subsidiary is going after a certain segment. The cost to serve in a traditional bank would be very, very expensive. So we did a fit for a purpose platform that would allow us to serve them in the most cost effective way.

But is it ready for throwing in the 10 million customer base? Going to cloud is not just saying I want to do it. Through the years, especially the incumbents, they're built many systems around their core systems. So you may have certain capabilities that can go to cloud, but the peripherals are not cloud ready. To make it cloud ready it's going to take investing more. So what we decided is to let those components mature enough to be cloud ready, and then slowly, embrace the cloud infrastructure as we go along.

Transitioning into ‘new world’ capabilities

 FBP: How do you see the prospect for banks like yourself? Those with large a customer base, going for a wholesale legacy replacement for your main core banking system?

NAS:  Any incumbent who wants to move into more advanced technology has to be aggressive, but should balance it with some caution.  What we're doing is we're surrounding the legacy platforms so that it will be shielded from the changes as we move forward. It's not going to be like a swap overnight.

 FBP: Talk to us about some of your key digital initiatives.

NAS: What we built first was, how to service the big customer base that we have.

We don't want to open a big door and then end up with a small corridor. We widened the corridor and now it's ready. We're now ready to host more customers. We continue with our partnerships and we're trying to put ourselves embedded in the payment activity, regardless of the industry,

In this pandemic the need for delivery services shoot up, but there's still a disconnect on how you enable the payment. We don't have cash card, flash pay and so on unlike in Singapore. So we are reinventing that.

Around Q1 next year we will be at par with the real time payments of Thailand, Singapore, and UK? So the infrastructure is being laid out by the industry. It's now up to the bank to capitalise and leverage on the business opportunities that it presents.

FBP: Talk to us about some of the early results from your digital usage. What is the impact on your customers and internal organisation?

NAS: So the behavior has now shift from the traditional over-the-counter to digital. The good news is that people who got the taste of convenience did not shift back after we opened the branches.

Now, do I see a big cost savings for that? Yes, but it can’t be compared. Transaction volume is also driven by convenience. It's not like, if you used to go to the branch once a week and you shift to digital it's going to be one digital transaction per week as well. It creates a different behavior. Our cost to serve has gone down. We've seen a reduction as high as 20% of traffic in the branch, after re-opening.

Now if you look at our branch costs against the branch costs of countries like Singapore. I can say it's comparable. Technology, in the more advanced countries are cheaper, but the labor is higher. In the Philippines the labor is cheaper, but the technology is more expensive, so if you look at it from a cost savings standpoint we're getting almost the same type in terms of cost.

If a location is burdened with so many customers what is the solution usually? The solution is to expand, make it bigger, spend more money, or put another branch around it. But digitalisation frees up that demand for capacity and also improves the customer service angle of it. We are now able to better interact with our customers.

The people who used to wait at the branch to be serviced used to have a higher tolerance, but now that they have moved to digital they're becoming more demanding. They want fast, frictionless and efficient, and no tolerance for failure.

That's what makes the challenge for a big bank, different from a challenger bank.

Embarking on a digital expedition

FBP: What is the one professional risk that you're proud of taking?

NAS: The beauty of digitalisation is producing the result that was promised in the old days.

When you go online, there's this the e-world, but people were questioning what's really the benefit. They do something in the e-world, but they still do the things in the physical world. It just creates more work for everyone, but now that e-world is a reality.

The biggest risk we took is when in 2017 we put up our new digital platform. People were looking at it and said I’ll give you one star you didn't give me this.

We believe that the return of going out to the market early, alleviating the capacity issues that we have, ensuring that we showed our commitment to the customer base that we are improving, that we're doing this for their interests is worth that rating stigma that will haunt us for years to come.

FBP: What would be that one advice to your successor or your subordinate in the organisation, when it comes to taking risk and failure?

NS: Never stop. Transformation seems to connote that there will be a completion phase. It's not really true. This is a never ending transformation. Behaviors change, technology is changing the way we do things. There will always be a need for change. Never stop changing. And the organisation must commit to that.

I don't call it the journey. I call it an expedition. I don't know how long it will take.

FBP: What is your vision for this transformation of the bank?

NAS: It cannot be looked at as a strategy for retail, strategy for SME or a strategy for corporate. It should be looked at as an ecosystem. How do you aggregate the value of this ecosystem. That has to be taken as a whole.

I have not read case studies that looks at it that way. It's coming from user experience, penetrating new markets, tapping the needs of millennials, tapping the needs of the wealth management, etc. There are a lot of success stories on that. But if you look at it on a bigger scale, the absolute return for the organisation cannot come from looking at it in pieces, it has to come from looking at the bigger picture? How do I bring value across this chain? So that the outcome is more effective, more compelling. That's what I'm doing right now or what we're doing right now.

FBP: Very interesting, what you're doing at BPI and we wish you are the success here. And also we look forward to some of the initiative that you mentioned will be launched very soon. Thank you so much Noel for speaking with us.

NAS: Thank you as well for the opportunity.