In this Leadership Perspectives Series, Marek Hovorka, head of Ubank discussed the establishment of the bank, how it was positioned among the subsidiaries of parent company, VPBank and collaboration with sister company FE Credit. He also talked about the challenges in maintaining organisational and operational resiliency during COVID-19 pandemic and the goal to serve the Vietnamese consumer market.
Marek Hovorka drove Übank to make the full range of products and services accessible to all customers 24/7 via its mobile app during the pandemic. He is focused on introducing new technologies to empower its retail banking customers, especially in developing fintech businesses and partnerships. .
He started his career with Boston Consulting Group where he spent many years around Europe and Northern America. Hovorka was part of a successful startup bank in Europe and the team that started FE Credit, the largest consumer finance company in Vietnam, with over 50% market share in key products.
UBank was born out of the need and aspiration of FE Credit, where Hovorka worked from 2009 to 2016 as CEO, deputy CEO, and member of the board of directors. FE Credit was acquired by VPBank in 2010, and after a decade, UBank was established as a full- fledged, mobile only bank in early 2020.
Hovorka said that the 10 million customers of FE Credit, about four million with an outstanding loan, provide an attractive opportunity to serve the underbanked population.
He serves as a global advisor and leader in digital finance at International Finance Corporation/World Bank, helping to launch and manage projects in Europe and Asia. Currently, he is a member of the supervisory board at Alfa-Bank in Belarus and at Financial Holding Respublika, member of Resmi Group in Kazakhstan.
The following key points were discussed:
The following is the edited transcript of the interview:
Foo Boon Ping (FBP): Welcome to this Leadership Perspective interview with Marek Hovorka, head of VPBank’s latest digital banking initiative UBank. VPBank is one of the leading midsize consumer banks in Vietnam, and is known for its many digital initiatives. In mid- 2017, it launched one of the first digital banking initiatives in collaboration with VinaCapital called Timo and follow-up that with YOLO, an e-wallet and digital banking initiative.
Marek Hovorka (MH): Good morning and thank you for the nice welcome and introduction.
FBP: UBank is the latest venture into this space. I'd like to ask Hovorka about UBank if you can give us a brief introduction of UBank and how it is positioned amongst VPBank’s various digital initiatives?
Established as a new, fully digital bank in 2020 to serve the underbanked consumer market
MH: Yes, thank you. You're right in mentioning that VPBank has a rich and plentiful experience in supporting, incubating and integrating various fintech players. It started before the Timo digital bank, which was a joint project of VinaCapital and VPBank. But it started even before that, with FE Credit, which was an independent consumer finance unit that VPBank supported and incubated until the moment when it became an independent consumer finance company with its own licence and independent legal status.
As a founding member of the FE Credit, this UBank idea and concept comes from the needs and aspirations of FE Credit. FE Credit has been established 11 or 12 years ago and it has become the most significant and dominant player in the Vietnamese consumer finance market with over 50% market share in most consumer finance segments. At FE Credit, we have been planning on expanding the range of services, particularly into banking since several years ago. These ideas and the strategy grew and matured into the stage where we made an agreement with VPBank in early 2020 and started to develop UBank as a technological fully mobile bank.
UBank has a very specific focus, as it’s supported by significant consumer finance lender in Vietnam. We are focusing on lending, and we are targeting the mass market payroll segment. We are actively offering payroll accounts and accounts with a lot of functions around. Payroll accounts which automatically assigns you lending that you can use for a few weeks before your salary comes or two year, two and a half year, 18 months instalment cashflow.
At the same time, because we know that most of the salaried segment don't really have huge savings and amount of assets to invest, we have set up an automated investment and savings programme that will give you a very high interest rate on the deposits that you have to transfer on the account that you bank.
FBP: In the segment of customers that UBank serves, the segment is a bit higher than FE Credit. From what you described it sounds like UBank is more of an extension of FE Credit moving up to the upper segments rather than a VPBank digital banking subsidiary. Is it a separate subsidiary? Tell us about the segmentation between VPBank and FE Credit and UBank itself? Does it sit in the middle of the two?
MH: UBank aims to service basically the same segment as FE Credit, which is mass and upper mass. FE Credit focused on instalment cash loans, and predominantly services the salaried segment. The aim of UBank is to extend services to this segment, which means mass and upper mass. Our target segment is a little bit different from the majority or from a number of other players in the digital banking market in Vietnam, where the target might be younger vintages of population, younger segments or millennials. We go for the mass and upper mass and for the employed.
FBP: It's going into the small and medium-sized enterprise (SME) segment as well. Has there been an offering for that segment?
MH: I'm not on the side of UBank and on the side so far, but we are more focusing on the micro merchant segment. At UBank, we develop interesting payment solutions, interesting ways on how to use and spend your money. That's why for us, cooperation in this area is interesting and important.
FBP: What is the one key opportunity and challenge that UBank faces in this age of digital innovation and disruption? What are your views on digital transformation driving organisational and operational resilience during COVID-19? How has the pandemic catalysed opportunities for digital transformation and how has it impacted your institution?
Introduce new norms in fully digital bank services
MH: We took upon ourselves a significant challenge and a little bit different challenge than most of the other players in the segment. Our biggest challenge is that we have decided to introduce digital banking and servicing a segment that didn't have experience with this type of digital and online servicing and aiming at products that have not been provided and serviced fully digitally before. When we talk about the segment, we are mostly targeting people who didn't have or don't have or haven't made yet an experience with digital banking. There are people who use smartphones, chat app and social networks and similar, but not necessarily fintech or online banking app.
Introducing the product as the main delivery and servicing channel to the people who have not yet embraced the technology yet, is the first challenge and we need to reinforce our efforts through our human resources and sales force and customer service. When I move towards a product, we are introducing lending that is fully managed by the customer and this is an element that is relatively new, because there is no application, no document that you have to collect, no signatures, no waiting for decision. Even though I would consider it a very positive and convenient experience, nonetheless, it is a new and unfamiliar experience for the local people. These are the questions that we sometimes get from customer service such as how can I get a loan, when there is no application? Where's my application? Where do I sign? These are some of the challenges.
FBP: UBank is set up to increase new to bank or new to FE Credit or consumer finance segment and target new segment. How important is it to scale acquisition aggressively? You set a target of five million customers by 2023, if I’m not wrong. Five million and that will be very close to what FE Credit and what VPBank has.
Are you kinda feel that you cannibalise existing customers of either, or the focus is, as I described earlier to acquire new to bank customers? At the same time, VPBank is collaborating with Be Group. With its Cake, which has a target of 10 million and it’s got a bigger catchment. How do all these pieces fall together?
MH: Look, I can speak a little bit less about Cake, because Cake is obviously to some extent, it's a different proposition and we don't collaborate and exchange data as much but VPBank is our mother company. We are collaborating and coordinating our efforts.
Create synergy with FE Credit to serve millions of loan customers
UBank focuses on the FE Credit segment, so people who want and require unsecured loans. VPBank segmentation is a little bit higher. It starts with a credit card and goes into a car loan and secured lending. There are products that UBank does not offer and doesn't plan to offer. On the product level, there is quite a clear separation, like credit card is VPBank, and UBank --car, mortgage and house repair loans. There are products that are very clearly on the VPBank side, as well as various kinds of investment products. Different kinds of payment options; salary advance and auto loan are the products of UBank.
When we look at the fact that more than 20 million Vietnamese consumers have already applied for a loan at FE Credit, currently, more than four million people have an outstanding loan at FE Credit, there is a huge demand and pool of people that we can contact and offer our services. We believe and see that these people are probably underserved on the banking side. From the very basic logic that if they weren't underserved on the banking side, then they wouldn't apply for a loan at FE Credit. Before the bank will take the customer over and start providing the products and services and FE Credit is done, then, we feel that it's better than FE Credit makes the move and offers the products and services that currently the bank is not offering or not in the quality and level of comfort that we believe that we can offer.
FBP: Could you tell us about launching a digital bank amid a global pandemic, COVID-19? If you look around the region in Hong Kong, they also launched their digital banks, eight of them and they seemed to be doing okay. The COVID-19 social distancing has been a catalyst for customers to move digital. It’s the same for the Philippines as well. They launched a number of digital banks during this period. But tell us a bit about how do you see launching this during COVID-19 and this whole push towards making banking services more accessible to your customers?
COVID accelerates its development and growth
MH: Due to the nature of UBank, which is technological, fully online branchless bank, UBank has not been as strongly affected as the other players who have a much stronger presence in the physical world through branches and sales networks. Yes, we were launching and expanding our services during that time and we have been negatively impacted on various sides.
However, as the inherent nature of UBank is digital, its non- physical, we were not severely influenced by any of the restrictions and lockdown. UBank is a bank where, you can open fully independently by going to Android app store or Apple store, download the app, take a selfie, take a photograph of your Vietnamese ID, and the account is fully open. You can transfer money from other bank accounts or from a card and start making payments, set up your bill payments, and start automatically receiving interest on the outstanding balance that you leave in the UBank account.
Yes, there were some restrictions and limitations. We're sending, debit, MasterCard, the car deliveries were slowed down during the pandemic and the lockdown. People are not going around too much to the physical world. We have seen that the demand, downloads and the general number of transactions went down, but it didn't mean any severe impediment on our work and progress. Where I feel more the negative side of the lockdown is we have a relatively big task in educating people and getting them familiar with new technology and how to use it, and how it can be beneficial for them. We help onboard our payroll account customers, and we were not able to do it as much in the physical world as we would have wished. So, the progress has been slowed down on several fronts, but I'm saying luckily just slowed down I mean, not stopped or not severely affected.
FBP: How do you see acquisition number tracking, is it as per plan, as per budget?
MH: We have slowed down, delayed launching for some acquisition channels. Generally speaking, it's going well and according to a plan. We are focusing on offering a very strong value proposition for our payroll customers and for FE Credit loan customers. We offer a very convenient way on how to repay a loan and set up automated tools, which will repay a loan and automated investment tool. Generally, the response of the customer is solid, the stickiness of UBank is very good. We have a very high percentage of customers that stay and that increases the level of deposits and the number of transactions. We are with the overall development. We’re pleased so far.
FBP: The primary proposition for a digital bank is to deliver very good customer experience, a differentiated customer experience based on using data to understand and customise needs and because of the digital nature of your delivery, it does it at a lower cost than your physical counterpart. In measuring the customer experience, how is the bank performing in its first year or one year plus, in providing that customer service in terms of customer engagement and net promoter score (NPS)?
MH: By most of the measures, UBank is performing well, and we can look at the valuation of the app on the app stores and we see that it's got one of the top rankings among the banking and fintech players in the Vietnamese market. Yes, we are aware of some of the parts that the customers and users complained and we've been working hard to fix it and to eliminate the problem. We're at a rapid pace of development, adding more services and improving comfort. We use data for optimising the offer that each customer can get.
UBank has special product, salary advance, which means that it can help you bridge your liquidity difficulties that you might experience a few weeks before the salary is being paid. This loan can be taken and fully obtained in less than one minute and in three clicks. We're doing it by, on the first page offering to you the five more probable loan amounts and the tenors that we can predict for you, based on the level of your income, spending habits, how little money do you have before your expected salary payment time. If you pick one of those options and confirm it, with your biometric signature on the next page, you can get such a loan in three clicks and less than one minute, using data and customer research.
FBP: UBank, because it's digital – it is a cloud-native bank, right? You work with a technology partner to introduce cloud features that accelerate your time to market new features and product. I understand 500 new features like different product offerings and stuff that you're able to bring to market faster. In this age, with application programming interfaces (API's) and connectivity, creating ecosystem and partnership is a very important aspect of the business. That kind of digital footprint, in this age of cyber security trends, tell us how do you ensure resilience in your operations and organisation?
MH: UBank is a bank that is fully in the cloud. Both our core banking system and front-end systems are in the cloud. We, as per the Vietnamese legislation are obliged to store some data locally and we are fully compliant with all Vietnamese legal requirements. We are part of an important banking group, VPBank which for this bank, it's not the first project as I said before, they are supporting and incubating but a project that lives its own life and has its own strategy, not always fully align, not always fully supporting VPBank because UBank is rather complementary to the strategy of VPBank. It does not service the same segment or the same products, it's a complementary to the strategy of VPBank. In security and customer data protection, I believe that we're all part of the same group and follow the procedures and requirements of VPBank that has been established a number of years ago. We are relying on the support of the specialists of data security and ID data security from VPBank. This is part of our contract for cooperation that we will be following in complying with the VPBank and channel regulation.
FBP: We’ve discussed earlier that the objective is to reach five million customers by 2023. Is UBank run separately, it got its own profit and loss (P&L) is that at the point, you see UBank turning a profit, becoming profitable on its own by 2023 or what’s the target?
MH: It is a realistic target and a fairly realistic expectation. This expectation is based on our confidence that we have profitable products and FE Credit has a long track record of generating profits. We want to use our scales, competence and our know-how, and expand into new delivery channels and segments. I'm not talking about a new customer segment, but more about serving the same segment in a little bit different way and having a better approach to the customers and having better and much more convenient, friendly delivery and servicing channels.
FBP: Tell us about your business story and your career in the Vietnamese banking industry. In 2009, you were working on FE Credit. You were also the deputy CEO of VPBank, the CEO of FE Credit. In 2018, you joined TPBank, and another one of Vietnam's digital-savvy banks to head this digital banking unit. Tell us a little bit about your career and in the industry overall, how do you see the future of the banking industry in Vietnam?
Vietnamese using bank account increase from 20% to 80%
MH: I have been involved with Vietnam since 2009. I would say, the first version of FE Credit has been established and started to do business.
When the liquidity crisis came in 2009 to 2010, I got the opportunity to work and develop business plan for what is today, FE Credit and this has been first established as a private company in 2009 and then subsequently between 2010 and 2011, sold to VPBank. VPBank has been developing, renaming, gaining the new name, FE Credit and growing it successfully until today.
The idea of setting up a digital bank like UBank is not new. We have been playing with the idea, discussing and developing since the last several years because in the consumer finance industry, it is nothing new. Every company, when it reaches the maturity of its products, it might have a tendency to venture into new segments. Venture into new products and services and the market develops. More and more people are using bank account when we were starting FE Credit only about 20% of the working population in Vietnam were using a bank account. Today, the percentage, which is 75% or 80%, if I'm not mistaken. The world changes, the banking environment changes and we have to adapt as well.
In the last time, yes, I'm happy that I have been given the opportunity to participate and lead the development of UBank. We can feel quite fortunate to be in the Vietnamese market, where the legislation and the regulators are quite positive about digital banking and new technologies and support the development by a number of legislative steps. The fintech segment in Vietnam, I consider it very vibrant and dynamic with a number of very interesting players offering a lot of new products and services that perhaps, players like UBank, we can use, integrate and offer to our customers here. I'm talking about products such as new payment channels and platforms, possibility of bill aggregation and online bill presentment and bill aggregation, possibility to pay bills online, possibility to make various payments, automated loan repayment. The buy now pay later (BNPL) is now coming to Vietnam, which is fully online lending. There are a number of services that we observe and we cooperate or some of the services we integrate, but I consider that the fintech segment in Vietnam is dynamic, vibrant, and it’s good to be part of this dynamic and developing segment.
FBP: We discussed earlier about Cake and other digital banks such as TNEX. UBank and VPBank are digital initiatives. What insights into resilience for banks and banking can we gain from the entrance of this new digital bank and the response that it has created among incumbent banks?
Focus on value delivery for customers
MH: For me, resilience means ‘always focus and concentrate on value delivery’, no matter what. When I observe the market and unfold the success stories in the market, I see that perhaps, every period, there are different companies who come and go, but the principles of value deliver, they say, ‘always the same’. The winner is very often and should be the company who provides the best solution to the customer's problem. As the technology goes and develops, the best solution might differ. There might be different best solutions at different times, given different technology, but, if you focus on solving problems of your customers and delivering value, then, these might be the principles of resilience that should perhaps, drive a company from strength to strength.
FBP: What part do you think COVID has played in strengthening or heightening this whole idea of resilience or to be prepared for resilience, whether it’s at the organisational, operational personal level, among your staff and management team?
MH: We are in difficult times, with restrictions and with limitations. One of the opportunities or chances that they deliver is to focus on the core value. Because in this situation the business is a strip of many things. How do we engage with customers, promote and sell our products? This to me is perhaps a sign of resilience. Surviving with limited means in an environment that is not as friendly and as welcoming as it was before, having to sustain with less tools and resources. That is perhaps a sign of resilience.
FBP: Well said. What VPBank has been doing in the past years and with different initiatives are a reflection of resilience at all levels, at organisation’s operations, and for you at your personal level. We want to thank you so much for speaking to us. It’s a great learning on what VPBank has achieved and what you set out to achieve in the future. Thank you so much.
MH: Okay thank you so much. It was my pleasure.