Wednesday, 30 September 2020

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UnionBank’s Aguda: “The 50 million customers and 1 million SMEs aspiration is now a hard target”

Interviewed By Foo Boon Ping

In this Digital Reinvention Dialogue, the chief technology and transformation officer of Union Bank of the Philippines (UnionBank), Henry Aguda, shares the bank’s ambition of reaching 50 million consumers and one million SMEs as well as how it amplified the culture of teamwork and integrity in its digital transformation.

With more than two decades of experience in the telecommunications industry, Henry Aguda, UnionBank’s chief technology officer and chief transformation officer, jumped into the banking space to be at the forefront of innovation as the bank goes through a tremendous digital transformation journey.

Prior to joining the bank, he worked for the government service insurance system for about two years. He also tried his luck in startup companies in the US. A year later, he came home to the Philippines and met UnionBank Chairman Justo “Tito” Ortiz, who picked his brains on transformation. He subsequently joined the bank a few months later.

Aguda, who had zero banking experience at the time he joined UnionBank, was introduced at events as “the non-banker who was going to transform banking”. Joining the bank was a risk he took, which turned out to be a gratifying learning experience and resulted to a fruitful digital journey.

As reflected in its latest financial statement up to the first quarter of 2020, UnionBank made a 22% increase in net profit. The bank onboarded around 150,000 new customers amid the COVID-19 pandemic, with its digital transactions increasing 11 times more than before, and is planning to scale out the blockchain experiments that they’ve done.

 

The following is the edited transcript of the interview:

Foo Boon Ping (FBP): What are some of the highlights of UnionBank’s digital transformation?

Henry Aguda (HA): A lot of people think that digital transformation is largely about technology. It's not. When I joined UnionBank, it was performing very well financially and operationally. You just have to amplify some of the key ingredients of the bank’s DNA, like integrity. In a transformation period, it has to be heightened. Integrity is not just about honesty, it's also about transparency and openness.

We also have this culture of Magis: “Do better, do greater and do more”. In a transformation age, even if you're doing very well without automation, you have to be open minded that you can still do more with automation. That's a key to us. There’s also the aspect of teamwork. At UnionBank, we call it Ubuntu. It's cross functional, from our compliance people to our product people, to our business, to our lawyers. All the award-winning products that we've launched we’re through the Ubuntu spirit of teamwork. There has to be financial inclusion in everything we do, which means it's not good enough that we develop a great app. The way we approach our products, it has to address the biggest base of customers possible. So, we said, “We will listen to our customers.” Our products were developed with the customer in mind. It's customer centric.

We were the first to launch a chat bot, which now has half a million users. We have our fantastic convergent app, which we had for about a year already, even before the lockdowns. People can open an account without going to any of our branches. This is a testament to how well our regulatory organisation work with the regulators to get approval. During the COVID-19 scenario, this became very handy because customers can open an account by just downloading the app, taking a selfie of themselves and taking a picture of their IDs. We also introduced artificial intelligence (AI) into our processes, especially in financial crimes. If you visit our branches, you'll see live robots moving around the place already functioning. We've created a platform that scales gracefully as the load comes.

During the lockdown, we onboarded close to around 150,000 new customers, and we're seeing digital transactions moving up 11 times than before. The moonshot is we will onboard 50 million customers and one million SMEs. When we started, we called it moonshot, so that we shake the organisation's comfort level. Even if you work 10 times harder, you won't get to 50 million, so something has to change. It's a testament of forcing the organisation to think out of the box in great innovative solutions.

FBP: The competition has prompted banks to go digital. What do you see as the key opportunity for UnionBank as a first mover?

HA: We have all the advantages that a first mover has. One, brand recall. If you go around the Philippines and you ask them about digital banking, they'll say hands down it’s UnionBank. Second, we have two to three steps ahead of the competitor. It took us three years to get here and get our systems working. We applied the Agile methodology. We make mistakes along the way and we fail forward. The other banks would have to experience the same hardship that we went through. The advantage of the first mover is we get to maximise the benefit of the new tech that we implemented. We get to look ahead and experiment ahead. Aside from the fact that we're really onboarding a lot of customers right now, we're seeing a lot of switchers from other banks, heightened more because of this current lockdown.

Creating infrastructure that allows people to operate the bank from home

FBP: How do you see COVID-19 shaking things up?

HA: We're the only one right now in the Philippines that is onboarding new clients that couldn’t be onboarded for various reasons. During the COVID-19 scenario, a lot of people started doing work from home. The struggle of most companies in the Philippines is, their infrastructure wasn't built for work from home. Last year, UnionBank has already implemented an infrastructure in anticipation of the Philippine law that encourages work from home. This was prior to the pandemic. In anticipation of the worsening traffic in Metro Manila, we also created an infrastructure that allows our people to not just work from home but operate the bank from home. Our call centre is 100% operated from the homes of the employees. In the Philippines, we're the only one that's running 24/7, together with another foreign bank. During this COVID-19 situation, it validated a lot of the infrastructure decisions that we made. Going to the cloud was a big advantage. Since we're cloud-based, we just have to hit the internet and fulfil the transaction.

UnionBank is very particular with risk management and business continuity. Since we did business continuity planning (BCP), when the pandemic hit, we didn't lose a beat. Unfortunately, the pandemic came at the heels of a disaster like this, but it validated the processes, the work streams that have been automated and a lot of the plans that we prepared for BCP. After the COVID-19 scenario, once we open up the economy, a lot of the customers will now have top of mind recall of UnionBank as the digital bank that allowed them to facilitate the transaction during this lockdown. Our CEO Edwin Bautista came up with an idea of increasing our cashout centre facilities. The solution was to integrate with the remittance companies, because they have 11,000 counters. In two weeks, we have 11,000 cashout centres that you can withdraw money from.

FBP: Is there any update in the strategy and any change to the vision of your digital reinvention?

HA: The 50 million customers and one million SMEs started as an aspiration. But now, as our CEO said, “It’s no longer aspirational, that's now a hard target”. The change in strategy is we’re not just going to aspire for the 50 million, we will make it happen. Several years down the road, we want to get as many, not just local Filipinos, but also overseas Filipinos in our banking system. Another change in the strategy is we will scale out the blockchain experiments that we've done. We also believe that it is right for the bank to now exploit the advantages of having a working AI infrastructure. Now that most of our processes are automated and digitised, it's time to create a real, live and working experiment that we will apply on customer segmentation, dynamic understanding customer needs. Another area is financial crimes. We'll be applying AI in there, and maybe some on compliance and regulatory. The situation right now worldwide is evolving. What we're trying to prepare ourselves is just to be ideal enough and flexible enough to move to the next mega trend in terms of banking.

Multi-sided platforms, such as i2i, aims to connect rural banks to banks overseas

FBP: Talk to us about your view of cloud and open architecture banking.

HA: The reference architecture that we built the bank on was BIAN, banking industry architectural network. We're at version nine right now. Included in that framework is the ability to do open banking. We feel that that's going to allow us a lot of advantage because we're a smaller bank compared to the bigger banks. If we have open banking, it will now be more fluid for customers to move from one bank to another bank. We're waiting for the regulation to happen.

We're heavily invested in multi-sided platforms, such as i2i, to bring together the rural banks. We've connected the rural banks to banks overseas so that they can transfer money flawlessly through the bank as an intermediary. We're creating a platform that allows SMEs to create a payment gateway and an internet presence and connect it potentially to an international group of SMEs through our global link platform. All of these SMEs can also be easily connected to our i2i platform. The platforms that UnionBank is creating are platforms that will eventually interact with one another. We're heavily invested in that, and we're going to start scaling those platforms that we've deployed in 2019.

FBP: How do the digital initiatives that you’ve launched impacted your customers?

HA: We're proud of our employee engagements. There are situations where once you introduce change, engagement goes down because people are more concerned about their day-to-day habits – the usual fear of change. But at UnionBank, we have a Gallup score of 4.23. The global standard is 4.20 for high engagement. In 2018, ours was 4.23, and in 2019, it went up further to 4.24. The area with the highest engagement score is the operations area. We realised that if you give customers the tools to do the process changes and automate those changes themselves, engagement goes up. Once engagement goes up, it accelerates the oranisation's innate ability to transform itself. UnionBank has a very strong Six Sigma discipline prior to automation. Now that they're automating, that quality-first attitude translates into better codes and better processes that we've been able to deploy. For our customers, they see the intensity of the engagement that UnionBank has with the customers.

Taking accountability and being open to other people’s ideas

FBP: How are you teaching people at your bank about risk and failure?

HA: One of the biggest risks that I took was to move from one industry that I've known for two decades. When I was given the opportunity to consider moving to a different industry, banking would have been the last choice. I would have gone more into a more technology-related industry. But now, almost four years into the bank, I'm loving it. It's a risk that paid off for me. Beyond the recognition that UnionBank has obtained and personal validation of the plans that I advocated is the learning.

One of the fears I had then was working with the regulators, because friends of mine who were in the telco space who got wind of me moving to banking warned me, “It's a highly regulated industry. Don't move there, because you won't be able to do much”. Pleasantly surprised, the regulator is actually helping us. The regulators love dealing with UnionBank, because we're a sandbox. We started off as the sandbox for the new regulations. Together with the regulators, we’ve worked on cybersecurity, agency banking, the retail payment system, etc. If you read the regulations right now, every bank must comply to become digital. Don't worry about failing. If you have integrity, just own up to the failure. Everybody wants to succeed, but if you do fail, just take accountability for it and move on.

FBP: What personal advice do you have for people who are looking to follow in your footsteps to reinvent their bank?

HA: Transformation is a long game. A lot of people make the mistake of thinking that transformation is a one-off project or technology project. Transformation, the kind that UnionBank underwent, requires culture change, a lot of buy-in from the top, a lot of engagement with employees. Transformation is multifaceted. The technology piece is the easiest component. The more difficult piece is trying to figure out the regulation, what is allowed and not allowed. Once you figure that one out, technology is plunged into it. If they want to follow in that endeavor, they have to really be sure. It's a big race, but like most endeavor, there is a reward.

In order for you to mitigate the risk, you have to surround yourself with people that are equally committed to the mission and be open to listening to other people. My aspiration is that more and more people take the plunge into transforming an industry. Post COVID, my personal aspiration is, we all survive this pandemic. It's no longer about competing with one another; it's about helping one another. That's why UnionBank is very generous in sharing what we've done, what we've experienced.

The year 2021 should no longer be the year of competition. In the Philippines, we have a term for Ubuntu. It's called “Bayanihan”, the Tagalog word for community, for coming together. Digital or non-digital, people just need to come together. It has to be people with a culture to learn, never fearing the unknown, because if we fear the unknown, we won't be able to invent, we won't be able to innovate and we won't even be able to discover.

FBP: Thank you so much for speaking with us.


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Keywords: Technology, SME, Open Banking, Blockchain, Financial Inclusion, Covid-19
Institutions: UnionBank, I2i
Region: Southeast Asia
Guest: Henry Aguda, Justo Ortiz, Edwin Bautista
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