Monday, 15 April 2024

UNOBank tackles subprime lending in the Philippines with greenfield strategy

5 min read

By Chris Kapfer and Sheena Marie Gaboy

UNOBank focuses on credit-led services, the quality of loans, and building a strong customer base with low acquisition cost

  • Building understanding in risk and rewards
  • Focus on quality credit products and financial inclusivity
  • Low-cost acquisition leads to COAC-positive position

Manish Bhai, the CEO of UNO Digital Bank (UNOBank), a pioneering digital bank in the Philippines, adopts a greenfield IT approach for its core operations and infrastructure. The bank aims to promote financial inclusion for the subprime sector in the Philippines. Bhai leads a highly-experienced team with a strong financial services background—co-founders Kalidas Gose is a fintech influencer with a track record of success in Vietnam’s FE Credit and VP Bank’s digital bank ecosystem, and Puneet Gupta is chief technology officer.

“We are a credit-led full-spectrum digital bank, which means that we have a very high credit and credit inclusion focus.  UNO Digital Bank wants to help build a more financially-inclusive banking landscape in the Philippines where access to formal credit remains limited, “ said Bhai.

Manish Bhai, the CEO of UNO Digital Bank

Building understanding in risk and rewards

The industry is challenged by the lack of visibility and understanding of customer segments below the prime segment—this includes urban salaried professionals in the Philippines, a key focus area for most digital banks. However, Bhai believes that the subprime segment is where the industry is focused on building a deeper understanding of risk and rewards.UNOBank acknowledges the need for improvement in these areas, drawing comparisons to India’s Adhaar, that Bhai claims is a stronger credit bureau and digital-identity system.

Focus on quality credit products and financial inclusivity

UNOBank’s approach to acquiring loans is guided by quality and fraud prevention. Bhai emphasises the importance of being able to identify and attract creditworthy borrowers at the onset of the marketing funnel. The total follow-on costs, including facial recognition and credit bureau data, can be significant, especially if a large proportion of applications are rejected. Managing loan-acquisition costs and balancing the company’s financial position become key considerations.

To support loan growth, UNOBank offers a high-rate savings account to attract customers. Its  #UNOready savings account offers an interest rate of up to 4.25% per annum. The interest is credited daily to the customer’s account and comes with life insurance worth PHP 50,000 ($1,000). There is no holding period in the savings account nor a need to maintain a minimum balance. UNOBank is also about to launch a physical debit Mastercard.

Low-cost acquisition leads to COAC-positive position

UNOBank has captured $50 million in retail deposits as of June 2023, ranking them fifth out of six digital banks in the country in deposit collection. The digital bank claims to have one of the lowest costs of customer acquisitions (COAC) at $2, including marketing cost. This puts UNOBank at the top of the league of digital banks with the lowest COAC. TNEX, a leading digital bank in Vietnam, reported COAC of $2.3 in 2022.

With over 455,000 customers acquired at low cost, UNOBank is currently COAC positive, which means that their revenue generated exceeds COAC. To create a stable, loan-based net interest margin business, the digital bank is moving early into the credit business. The bank launched #UNOnow, a quick-cash loan product in April 2023.

In the TABInsights Top 100 Global Digital-only Bank ranking, UNOBank ranked fourth in overall performance for digital banks in the Philippines, although it did not make the Global Top 100 list. The country’s digital banks are regulated by the Banko Sentral ng Pilipinas.


See the full ranking here:

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