Nestor Tan, BDO Unibank’s president and chief executive
How many bank chief executives are willing to express scepticism about digital banking? Not many, judging by the mass of interviews Asiamoney conducted for our anniversary issue.
Digital disruption has become the default talking point of bankers across Asia. Although some of them have made real progress in this area, including many of those profiled in this issue, others simply appear to pay lip service to digital banking.
Nestor Tan, BDO Unibank’s president and chief executive, is an exception. He runs a bank that had P2.88 trillion ($55.2 billion) of assets at the end of March, making it more than 50% larger than Metrobank, its nearest rival. He might be expected to be banging the digital drum. But Tan says there are still plenty of clients who require a more old-fashioned approach.
“You cannot gain traction in the Philippines with a purely digital approach,” he says. “This is not an ecosystem that requires today’s digital offerings, since most are still in payments. This ecosystem requires credit.”
He argues that the growth model for Philippine banks, even the incumbent at the top, should be reaching small and medium-sized enterprises and underbanked retail clients.
'Question of timing'
The Philippines has a crop of ‘sari-sari’ stores, or local convenience outlets, which might only serve a single neighbourhood. Tan rebuffs the notion that these businesses are crying out for a digital solution.
“A lot of our clients are still indifferent to digital,” he says. “For instance, the sari-sari stores may find that digital solutions add order to their record-keeping. However, a huge portion [of their business] is still in cash, so they still have to maintain dual systems. [Digital banking] adds transaction fees to their business without offering any gain, since they still have a lot of downtime to work through their accounts. So digital payment efficiency for them is like a solution without a problem.
“None of this means digital is the wrong approach. It will come to that, but it’s a question of timing. Are we pushing too much too soon?”
Bringing the underbanked into the banking system is not a charitable mission for Tan
It’s a surprising question to hear a bank CEO ask, but it’s also refreshing. Nearly one third (32.6%) of cities and municipalities in the Philippines lack a bank branch, according to Bangko Sentral ng Pilipinas. In 2017, only 34.5% of the adult population had a bank account. Much of this is down to the country’s island structure: the Philippines is made up of more than 7,000 islands; about 2,000 of them are inhabited, in many cases with only small populations.
Banks have already had success bringing these customers into the banking system through text-based mobile banking, so it seems unlikely that more digital efficiency is going to be the difference between many people being in or out of the banking system, especially considering the poor internet quality throughout much of the Philippines.
What is required is a bank that can combine a sprawling branch network with an awareness of when – and when not – to rely on digital solutions. BDO, which has 1,300 branches and more than 4,000 ATMs across the country, fits the bill.
Bringing the underbanked into the banking system is not a charitable mission for Tan. He stresses that offering credit to the underbanked does not necessarily mean microfinance.
“There is a difference between the underbanked and the poor,” he says. “Many of the underbanked are actually not poor. In the Philippines, a lot of it simply comes down to access.”
BDO’s strong position in the domestic banking system does not just come from the size of its assets. BDO Capital, its investment banking arm, has also won crucial slots on domestic capital markets deals, including the $634 million San Miguel Food and Beverage share sale in October.
Local bankers complain that revenues from investment banking deals are tiny, in part because there is so little business to go around. But winning mandates on the landmark deals allows BDO to build its reputation with its corporate clients, in turn fueling loyalty to its wider banking offering.
Tan’s confidence about the Philippine banking system aside, will BDO eventually become a regional bank? The bank already has branches in Hong Kong and Singapore.
Tan’s answer reveals his caution about securing BDO’s position in the domestic market.
“We can certainly expand offshore in the future, but the major opportunities are still in the Philippines,” he says. “We need to make sure we’re stable locally before we start looking elsewhere.”
Tan’s favourite phrase appears to be “fast follower”; he uses it several times during the course of the interview with Asiamoney. It sums up his vision for BDO.
He does not seek the glory of leading rival banks into new markets, either technological or geographic. But he does want to make sure his bank can react quickly and take advantage of opportunities being created by his rivals. So far, he has done just that.