UnionBank drives consumer banking growth with digital transformation and strategic acquisitions

Union Bank of the Philippines (UnionBank) has been at the forefront of the Filipino banking sector, particularly excelling in consumer banking. In a recent interview with Manoj Varma, Senior Executive Vice President and Head of Consumer Banking, the bank's growth trajectory, strategic innovations, and future plans were discussed in depth.

Integration of Citibank's consumer business

The integration of Citibank’s consumer banking business has been a pivotal move for UnionBank, significantly enhancing its market position. Varma highlighted that the integration, which began in August 2022, has exceeded performance expectations. By July 2023, all new customer acquisitions were managed on the UnionBank platform, ensuring seamless continuity of services and products. Varma noted, "We replicated all Citibank products on the UnionBank platform, ensuring no loss in functionality or benefits for customers."

This strategic move resulted in impressive financial gains. UnionBank posted a net income of PHP 3.1 billion (about $56 million) in the second quarter of 2024, marking a 52% increase from the first quarter. The consumer loan portfolio grew at a 33% compound annual growth rate (CAGR) since 2020, now comprising 58% of the total loan portfolio. The bank’s credit card market position also strengthened, achieving a monthly acquisition rate of 50,000 new credit cards, positioning UnionBank among the top players in the market.

Technological and strategic innovations

UnionBank’s commitment to technological innovation is evident through its investments in artificial intelligence (AI) and digital banking. Varma emphasised the importance of digital transformation, stating, "More than 60% of our transactions are already digital, and almost 100% of all new customer acquisitions are processed digitally."

Innovative products like new credit card offerings, such as the UnionBank Miles+ Card and the UnionBank Reserve Card, provide extensive benefits like travel rewards and concierge services, catering to a diverse customer base. Card activation rates have been impressive, with approximately 70 %to 75% of new cardholders actively using their cards shortly after issuance.

Modernisation of technology stack

UnionBank's technology stack and platform have grown substantially, requiring careful review and attention to support the bank's expanding operations. During the "Tech Up" period, UnionBank modernised and migrated its legacy systems to a new cloud-native, microservices-based architecture. This modernisation effort aimed to enhance the bank's digital capabilities and improve operational efficiency. Varma noted, "Our technology platform costs are now 60% lower than what they used to be, thanks to these upgrades. In addition, we have been able to enhance our straight-through processing by three times more than what it used to be. We also take pride in our multi-awarded customer-centric UnionBank Mobile App. Owing to the rich functionalities of our app (like in-app account opening, real-time check deposits, secure account management with biometric authentication, and seamless fund transfers and bill payment features), our app has consistently enjoyed the highest ratings for banking apps on the iOS and Google Play stores."

However, to support its next phase of risk-based growth, further upgrades and investments are necessary. Varma emphasised, "We need to ensure that our technology infrastructure can handle the increased scale and transaction volumes, especially post-integration."

Partnerships for growth

UnionBank has also focused on strategic partnerships to drive cross-sell and collaborative acquisition growth. New partnerships with major retailers like S&R Membership Shopping, tech giants like Samsung, and ecommerce mainstays like Lazada and Shoppee, have been instrumental in expanding the bank's customer base and enhancing its product offerings. Varma highlighted, "Our partnership with Samsung and other major retailers has allowed us to introduce new partner programmes and cross-sell initiatives, significantly boosting our growth".

Focus on financial inclusion and wealth management

UnionBank’s vision extends beyond digital innovation, with a strong focus on financial inclusion and wealth management. The bank has introduced various initiatives to ensure broader access to banking services. Varma explained, "We are expanding our wealth offering to include customers with lower balance requirements, making financial planning and investment more accessible."

The bank's acquisition of Citibank has also shifted its customer segmentation, combining UnionBank’s mass market presence with Citibank’s high net-worth client base. This merger has allowed UnionBank to offer a wider range of products and services, from financial inclusion efforts through EON deposit and debit card accounts to wealth management and bancassurance with local partner Insular Life (InLife), to high-net-worth client services in its private bank, partnering with global firms like Lombard Odier, JP Morgan and Blackrock.

UnionBank's customer base has grown significantly, now exceeding 15 million customers. This growth propels UnionBank increasingly closer to its moonshot target to be the largest and most profitable retail bank. In wealth management, UnionBank has assets under management (AUM) of close to PHP 200 billion (about $3.5 billion), a testament to the successful integration and expansion of its wealth management services.

Expansion of mortgage and lending businesses

UnionBank has also made significant strides in expanding its mortgage and lending businesses. The bank has seen substantial growth in its mortgage and consumer lending portfolios, driven by competitive interest rates and a streamlined application process. Varma emphasised, "Our mortgage services have become a key pillar of our consumer banking strategy, providing customers with accessible and flexible financing options for home ownership."

With the integration of Citibank's mortgage business, UnionBank has been able to offer a wider array of mortgage products, catering to different customer needs, from first-time homebuyers to high-net-worth individuals looking for luxury property investments. The enhanced risk management capabilities have also played a crucial role, as Varma noted, "We have improved our ability to underwrite using data beyond what is available in the credit bureau and can better price for risk, which has significantly boosted our mortgage and consumer lending businesses".

Brand transformation and international aspirations

Post-integration, UnionBank's brand has become more aspirational and accessible. Varma observed, "Many customers felt that Citibank was out of reach, whereas UnionBank seems more accessible while offering the same world-class benefits." This shift has been strategically reinforced through international events and benefits designed to enhance the bank's value proposition.

UnionBank has brought international musical acts like Hamilton and Miss Saigon to the Philippines, ensuring that customers continue to enjoy premier global experiences. Varma emphasised, "We wanted to make sure that our international benefits remain the same or even improve, making UnionBank an aspirational brand."

Additionally, UnionBank’s Reserve Card offers features such as zero foreign exchange surcharge, access to exclusive concierge services, and enhanced rewards on travel and entertainment spending. These initiatives underscore UnionBank's commitment to providing exceptional value and maintaining customer engagement.

Cultural integration and future outlook

The integration of Citibank’s team into UnionBank has fostered a unique blend of agility and robust risk management practices. Varma noted, "The combined expertise from Citibank’s risk management and UnionBank’s agile, tech-driven approach has created a strong foundation for future growth." This cultural synergy is expected to drive further innovations and enhance the bank’s competitive edge.

UnionBank successfully integrated some 1,500 former Citibank employees, including Varma himself, into its operations. This infusion of talent has bolstered the bank’s capabilities in various areas, including risk management, product management, and operational controls.

Sustainability initiatives

Sustainability is an integral part of UnionBank's strategy, particularly in its investment portfolios. Varma explained, "We believe that companies adopting sustainable standards have a better probability of long-term profitability." UnionBank actively works with partners like Lombard Odier, JP Morgan, and BlackRock to provide sustainable investment options to customers. Additionally, the bank collaborates with the Aboitiz Group on renewable energy initiatives, aiming to offer banking benefits to customers and companies choosing sustainable practices.

Regulatory collaboration and operational resilience

UnionBank maintains a proactive approach in working with regulators to shape enabling policies for the banking sector. Varma highlighted the bank's efforts in providing best practices on resiliency and payment systems to regulatory bodies like Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC). The bank also addresses regulatory challenges, such as the qualified investor programme, to ensure a balanced approach that supports customer needs while maintaining compliance.

Looking ahead, UnionBank aims to leverage AI and machine learning, including closed large language model (LLM) to sustain growth and improve operational efficiency. The bank's strategic priorities include expanding its consumer loan portfolio, enhancing digital banking capabilities, and maintaining its competitive edge through ongoing investments in fintech and strategic collaborations.

UnionBank's strategic integration of Citibank's consumer business, coupled with its commitment to digital transformation, financial inclusion and wealth management, has set a solid foundation for continued growth. The bank’s ability to combine technological innovation with a customer-centric approach positions it well to navigate the dynamic banking landscape and achieve its ambitious goals. As Varma aptly put it, "We are excited about the future and are committed to accelerating our growth, leveraging the strengths of our strategic acquisitions and partnerships to deliver value to our customers."

Meet Manoj and other senior banking industry leaders at Finance Philippines 2024, click for details https://www.theasianbanker.com/finance-philippines-2024/