Unionbank set to invest p500m per year in fintech ventures

Aboitiz-led Union Bank of the Philippines has committed to invest around P500 million each year to either incubate or buy into technology ventures where financial services could be wired into—essentially building its own financial technology (fintech) investment holding firm that could be a “unicorn” in the future.

Such investment will be made through wholly owned fintech/innovation arm UBX Philippines Corp., which was incorporated in late 2018.

Union Bank seeks to future-proof itself by embracing technology not just to make its core banking operations more accessible, efficient and customer-friendly but to also explore new business models outside traditional banking.

“Our new fintech/innovation company, UBX, will hit the ground running. It will house our technology initiatives and experimentation, ecosystem platform development projects and investments in fintech companies,” Union Bank president Edwin Bautista said in a report to stockholders.

Originally projected to turn profitable only by the third or fourth year, UBX may be able to start delivering profits by next year, Bautista said in a press briefing after the bank’s stockholders’ meeting on Friday.

Given the vast business possibilities, UBX chair Henry Aguda said UBX could be a future “unicorn” or a privately held start-up company valued at $1 billion.

Project i2i platform, for instance, aims to bring millions of unbanked Filipinos to the financial system by connecting rural banks to the country’s main financial network using a secure retail payment system in the blockchain. This has so far brought onboard 60 rural bank participants.

Last week, UBX also made its first external investment deal by buying 30 percent of Shiptek Solutions Corp., creator of shipping and logistics digital marketplace called XLOG, which connects shipping firms to shippers, customs brokers, truck owners and warehouse operator for door-to-door container delivery on a 24/7 and real-time basis.

“That is also one reason why UBX exists. How can we monetize the things we do for ourselves? For example, the (i2i) clearing system for rural banks, if a rural bank wants to license it, it’s going to have a mobile app that’s better than some of the bigger banks,” Bautista said.

“We’re developing and building platforms, particularly platforms where we think we can embed financial services. But at the same time, if there are other companies that have capabilities for platforms that share that objective, we’re very interested in investing in those,” said John Januszczak, president and chief executive officer of UBX.

In the case of Shiptek, for instance, Januszczak said while UnionBank didn’t know anything about the logistics business, it got interested because of the ease of embedding financial services into this kind of ecosystem.

“When you ship goods from A to B, you have to pay for that. So financial services can be embedded right in the platform, like Uber or Grab [wherein] the act of booking the ride, the payment is implicit. It happens automatically. Goods in transit have to be insured, so that [too] can be embedded,” he explained.

“We’re hedging or betting that embedded banking is the future of banking,” Januszczak added.

During the stockholders’ meeting, Union Bank chair Justo Ortiz said value rendered to the customers increases exponentially when financial services are incorporated into platforms, which is why tech giants like Google, Facebook, Alibaba and Apple were already encroaching into financial services.

If banks want to stay on top of their game amid the growing number of tech and non-tech companies embedding banking products into their platforms, Ortiz said banks must embed themselves into platforms or serve as the trusted curator of apps and sub-platforms, becoming a portal for customers.

“Imagine a super app or a super platform with a compilation of sellers and service providers you can choose from based on your needs and criteria, with artificial service providers you can choose from based on your needs and criteria, with artificial intelligence serving up your best offers through the portal of your bank —the trusted curator,” Ortiz said.