SINGAPORE—UnionDigital Bank will soon offer ‘high frequency’ lending that could go for as short as a single day, aiming to offer households and microentrepreneurs an alternative source of financing instead of falling prey to loan sharks.
On the sidelines of Singapore Fintech Festival 2023, one of the biggest tech gatherings in the world, UnionDigital CEO Henry Aguda said the digital banking arm of Union Bank of the Philippines would soon offer to various communities—like wet market vendors and fisherfolk—this high frequency lending that could be customized to borrowers’ needs.
“We’re moving to more frequent lending and shorter tenors. Imagine a day where you want to borrow—you can say, I only want six weeks, because right now it’s in months,” Aguda told visiting business journalists from Manila.
In the same way, he said the borrowers could customize the payment scheme, on whether they want to pay only weekly or within the same day.
“Soon, we’ll come up with lending on our app where you can configure the tenor and all those stuff. And the underwriting is there instantaneously when you download the app. So that’s innovation,” he said.
Michael Singh, chief commercial and revenue officer at UnionDigital Bank, said their bank was targeting the lower half of the income pyramid, adding that borrowers from this mass market typically live day to day.
“That’s the outcome of our research,” he said. “They want to know: how can I put food on the table at the end of the day? It’s the same thing with lending. It’s all about: how do I meet my needs this week? Do I have a bill, a tuition, medical emergency?”
Especially with a lot of people becoming part of the gig economy, cash flow can be unpredictable and expenses can sometimes exceed income, thus requiring a short-term loan, he said.
“So we want to give them the choice, right? You can take a loan in the morning and you can pay it off maybe in the evening if you get paid through commission,” Singh said.
Aguda added that even when the economy is doing well, there’s room for high-frequency lending. In the wet markets, for instance, he said the fish vendor buys fish to sell in the same day. Once the inventory is sold, the vendor could pay immediately.
Asked about the loan pricing, Singh said this would be just a fraction of the local “five-six” loan sharks who typically charge a triple-digit annual percentage rate (APR).
“We’re slightly above credit card rates on APR basis,” Singh said. “This is priced for risk. The [credit] cards segment has money and (are) low-risk. This segment is very high-risk so we have to price for it. But if you pay your loan, the AI (artificial intelligence) model will read that and your score will go up, so on your next loan, the interest rate will be lower.”
Aguda said such type of lending would benefit from the rollout of “Paleng-QR Ph” program, jointly developed by the Bangko Sentral ng Pilipinas (BSP) and the Department of the Interior and Local Government to build the digital payments ecosystem in the country by promoting cashless payments in public markets and local transportation, particularly tricycles.