March 24, 2023

diginomica

Union Bank of the Philippines turns to Banking Industry Architecture Network for new approach

A combination of low-code and the adoption of a set of API-based open banking standards has allowed one of the Philippines’ largest banks to offer new digital banking options to thousands who would otherwise remain excluded from financial products.

That means via the Union Bank of the Philippines’ new fully digital quick loan service, 600,000 Filipinos now have received short-term credit – the first of a raft of new services that will spin off the new platform.

Even better for customers, approval comes in less than 60 seconds and the cash follows instantaneously.

Commenting on what that means for customers, the bank’s Head of Enterprise Architecture, Michelle Rodriguez, says: “Customers are very happy, because they have access to loans instantly and don’t have to wait days for the loans to be credited to their account.”

The embrace of all this new tech is also future proofing the bank, she adds:  “We built the Retail Loans Engine in a way that it can cater to different loan products across the bank, so it’s not just specifically for one loan product and instead is becoming our single and centralized loan platform. So if we think of new loan products in the future, all the business has to do is just configure it on the platform.”

Often shortened locally to UnionBank, Union Bank of the Philippines is one of the top ten banks in the Republic.

Since 1992, UnionBank has been operating as a ‘universal’ bank – a model allowed in some European and Asian countries that permits one provider to offer a range of both retail and commercial banking services. Headquartered in Ortigas, the business district of Metro Manila, it has 200-plus branches across the country.

A vision for a wider digital transformation

Rodriguez explains that a completely new back-office IT architecture and approach to application development led the bank being able to launch the Retail Loans Engine.

She says: “Around 70% of the Philippine adult population is unbanked, and we were trying to see a way to reach out and offer loans to this customer base and we want to support the financial inclusivity of the Philippines.”

To do so would necessitate capability to quickly approve loans while at the same time assess credit risk.

As a lot of the market does not have any credit history, doing so has historically been a challenge.

Making that job harder was the fact that its credit scoring sources were limited to existing data and the bank’s internal underwriting processes were very manual, based on whitelist, or lead generation, matched with a paper-based filter-based approval criteria.

That meant, Rodriguez says, scoring could not be done in real time – and so UnionBank, even if it wanted to, just couldn’t provide loans instantly.

In early 2020, Rodriguez and her team decided it was time for change.

But after checking out what was then available on the market, she decided to create her own in-house solution.

Part of the decisioning here was to avoid lock-in to an off-the-shelf solution, which going forward might be costly to implement any changes to customize for the specific needs of UnionBank customers.

But a new vision for a wider digital transformation to transform not just loan, but all its existing legacy monolithic banking applications, into a new technology stack flexible enough for other new product additions was also key.

SOA

In the end, the decision was taken to embrace the standards being driven by BIAN – the Banking Industry Architecture Network.

BIAN is a collaborative, global, not-for-profit ecosystem of banks, technology providers, consultants, and academics.

The aim is to provide an open framework for the promotion of banking interoperability.

Members work to jointly define, build, and implement next-generation banking platforms based on a common architectural framework and extensive use of Application Programming Interfaces (APIs) and an SOA (Services-Oriented Architecture) approach.

She says:” We think BIAN is the right fit for our enterprise architecture methodology and also for building the right business capability, so we use BIAN as our reference to ensure that whatever we are building is aligned to global best practices.”

In UnionBank’s case, moving to BIAN was accompanied by a bank-wide adoption of low-code programming and the Agile development methodology, says Rodriguez.

Rodriguez shares some best practice for other banking CIOs looking to do the same and says: “When you’re building something, it must be based on a plan, and that plan should always follow a good set of standards to make it easily interoperable with other components, both internally and externally. Doing any big change this way will also allow you to both more easily integrate but also remove the complexity in your architecture. You want to do that as it will give you the agility to move fast and to easily respond to the ever-changing needs of our customers, which should always be your ultimate goal.”

‘Make support for open banking that much easier’

As stated, the first fruit of all this has been the Retail Loans Engine service.

The software allows 24×7 digital access to loans so applicants don’t have to go to a physical branch and fill out paper forms, and can instead apply through the bank’s website or mobile app.

The system has been configured to instantly download money for approved applicants and even automatically creates a monthly repayment system.

To get round the credit history issue, the first wave of loans is only available to UnionBank commercial customers using the bank for payroll.

However, as new services are built, this is likely to soon change – which will be good news for the estimated 51.2 million unbanked Filipinos, Rodriguez stresses: ” This first product is designed specifically for our payroll clients, but is for everyone.”

Next steps for the bank, she says, will be to expand not just the number of products like the quick loan service but the overall use of BIAN across the different architectures that are now being built by the bank.

This, Rodriguez concludes, will make support for open banking that much easier and allow UnionBank to easily integrate with not just within the bank’s ecosystem, but also with those of partners.