Bank of the Philippine Islands (BPI) president and CEO Cezar P. Consing said the bank’s digitalization efforts is currently going through an upgrade to a version he calls “2.0” in anticipation of higher online and mobile-based banking services even post-COVID-19 period, and it will cut costs both for the bank and its clients.
“BPI right now is done with digitalization stage ‘1.0’, we’re moving to ‘2.0’. I’m sure we’ll get to ‘3.0’ after that. But we intend to stay in front of this,” Consing said during the virtual 5th AYALA-Finex Finance Summit Part 2.
In a follow up email query, Consing said digitalization for BPI will be a continuing process. “We measure progress by the reduction in our cost-to-income ratio, all other things being equal. Broadly, getting from BPI Digital 1.0 to BPI Digital 2.0 should reduce our cost-to-income ratio by, say, 3 to 5 percentage points, all other things being equal,” he explained.
Banks’ digital transformation, and particularly BPI, depends on technology, people, analytics and as Consing said – “we have to understand what our clients want.”
For Ayala-led BPI, technology represents 15 percent of the bank’s costs. “It’s about 7 or 8 percent of the bank’s revenues so this is a big expense for us,” said Consing during the online summit. The investments for digitizalization and IT is estimated at P4 to P5 billion per year based on revenues.
Of the bank’s 20,000 work force, 10 percent or 2,000 are directly linked to technology. “That’s big when you think of 2,000 people doing technology in our bank. That’s a lot bigger than many of the banks that are out there,” said Consing.
Consing said BPI, which accounts for P1 of every P8 of loans in the whole banking system, has done “OK” in this pandemic period. “But we really have to do a lot more,” he said. “We’re getting 20,000 plus enrolments a week in our digital platform. We’re seeing remittances, investments being done digitally, but we’d like to get to the point where we can allow people to open accounts digitally. We’re almost there,” he added. BPI is also getting ready to offer and release loans digitally and build a deposit franchise digitally.
“COVID 19 has really tested our digital platform,” noted Consing. Before the pandemic, digital transaction share is 78 percent. During the lockdown which started in March, this number increased to 95 percent and after the government eased the community quarantine status in June, it’s been at 92 percent.
“Today with the lockdown eased, it’s still 92 percent digital. That’s still quite large. When we get back to whatever the new normal is, I don’t think we are going to go back to pre-ECQ levels. I think that digital percentage to total transaction will still be very high,” said Consing.
“A digitalized BPI will be ready today and it will be ready for the future,” he added. “Who knows what the future will bring? All I can say is it’s getting tougher for banks. We have to focus on lowering our cost to serve and that really speaks of operational efficiency. We have to lower the cost of funding (and) the cost of our own mistakes (operational errors, bad loans),” said Consing. “We think digitalization can help us through all of this and that’s why we’re tying our future to it.”
Consing said the bank has already digitized most of its front-end services and operations such as payments and remittances, and also investments, account openings and loans. “We’ve adopted a mobile first strategy and we now have a situation where we can retrofit our processes for the online and digital world and we can achieve scale. I’m not saying we’re finished. If you look at this journey I’d say we’re ‘1.0’. We’re now moving to ‘2.0’ but this is a process.”
Consing said digitalization addresses five to six of the eight major challenges that banks are currently facing. These challenges are fintech, cybersecurity, loan losses, regulation, work arrangements, interest rate levels, role of branches and financial inclusion. And, with the pandemic, some of these issues have another level of complication.
“Today we face all kinds of challenges as banks. Prior to this crisis it was really fintech as the big challenge (also with) regulation, cybersecurity, and interest rate levels, specifically declining interest rate levels (which shrinks interest margins). Now come the COVID crisis, we now have to deal with challenging work arrangements. We have to deal with loan losses (and) it’s no surprise that NPLs (non-performing loans) are coming up as borrowers are having a harder time servicing their loans,” said Consing.
With bank digitalization stepping up, Consing said some of these challenges can be addressed by digitalization. “Digitalization can help address many of these challenges, 5 or 6 of these challenges, by lowering the cost to serve, by allowing security of finances, by our accessibility, and by lowering infection risk,” he said.
Consing said BPI’s digital platform is one of the best in the country, with half of their customers already enrolled or 4.3 million out of a total 8.6 million retail clients.
The bank has some 2.3 million finance app active users – “some of them use the app 10x to 20x a day, believe or not,” he said. “But people always want more – and frankly they deserve more – they want more online, more data and they are more demanding so we’ve got to continue to improve.”
BPI started in 2016 its digital journey with just 809 million online transactions. Today this is now 1.6 billion. From zero application programming interface or API revenues in 2016, this is estimated to increase to P1 billion this year. With more users of digital banking because of the pandemic, Consing said they have 136 APIs in production and 154,000 APIs are used as daily consumption.