Yuchengco-led Rizal Commercial Banking Corp. (RCBC) is set have a larger – even dominant – digital banking market share in the Philippines after its board approved a P4.48-billion strategic partnership deal with Sumitomo Mitsui Banking Corp. (SMBC), one of Japan’s biggest banks.
RCBC president and CEO Eugene S. Acevedo said Tuesday that a digital banking business is in the works. “It is something that we and our new partners are going to talk about. We’ve been discussing extensively inside the bank. I cannot say anything further except to say that yes, we have plans for applying a new digital banking license,” he said in a virtual press briefing.
Acevedo said they are currently incubating and growing two businesses to spin off in the future, either as a separate or an independent digital bank. One of these businesses is DikarTech which is RCBC’s mobile app. “The other one we cannot yet disclose at this point,” he said.
As to when RCBC will formally submit an application for a digital bank license, Acevedo said he “can’t give (an) estimate at this point” but that “what is important is we are incubating the projects that we want to spin off in the future.”
“We are making evaluations as to the timing of our moves,” he added. A digital bank license has a cheaper price tag in terms of minimum capitalization or just P1 billion.
The RCBC-SMBC deal leader, senior vice president John Thomas G. Deveras said SMBC’s 4.99 percent buy-in in the bank will have significant corresponding business collaboration benefits. It will also capitalize the bank’s asset growth and he is estimating that it will increase its risk assets by another P100 billion.
“We’re in the process of negotiating a memorandum of understanding defining areas of business collaboration and the prioritization of these areas,” said Deveras. There are however no other plans, options or timelines to increase SMBC shares in RCBC, he said.
SMBC’s parent company, Sumitomo Mitsui Financial Group, is Japan’s second largest financial group in terms of assets of $2.2 trillion and gross loans of $777 billion.
In the global banking market, SMBC is very aggressive in expanding its network and businesses, and is a leader in the digital banking market. The proceeds of its investment in RCBC will be used to expand consumer and corporate banking, and digital banking.
Acevedo said both RCBC and SMBC are focused on digital transformation for a more “customer-centric banking products and services with superior customer experience.”
RCBC head of corporate planning group Ma. Christina P. Alvarez said the bank spends eight percent of its gross revenue for IT investments, and an average 10 percent to 12 percent of IT spending is for cybersecurity. She also estimates about 20 percent to 30 percent of capital expenditures are spent on IT security.
Acevedo said RCBC’s technology platform is “very” advanced and the enterprise architecture is also “quite advanced” since the bank has already invested extensively in its digital transformation for years.
“We don’t really set a specific number,” he said when asked about the bank’s technology budget. “(The) budget is just placeholders. We always look for opportunities to spend much, much lesser. We’re quite frugal in this bank.”
Acevedo said digitalization plans are “much more than applying for a digital bank which we will be doing.”
He said RCBC’s plans -- already compared with SMBC’s own plans for the local bank -- include at least four items: data science; improvement in customer experience in various channels; digitizing the bank’s office operations; and transitioning more into digital banking.
Acevedo said digitizing their offices and branch channels such as in the use of robotic process automation will improve their turnaround time “by a lot” to make their branches more effective from a lower cost and a higher output standpoint.
As for the movement of more and more brick and mortar transactions into their mobile app, he said their Japanese partners could help significantly. “We’ve seen SMBC do a fantastic job on this,” he added.
“The idea there is as interest rates come down, as net interest margins get compressed (the) only way we can survive is to cut operating expenses by a significant percentage. Cut them radically, in fact,” said Acevedo. “As a result, we will be able to survive narrow NIM regimes. The only way to do that – as far as we’ve seen – is by using the mobile apps as our main factory for servicing customers. As our main interface for engaging customers because the cost in the mobile app is much, much less than a brick and mortar business.”
RCBC has already closed 70 of its branches and operating 436 as of end-March this year. “Customer behaviour forced us to follow them. It’s something we have seen in European countries, it’s not something that is a surprise for all of us. It is something that we have expected. What we did not anticipate is that it's happening more quickly.”