How can an established telecoms company and traditional commercial bank join forces to offer disruptive financial services to the far-flung filipino populations? Prof. Peter Williamson (University of Cambridge) and Ms. Havovi Joshi (Singapore Management University) examine the challenges faced by BPI Globe BanKO in extending banking services beyond branch walls.

BanKO was established in 2009 at a time when statistics showed that nearly 80 per cent of Filipinos not no access to banking services. Almost 40 per cent of small scale business lending was provided by moneylenders, charging exorbitant interest rates as high as 240 per cent per annum. Fewer than 10 per cent of the population had a credit card.

BanKO aimed to address all these issues by leveraging its combined assets in banking and telecommunications through a partnership between the Bank of the Philippines Island (BPI), the oldest operating bank in Southeast Asia; Globe Telecom, a leading telecommunications company; led by their parent company Ayala Corporation, one of the largest conglomerates in the Philippines.

BanKO’s mission was to build a business by ‘banking the unbanked’ in the Philippines. To do so, it aimed to provide simple banking services through mobile solutions supported by a network of partner outlets such as pawnshops and grocery retailers. By training these partners to conduct customer identification for new account applications, BanKO was able to provide financial services to people living even in the remotest spots of the Filipino archipelago. So successful did it prove that the cumulative customer base soared by 966,000 customers between January and October 2014.

BanKO also offered loans to microfinance institutions, including rural banks and cooperatives and had reached over 400,000 micro-entrepreneurs in the Philippines through these partner institutions.
While BanKO’s performance was encouraging, the team still had to establish if BanKO’s business model was sustainable in the long run. In addition, it needed to ascertain how the business could be further expanded, while ensuring that the ecosystem did not become too unwieldy to manage.

The Key Players
The idea for BanKO was first conceived in 2007 when the chairman of the  $ 3.5 billion Ayala Group came up with the idea of leveraging mobile money to address financial exclusion, one of the biggest social problems of the Philippines.

Globe Telecom, one of Ayala’s subsidiaries, had a service called GCash which enabled a mobile phone to be used to make micropayments. Yet Globe did not have a banking licence. BPI, another subsidiary and the country’s oldest bank, possessed a banking licence but had never succeeded in including the large population of the country into the traditional banking system.

When Ayala, Globe Telecom and BPI pooled their resources, BanKO was formed with a 20%-40%-40% partnership, respectively.

The BanKO Business Model
In order to achieve its retail goals, BanKO had to disrupt the traditional banking model, by circumventing the established branch network. It needed to provide its banking services throughout the community, especially to the bottom of the pyramid.

John Rubio, president and CEO of BPI Globe BanKO said: “We need a lot of customers that are transacting and active, as that gives us scale. We then need to translate that to a loan business, which will give margin. And to get both, we need a widespread partner outlet network. Underlying that, we need to transform the organisation to one that has an innovative, performance-based culture. Basically, to build a retail bank, one needs the right strategy, right people and right environment.”

The BanKO model was based on three key commercial pillars:

  • Access to saving accounts
  • Access to credit
  • Extensive partner outlet network

Access to Savings Accounts: The BanKO model aimed to provide a banking account to every Filipino, wherever they may be located. Most Filipinos who were not a part of the traditional banking system had typical balances of only 300 pesos (ca. $7.00), not enough to cover traditional bank account maintenance fees, and they hardly ever had identity and residence proof documents. To cater to this segment, BanKO set a minimum deposit of only 50 pesos (ca. $1.50) and required only one identity card to open an account. Instead of waiting for customers to open accounts, the sales team set up mobile booths in busy areas such as markets and schools.

To acquire depositors in groups, BanKO entered into strategic partnerships with organisations such as electricity cooperatives and water companies. It also partnered with retails outlets such as pawnshops and drug stores.

BanKO had set itself an ambitious target of 1 million customers by the end of 2014 and in the first 10 months it had achieved 96 per cent of this goal. As the number of customers grew, the transaction value and volume also grew.

Access to Credit: Under its retail loan business, BanKO provided value chain loans, commercial loans and consumer loans. The business did well, growing at 8 per cent per month for the first nine months of 2014 and stood at 116 million pesos (ca. $ 3 million) at the end of September 2014.

BanKO was very innovative when it came to analyzing the credit history of potential customers. It entered into a partnership with a start-up called Lenddo that helped compute credit scores using Facebook profiles – the first analysis of its kind in the world.
Extensive Partner Outlet Network: Yet what truly distinguished BanKO from traditional banking systems was establishing an extensive partner outlet network. BanKO approached major chains of pawnshops and drugstores in the country. By September 2014, it had tied up with 3,415 such BanKO Partner Outlets (BPOs). These partners were trained so that they could process documents.

BanKO offered a clear value proposition to these partner outlets. They could expand their business by becoming end-to-end financial services providers that received commissions and incentives. BanKO did not charge them any franchisee fee and instead allotted funds for accreditation, training, etc.

The BanKO Ecosystem
By clearly explaining their benefits, most partner outlets did not see BanKO as competition but as an extension of their business. As a result even pawnshops, that could have felt threatened by BanKO’s encroaching financial services, regarded it as a good business opportunity. BanKO was able to tie up links with pawnshops such as Tambunting and RD Pawnshop (which had over 700 branches all over the Philippines).

As it expanded its product range and customer base, BanKO began to extend its ecosystem to involve a range of other partners including local governments, cooperatives and aid agencies, and most importantly fast-moving consumer goods giants such as Nestlé, Proctor & Gamble or Unilever, via the omnipresent local “sari-sari” stores.

Given BanKO’s growth rate and expansion plans, the risk persisted that the business might outgrow itself, namely if bad debt became too large a factor. However, Rubio felt that sticking to the core strategy should make things fine. Innovations of processes and products, could play a key role in increasing management efficiency.

Yet Rubio also realised that for BanKO to grow, he would need to continue expanding the network of partner outlets that gave his services market presence on the ground. However, finding the partners would be a challenge. What other challenges could limit the potential magnitude of BanKO’s ecosystem?

Benefits of the Case
The case helps highlight the concept of ‘ecosystem advantage’. Firms can leverage ecosystems – both internal and external to deliver complex solutions, while maintaining corporate focus. This case also illustrates disruptive innovation, as the BanKO business model has a number of elements that could potentially disrupt the traditional banking system. The case also focuses on social innovation, in terms of ‘banking the unbanked’.

Singapore Management University (2016) Reference no. SMU-16-0010TN
Professors Peter Williamson & Havovi Joshi

Interview: Professor Peter Williamson: http://casium.net/professor-peter-williamson-cambridge-judge-business-school-university-of-cambridge/