This neobank targets the young and unbanked population of the Philippines | Start-up stories


The Philippines is Southeast Asia’s third largest economy, however, 71% of the country’s 72 million adults are still unbanked, according to the 2019 Financial Inclusion Survey. It’s a huge market that many digital banking players are poised to tap into after the Central Bank of the Philippines (BSP) approved rules in November 2020 for creating and licensing digital banks.

Tonik is one of the first neobanks, or fully digital financial institutions, to obtain a rural banking license in January 2020 and start its operations in pilot mode in November. In March, Tonik officially went live, offering limited services pending approval of its digital banking license. The bank currently provides retail banking services, focusing on retail deposits, and plans to add consumer loans to its offerings soon.

According to a report from a local publication Manila Bulletin, Tonik is expected to be the second financial institution in the Philippines to receive a digital banking license by the BSP. However, the report did not specify a precise timetable. Overseas Filipino Bank (OF Bank), a subsidiary of the Land Bank of the Philippines, was the first digital bank to obtain such a license.

The opportunities are huge in the digital banking industry in the Philippines due to the high proportion of the unbanked population, represented by many young, tech literate people. people aged 24 and under served by the established banking system, said Greg Krasnov, founder of Singapore-based fintech Tonik Financial and CEO of Tonik. KrASIA.

“There is a huge deposit market, where customers are not happy with traditional banks. Banks also don’t lend to unbanked consumers due to the lack of credit history on a bank account, ”Krasnov said. The Philippines has a retail deposit market of $ 140 billion, while the unsecured consumer credit space is worth $ 100 billion, according to Tonik’s estimates.

Digital banks in the Philippines are allowed to operate only on fully digital platforms, with a physical office where staff deal with customer issues. Photo by Charles Deluvio on Unsplash.

Tonik is a local subsidiary of Singapore-based fintech company Tonik Financial. In total, 40% of the local subsidiary is owned by local investors, including the conglomerate Camerton Holding and Oak Drive Ventures, a management company that acts as a vehicle for business ventures.

“We have seen tremendous traction since launch. We have welcomed 30,000 customers and achieved a positive balance sheet of more than 20 million USD in one month. In the meantime, we have done little marketing, ”Krasnov said. The pull reflected a strong signal. “We have validated our expectation that Filipino bank customers are eager to go digital banking,” he said. KrASIA.

Prior to launching Tonik, Krasnov spent ten years working in private equity in the UK and Poland. He also founded Platinum Bank, a consumer bank in Ukraine in 2006, which was sold to a local business group in 2014.

In 2015, Krasnov moved to Singapore, where he continued his fintech business by first launching the fintech venture capital firm Forum that same year. He has invested and co-founded five fintech startups as part of the company, including CredoLab, AsiaCollect, AsiaKredit Bank, SolarHome and Tonik Financial, launched in 2018.

In 2019, Krasnov approached the BSP to present its project. “We spoke with the BSP and discussed how our team could realize this idea, as there was no digital banking license at the time. BSP told us they loved the idea. They suggested that we first run the bank in pilot mode with a rural banking license, ”Krasnov said.

Krasnov’s fintech company has resonated with BSP, which has been working on a regulatory sandbox for fintech platforms since 2004. The regulatory framework connects fintech companies to players in the financial sector and allows these companies to drive their services. within certain parameters, including specific markets, user groups and trial periods.

“We’ve built on that, and once the BSP is ready, we’ll convert to a digital bank and follow specific regulations,” Krasnov said, without revealing when he hopes to receive the digital license.

Greg Krasnov identifies as a citizen of the world who has lived in eight countries on three different continents. Photo courtesy of Tonik.

Tonik received support from notable investors such as Sequoia India, Insignia Ventures, Credence Partners and Point72 Ventures for its Series A funding round in June 2020, bringing the company’s total funding to $ 27 million.

Courting the unbanked population

The key to winning over an unbanked but game-changing, technology-enthusiastic population is, according to Krasnov, to provide cost-free accounts with “the highest deposit interest rate.” Tonik offers an interest rate on deposits of up to 6%. In contrast, digital offerings from incumbent banks, including ING Philippines, CIMB Bank, Maybank, UnionBank and RCBC, offer a maximum interest rate on deposits of 3.5% per a report through Pesolab.

Krasnov also discussed how his bank enables customers to set up a bank account in about five minutes, thanks to a customer-centric user interface on the app.

Although the company has yet to release a detailed plan on its consumer loan offering, it has partnered with a range of fintech startups, including alternative rating firm CredoLab, FinScore and CRIF, a global company. which automates the creation and collection of loans.

However, Tonik is not alone, as a series of emerging digital banks are vying for market share, including OF Bank, which recently received a digital banking license. Another potential rival is South Africa the digital bank TymeBank, which has just secured $ 110 million in Series B financing round in February and announced a partnership with the country’s largest conglomerate, JG Summit, to launch a digital bank. According to the statement, the company is currently applying for a digital banking license from the BSP.

Incumbent banks like EastWest Bank, UnionBank of the Philippines and CIMB Bank Berhad have also stepped up their digital offerings in recent years. Union Bank, one of the country’s largest commercial banks, already operates as a digital bank, managing more than 335,000 digital bank accounts in the third quarter of 2020, according to a report through Philippine News Agency. Conventional banks in the Philippines can launch digital banking services through their existing banking license.

Krasnov, however, is optimistic about Tonik’s potential. “I’m not worried about the increased competition, because we have a huge market to work in, which is certainly big enough to accommodate a good number of competitors in the segment. The more competitors there are in the market, the more educated customers will become, ”he said.

The company aims to achieve profitability in the coming years. “We want to make sure that we are on top of the needs of our clients and build a profitable business, and if we do it right, we should be one of the most profitable banks in the country for the next few years,” said Krasnov.

Tonik is expected to close a pre-Series B fundraiser in mid-May.

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