We’re all on the cloud these days. It has become ubiquitous in our everyday lives, hosting our files, enabling our communication, and for many of us, powering our banking. Yes, even the legacy banks now realise the benefits of cloud-based core banking systems. The cloud means you can cut out expensive server infrastructure, reduce maintenance, […]
The team at Oradian was ecstatic to hear that the Creditville team has just won not one, but TWO leading titles at the recent West Africa Innovation Awards 2021:
Organized by Africa Brands Media, West Africa Innovation Awards 2021 is Africa’s top fintech innovation event, forging up-and-coming companies into recognized industry leaders. To be perfectly honest, it was not much of a surprise to us at Oradian looking back at the stellar growth of Creditville despite the full Pandemic market environment – while we feel very, very proud of our client. It comes as a continuation of our partners reaping the most important rewards in the world of finance and technology, recent one from Asia with Cantilan Bank winning “The NorthStar Impact Award” at the Inaugural APIX Awards at the Singapore Fintech Festival 2021.
Oradian must be doing something right since we humbly turn the cogs of the core machinery that enabled such market success.
So what are the ingredients of these “overnight success stories”, what does it take to be recognize a true leader in the world of inclusion finance?
It all starts with true leadership that has a firm vision of how they want the inclusion market to look like, and are on a mission to change how it worked in the past. The leadership empowers the management to execute on this vision (starting today, not planned in the coming year).
Once all stakeholders decide to make a move on the market opportunity and innovate through digital technology, you need true flexibility. Flexibility to take any digital channel, and use it to feed your aggressive new customer acquisition strategy. That flexibility, for successful financial institutions (regardless of the licence type and market focus), comes in the form of Open APIs on top of your core system.
Those comprehensive APIs allow the team to tactically execute and focus on introducing innovative products that market desires, not worrying about technicalities, regulatory reporting, calculations and related (less exciting) complications.
Focus on the market impact, exciting services and execution brings these results.
Today more than ever, reaching new customers affordably, on their terms (de-coupled from physical branches and contact) and meeting their expectations FAST – is a pre-requisite.
The basic elements for business success have been the same since the dawn of time – we just tend to over-complicate it by technology and procedures. If a provider offers a product that the market craves, does it in a less complicated way than the competition and does it quicker – market success comes on its own. Followed by the free word-of-mouth marketing, which helps a lot to fuel compounded growth.
The difference from the past is something new though, it is the speed of change of desired products. Coupled with the ever-shrinking customer patience.
Which brings us to the invisible basic ingredient of success – a flexible, reliable foundation. A core system to power your innovative ideas. An open central system that plugs into anything you have, or may have in the future. Once you have that reliability and confidence to innovate (while being sure that your house is in order) – sky is the limit.
You can focus on following your North Star and hit the gas, not worrying about the details.
Because the market always follows the leaders.
PS. Remember to Borrow the Excellence– Learn out all the details (the How, the What and the Why) about
Inspired by the recent Cantilan Bank’s successful iCAN app launch, we list the key ingredients that power award-winning market impact.
You may not be able to see into the future, but you can still make your institution future-proof. Use any change as an opportunity for new customer acquisition. The key lies in the fundamental philosophy of your core banking system.
Things have changed rapidly in the world of financial services.
Traditional, long-standing institutions have found themselves challenged by the new breed of providers – neobanks without branches, quasi-bank providers, online lenders, fintech startups etc.
The fintechs have driven new variations on traditional financial products– like the Buy Now Pay Later craze sweeping the world.
Consumer habits and expectations have been transformed by their experiences of smartphone apps. COVID has accelerated the changes. During lockdowns, people sought new ways to conduct transactions without visiting branches, and ways of paying for things without physical contact.
For institutions unwilling or unable to cope with the changing landscape, the result can be extinction. In the Philippines, for example, the central bank ordered the closure of no fewer than five rural banks and coops during 2020 alone.
The maxim ‘adapt or die’ has never been more true
Of course, no one can predict the future entirely. But here’s a prediction that is 100% accurate:
The future will be different from today.
But that uncertainty shouldn’t be a problem. In fact, if you use that knowledge as your North Star, you can’t go wrong. All thanks to comprehensive banking APIs.
APIs (Application Programming Interface) act as intermediaries between applications so they can communicate with each other.
At their most basic, APIs allow one application to view, get, input or update information in the other by passing requests and returning data.
We use APIs every day without even thinking about them. They facilitate everything we do on the internet: APIs form the connections between your browser and your search engine, for example. They allow you to ask where the nearest vegetarian restaurant is, and for Google to tell you. APIs enable applications to talk to each other.
APIs are often likened to a very efficient waiter in a restaurant. The waiter will take your order and – providing what you want is actually on the menu – will take it through the swings doors into the kitchens and pass it to the chef. The chef will prepare the dish and give it to the waiter who brings it back to your table. One of the beauties of this system is that, you don’t need to know how to operate the cooker or know where to find the ingredients. The proprietor is equally happy with the arrangement – you can’t take two eggs when you’re only entitled to one. Nor can your efforts to fetch the meal yourself result in you burning down the entire establishment.
Like the best waiters, they are fast, invisible, and flexible enough to adapt every change in chef, menu, and customer. That’s why they are the key to the future.
There are probably a hundred reasons, but here are a few
So much for the general. How about the specific applications in the world of banking and finance? APIs enable a core banking or lending system to connect to hundreds of other applications and services quickly and securely. These might include:
Other systems
Due diligence
Intermediaries
Money management
Loan management
Management
Messaging and communications
Problems can arise when APIs are bolted on or treated as an afterthought. Web APIs have been around for two decades but it’s only relatively recently that developers are realised the importance of approaching products and systems in which the use of APIs is not only anticipated, but fundamental to the design from day 1. The philosophy is that the product or service’s reason for existing is to connect.
Our core banking system, Instafin, was designed to be open and accessible to external services from Day 1. Rather than try to build and maintain a range of specialist modules and services ourselves, we have always taken the view the best thing we can do in the interests of our customers is to create a robust, secure, and flexible core banking platform with the power of almost limitless interoperability. This gives our clients the freedom to connect to the third-party systems, services and applications which are most appropriate to their needs. The choice is theirs.
Instafin API is designed to be a robust tool for developers to build and maintain in-house applications and services, reporting tools, programmatic or automated processes.
0. Check Track-record. Which business successes were powered by that API?
Oradian API was the first banking cloud API to be certified in the Philippines – powering the pioneers like Cantilan and supporting their, now epic, digital transformation journey. Experience and learnings that come with it can not be easily matched, and the best-practice is translated to all future partners. The knowledge must flow.
1. Are APIs available for every aspect of the system?
Some companies only offer APIs to cover the ‘gaps’ in their own offering. In effect, this creates a ‘walled garden’ which prevents you from using third-party apps instead of their own. For example, a CBS provider with its own mobile banking app may not provide the APIs necessary for you to connect to a third-party version in order to tie you into using theirs.
2. Can you use all the APIs free of charge?
It is quite common for CBS providers to charge you extra for using certain types of API (or per API call), again to dissuade you from using third party applications instead of theirs.
3. Do the APIs adhere to most common API standards?
For APIs to be understood and used quickly and effectively they should be created to common industry standards. Web APIs like REST APIs and SOAP APIs are the most common.
4. Exactly what API documentation is available?
Are the APIs fully documented? Do they cover everything that can be seen and done through the interface? Some providers may fob you off with example use cases, but these won’t be sufficient to allow your developers quickly integrate new services and channels. The API should be intuitive and simply work, un-noticed. Just like plumbing, it works and you are not necessarily aware of the pipes within walls. Can your developers focus on the service they are integrating instead of the complexity of the API?
5. Can you act Instantly? Push. Not just pull.
There are quite a few use cases (some of them quite important like new potential customer creation), where you want to act at once, to stay relevant to the customer while the attention is there. In these cases, you need to make sure that triggered APIs are available, so that your external systems or services are alerted. In important situations you can not wait for the next Pull request, which may be defined hours after the event, to become aware of the change – you need to act on customer expectations at once. Make sure that both Push and Pull type of APIs are supported for business critical use cases and services.
This is the Age of ‘Instantly’ and today’s consumers want everything now – except when it comes to paying.
A buy-now-pay-later (BNPL) craze is sweeping the world and Africa’s consumers are certainly up for it. Not surprisingly, banks, fintechs, financing companies, payment services providers, and merchants are considering how to get a slice of the action.
“BNPL Gross Merchandise Values could rise five-fold by 2028”
Retailers are embracing BNPL for the simple reason that they bring in more sales and new customers. For online merchants, BNPL means not only bigger baskets but fewer abandoned ones. Although these benefits may be offset by the cost of offering BNPL, it may now be a case of ‘play or go home’ as BNPL becomes an option consumers expect to be offered.
It’s possible for merchants to run their own BNPL service but the most common arrangement involves partnering with a third-party BNPL supplier. These are often fintechs and some have been set up with the express purpose of supplying BNPL, but finance companies, payment service providers, neo-banks and – to a lesser degree – traditional banks have also entered the game.
The business model usually involves the BNPL provider charging the merchant a commission fee which is considerably higher than the transaction fee charged by debit/credit card providers. In return, the BNPL usually assumes all subsequent activities and risks including defaults and liabilities arising from fraud and so on.
Buy-now-pay-later is not a one-size-fits-all concept. McKinsey and Company[1] has identified five types of ‘point of sale financing’:
But the model which has caught the imagination of consumers and swept the world is the simple ‘Pay in 4’ concept. Instead of paying for an item or service outright at the time of purchase, the consumer pays in four scheduled interest-free instalments.
A wide range of products describe themselves as BNPL but the most common characteristics are:
There is no single shape to BNPL products and there is considerable overlap or conflation between ‘true’ BNPL products and other credit products such as personal revolving credit lines.
Consumers like BNPL because it advances affordability (or makes a higher number of purchases affordable at the same time) and – unlike traditional credit products – there are no interest charges. Many BNPL products are very convenient – available at the time and point of purchase with minimal additional steps – and may not require a traditional credit check.
[1] Buy now, pay later: Five business models to compete. McKinsey & Company. July 2021. mckinsey.com/industries/financial-services/our-insights/buy-now-pay-later-five-business-models-to-compete
Retailers are embracing BNPL for the simple reason that they bring in more sales and new customers. For online merchants, BNPL means not only bigger baskets but fewer abandoned ones. Although these benefits may be offset by the cost of offering BNPL, it may now be a case of ‘play or go home’ as BNPL becomes an option consumers expect to be offered.
It’s possible for merchants to run their own BNPL service but the most common arrangement involves partnering with a third-party BNPL supplier. These are often fintechs and some have been set up with the express purpose of supplying BNPL, but finance companies, payment service providers, neo-banks and – to a lesser degree – traditional banks have also entered the game.
The business model usually involves the BNPL provider charging the merchant a commission fee which is considerably higher than the transaction fee charged by debit/credit card providers. In return, the BNPL usually assumes all subsequent activities and risks including defaults and liabilities arising from fraud and so on.
Africa has a long-established and prevalent tradition of lay-bys, also known as layaways. Under these agreements, a consumer can purchase an item by interest-free instalments. These are usually over a period of no more than three months, and often require a minimum down-payment of 20%. The store retains the item until it has been paid for in full before releasing it to the buyer. Rather than buy-now-pay-later, it’s more like pay-now-buy later.
The lay-by tradition has followed shopping online. For example, Spredda – the Nigerian online marketplace – offers a lay-by option at checkout.
Lay-bys may currently be the only pay-by-instalment option available to consumers with no credit score, trust rating or ID. Fintechs such as LayUp (see below) are digitalising the payments process of brocks-&-mortar lay-by so that consumers no longer need to physically visit the store to make their payments.
It will be interesting to see what proportion of lay-bys BNPL manages to replace.
There are already dozens of BNPL brands active across Africa. Here is a sample.
In addition to the consumers, merchants, BNPL providers, financing organisations, and credit/ trust scorers, other players such as M-Pesa, mCash, and Remita are often needed to handle the repayment side of the equation.
Around the world, fintechs such as Amount, Jifiti, and Certegy are producing white label products which make it easier for organisations to quickly set up their own BNPL offering.
One of the reasons (other than consumer demand) BNPL grew from nothing into a multi-billion dollar industry within the space of a few years is that in many places, BNPL sidesteps the regulators. Much BNPL financing is technically ‘interest free’, but the penalties for defaulting on repayments are sometimes punitive and frequently not made obvious to consumers. Unregulated BNPL providers have no obligation, for example, to be confident of the purchaser’s ability to repay. In many countries there has been increasing demand for regulators to step in.
According to figures from global payment services provider Worldpay from FIS[1], many sectors in the Middle East and Africa (MEA) are set to enjoy a period of significant growth. For example:
While the COVID-19 pandemic had a devastating impact on bricks-and-mortar stores in many parts of Africa, these establishments are also dealing with massive changes in payment preferences and habits. Cash payments at point-of-sale (POS) fell by over a quarter in 2020 in the MEA region.
Some parts of Africa have seen even more dramatic changes. In 2019, cash payments accounted for 91% of POS transactions in Nigeria. A year later, that figure was 69%. Meanwhile, the use of mobile wallets is increasing and are expected to double their share of transactions by 2024.
[1] The Global Payments Report. Worldpay from FIS. 2021. offers.worldpayglobal.com/rs/850-JOA-856/images/1297411%20GPR%20DIGITAL%20ENGLISH%20SINGLES%20RGB%20FNL11.pdf
2020 e-commerce payments mix in Nigeria
Source: Worldpay from FIS Global Payments Report 2021
2020 point of sale payments mix in Nigeria
Source: Worldpay from FIS Global Payments Report 2021
There are good reasons for believing BNPL is on the verge of a boom.
In much of Africa, loans are difficult to come by. Many banks have no appetite at all for retail loans. Digital lenders are now rushing to fill the gap and instead of looking at clunky credit scores, they are taking other available data and using tools such as algorithms and artificial intelligence (AI) to assess trustworthiness.
A consumer’s smartphone data is one very rich seam of data. GPS data can reflect how regular a person’s habits are; call records can reveal what kind of company they keep. Access to your mobile wallet data helps compile a picture of an individual’s spending and top-up habits.
The idea of scoring ‘credit-invisible’ markets has caught the attention of global players. For example, credit score specialists Experian recently announced a partnership with FinScore (see panel) which delivers telco data credit scoring to unbanked and underbanked people in the Philippines.
Alternative approaches in Africa include fintechs such as CARMA, a credit data marketplace designed to help lenders make loan decisions by accessing each other’s customer records. Another player is Migo which builds algorithms to help lenders quantify the risk involved in lending to low-income customers.
Although some may feel queasy about the flow of personal data or the lack of transparency, these new approaches do potentially offer social value: They open up new sources of credit for people who previously had access to none. They present an opportunity to end reliance on informal loans and the unlicensed money lenders who charge up to 30% a month.
How does telco data scoring work? Telco data can be used to assess an individual’s credit worthiness without needing to access credit history. FinScore does this by analysing more than 400 telco variables. These include data and voice usage, top-up patterns, location, and SIM age. Companies use machine learning or AI on the data to produce alternative credit assessment scores which have proved highly reliable.
Amazingly, the answer could be ‘anyone with an appetite for developing new products based on unsecured lending’. The size of the market is not a limiting factor, that’s for sure. For rural banks, finance and lending companies, it’s not such a big stretch from what they are doing now to what’s involved in BNPL. A little rebranding may be all it takes, plus the ability to hook into the new breed of credit score/trust services via APIs. What’s changing is the demand – from consumers and from merchants – both online and in bricks-and-mortar stores.
With commercial banks lending only to the most affluent sliver of the population, the field is wide open to providers with the right appetite for risk or, perhaps more importantly, the imagination to embrace the new ways of credit scoring that promise to mitigate the risks of uncollateralised loans.
The risk to the industry’s reputation and to society at large lies in BNPL advancing without mitigating the risks. In Kenya between 2014 and 2017, a shocking 2.7 million people (about 10% of the population) were blacklisted on the country’s TransUnion credit reference bureau for failing to repay digital loans – 400,000 of which amounted to less than $2.
Scalability: BNPL is a rapidly growing market with huge potential. Instafin, Oradian’s cloud-based core banking platform, allows for limitless, uninterrupted growth. And our SaaS pricing model means you only pay for what you use. Instafin helps you grow, and grows with you.
A reliable loan management system: A robust and flexible loan management system such as Instafin’s is essential. It’s vital to ensure that the entire loan lifecycle is handled as simply, efficiently, and effectively as the CX at the point-of-sale. Without it, customer relationships will turn out to be short-lived.
Speed to market: As we’ve seen, behind the simple fundamental concept of BNPL lie endless variations. To compete in this market, players must be willing and able to develop new loan products and take them to market rapidly. Instafin vastly reduces the amount of time it takes to do this.
Fast flexibility: The key to staying competitive is being able to adapt fast to an ever-changing market. The most reliable credit/trust scoring services of today may not be those of tomorrow. It’s only possible to adapt and change quickly through a core system’s deep and open APIs.
Limitless interoperability: As with most modern financial products, BNPL involves multiple partners:
Linking between multiple (and potentially changing) partners in a process that is seamless to the customer requires agility, flexibility, security, and speed. This is a combination that can only be provided through Open APIs.
For example, compare the customer experience involved in being asked to upload bank statements as proof of income with simply requesting permission to access bank statements through an open banking API.
Of course, open APIs are also an essential part of the repayment process to seamlessly allocate payment made via a variety of channels such as M-Pesa, mCash, Remita and so on.
Instafin is designed to connect with the ever-evolving financial ecosystem using Open APIs, making it quick and easy to connect with – for example – the alternative credit scoring services of today and tomorrow. Instafin is future-proof.
Then we can help you. Email us at hello@oradian.com
In this paper, we look at some of the many forms of embedded finance in Southeast Asia and ask what this trend could mean for the future.
The term ‘embedded finance’ describes a simple idea – the integration of financial services into a non-financial business.
It’s often used to describe the offering of financing options at the point of sale. This could be as simple as an e-commerce site’s checkout offering a buy-now-pay-later (BNPL) option (see our BNPL Philippines and BNPL Africa guides). Or it could involve offering the customer a loan to finance their purchase of a motorcycle at a bricks-and-mortar dealership.
But embedded finance is not restricted to the consumer interface. It can also apply to the relationships between manufacturers, wholesalers, B2B traders and retailers. For example: offering deferred settlement options to encourage businesses to stock or promote a particular brand of cigarettes, refrigerators, farm machinery, or anything else.
Wherever two or more bodies are involved in the commercial supply chain – manufacturer, wholesaler, conglomerate, retailer, microbusiness, consumer – there exists the opportunity for embedded finance to play a part in cementing relationships, developing partnerships, and securing customer loyalty.
As always, it’s mainly about customers. This is the Age of Instantly in which consumers have come to want and expect everything ‘now’, whether that’s access to information or lunch delivered to their door. Offering payment options at the point of sale feeds the need to buy without delay. For merchants and retailers in smaller and newer markets, embedded finance is a way to differentiate themselves from the competition. In mature, fast-moving, highly competitive environments such as e-commerce, it’s more a case of ‘adopt or die’ because the competition will be on board with the latest embedded finance products.
Further up the chain, the drivers are more about the need to build stronger relationships.
Pioneering fintechs are also driving these changes. Nimble, creative, and unencumbered by legacy practices and ideas, fintechs are constantly devising new product opportunities and the area of embedded finance is bursting with potential.
Almost everywhere you look around the world, embedded finance is blurring the lines between financial and non-financial businesses:
But even at more modest levels it makes sense for retailers to add value to their proposition by offering BNPL for low-ticket items or credit on mid-price goods such as motorcycles.
Unistar Credit and Finance Corporation is the in-house financing arm of motorcycle retailer Transcycle and Powercycle which has more than 250 branches across the Philippines. Thanks to Unistar, Transcycle can offer its online and in-store customers the option of paying by instalments.
Emboldened by its success, Unistar is looking to broaden its finance activities, offering business loans to micro, small and medium enterprises (MSMEs). And it’s longer-term ambition is to become a fully-fledged fintech:
“We are quickly transitioning the organization from a traditional financial services business model to a fintech business model. This would not only enable us to quickly respond to the ever-changing economic landscape of the country, but to also provide a more bespoke service to the hyper-segmented population.”
Originally a manufacturer of hand tractors, today Adamco sells a wide range of agricultural machinery through its 16 branches. It is the Philippines’ largest rice combine harvester dealer and boasts a 50% market share.
Adamco created an embedded finance product – the Life Made Better programme – to support small farmers who would otherwise not be able afford the equipment they needed at the time they needed it. Financing is arranged partly in-house and partly through financial institutions owned by the Ropali group which Adamco is part of.
For most retailers, setting up their own financing arm is unappealing and impractical. But partnering with a fintech or a financial institution (FI) opens up much simpler routes to embedding finance.
Conversely, there are great opportunities for financial institutions to expand their business model in a relatively straightforward way by partnering with retailers. For a good example, read our case study on Zurich Finance Corporation’s partnership with the Venture Motorcycle Sales Corporation in the South Luzon area of the Philippines.
And embedded finance doesn’t necessarily have to be about giving people access to deferred payment schemes – it may simply be about offering consumers a wider range of payment options. In the Philippines, the mall, supermarket, and department store operator Liberty Commercial Center has partnered with PayMaya to allow people to pay with the PayMaya app.
Regardless of who’s providing the finance – retailer, FI, or fintech – the key benchmark for embedded finance is that it should be as seamless as possible from the customer’s point of view. Ideally every aspect of the financing can be undertaken at the place of purchase and at the time of purchase.
This should never be at the expense of transparency. It’s vital that customers understand who’s providing them with the financing and what the terms are.
And, of course, it needs to be compliant with whatever regulations apply. For retailers who don’t wish to take on the regulatory burdens which may be involved in offering financial services, this is where partnership models come into their own.
At Oradian we are sometimes contacted by companies asking us to help them with their embedded finance programmes. Although they have experienced the benefits of adding financing to their trading activities, they have found themselves struggling with the administration and management involved.
Those with small operations have tried to keep things ‘simple’ by using spreadsheets. Larger businesses have tried adapting their accounting system or enterprise resource planning (ERP) platform such as SAP or Oracle. This is understandable – such systems are expensive and organisations want to get the most out of their investment.
But these approaches are rarely satisfactory because these tools are simply not designed to handle the complexities involved in lending. Organisations taking this route swiftly come up against a stream of obstacles. For example:
These are just a few examples. Put simply, ERP and accounting systems are rarely capable of supporting the complex business processes involved in loan management.
Because loan management systems such as Instafin are purpose-built, they effortlessly handle the many stages involved in a loan cycle which is both robust and flexible:
A good loan management system will be able to handle loan rescheduling, loan top-ups, loan merging, write-offs, and bulk moratoria.
Only a purpose-built loan management system can deliver the full range of potential business benefits:
This is the Age of ‘Instantly’ and today’s consumers want everything now – except when it comes to paying.
A buy-now-pay-later (BNPL) craze is sweeping the world and Filipino consumers are certainly up for it. So banks, fintechs, financing companies, payment services providers, and merchants all want a slice of the action.
“The Philippine market could see five-fold growth”
And that’s not surprising because BNPL is big business – very big business. In Europe the foremost player, Klarna, recently raised US$639 million in a funding round which valued the business at US$45.6 billion, making it Europe’s most valuable start-up. Most of the world’s pioneering BNPL players are fintechs (Klarna, Affirm, AfterPay, Cashper, Divido, LayBuy) but now global payment brands such as PayPal and even AmEx are also moving in.
With the right approach, BNPL means not just a new way of slicing up the unsecured loans market, but a way to massively expand it. And thanks to its highly distinctive make-up, its estimated that the Philippine market could see five-fold growth while still allowing those taking part to maintain decent standards of risk management.
Buy-now-pay-later is far from a one-size-fits-all concept.
McKinsey and Company has identified five types of ‘point of sale financing’:
But the model which has caught the imagination of consumers and swept the world is the simple ‘Pay in 4’ concept. Instead of paying for an item or service outright at the time of purchase, the consumer pays in four interest-free scheduled instalments.
A wide range of products describe themselves as BNPL but some of the most common characteristics are:
There is no single shape to BNPL products and in the Philippines there is considerable overlap or conflation between ‘true’ BNPL products and other credit products such as GCredit, GCash’s ‘personal revolving credit line’.
Consumers like BNPL because it advances affordability (or makes a higher number of purchases affordable at the same time) and – unlike traditional credit products – there are no interest charges. Many BNPL products are very convenient – available at the time and point of purchase with minimal additional steps – and may not require a traditional credit check.
Retailers like BNPL for the very basic reasons that they result in more sales and new customers. For online merchants, BNPL means not only bigger baskets but fewer abandoned ones. Although these benefits may be offset by the cost of offering BNPL, it may now be a case of ‘play or go home’ as BNPL becomes the standard.
A few merchants run their own BNPL service but the most common arrangement involves a third-party BNPL supplier. These are often fintechs and some have been set up with the express purpose of supplying BNPL, but finance companies, payment service providers, neo-banks and – to a lesser degree – traditional banks have also entered the game.
The business model usually involves the BNPL provider charging the merchant a commission fee. This is generally in the 4-8 range – about twice the transaction fee charged by debit/credit card providers. In return, the BNPL usually assumes all subsequent activities and risks including defaults and liabilities arising from fraud and so on.
There are already dozens of BNPL brands active in the Philippines. Here are just a few.
In addition to the consumers, merchants, BNPL providers, financing organisations, and credit/ trust scorers, it’s worth noting that there are a host of other players handling the repayment side of the equation – GCash, PayMaya, GrabPay, 7-Eleven, Bayad Center, LBC, Cebuana Lhuillier, and so on.
Fintechs such as Amount, Jifiti, and Certegy are producing white label products which make it easier for organisations to quickly set up their own BNPL offering.
One of the reasons (other than consumer demand) for BNPL growing from nothing into a multi-billion dollar industry within just a few years is that in many places, BNPL sidesteps the regulators. Much BNPL financing is technically ‘interest free’, but the penalties for defaulting on repayments are sometimes punitive and frequently not made obvious to consumers. Unregulated BNPL providers have no obligation, for example, to be confident of the purchaser’s ability to repay. In many countries there has been increasing demand for regulators to step in.
According to figures from global payment services provider Worldpay from FIS, many sectors in the Philippines are set for a period of significant growth. For example:
While the COVID-19 pandemic had a devastating impact on bricks-and-mortar stores in the Philippines as elsewhere, Worldpay predicts the country will see the largest annual growth rate in the APAC region for the next few years – 9.4% through 2024. And while cash will remain the leading POS payment method, digital/mobile wallets are expected to see growth rates of over 25%. The use of digital/mobile wallets already doubled over the pandemic period of 2020/21 as shoppers sought a more contactless experience.
2020 e-commerce payments mix in the Philippines
Source: Worldpay from FIS Global Payments Report 2021
2020 point of sale payments mix in the Philippines
Source: Worldpay from FIS Global Payments Report 2021
So habits are changing. The concept of BNPL is already understood, and there is huge potential for growth. BNPL currently accounts for only around 3% of e-commerce payments and 2% of point-of-sale payments in the Philippines (see charts at the end of this paper) so the country is starting from a low base. But nevertheless, there are many reasons to believe we’re about to see an explosion:
But necessity is the mother of invention, and alternative – often creative – ways of assessing an individual’s ability to repay have evolved. These include trust scores based on social media, smartphone data, and wallet history (GCash, for example, analyses wallet usage to rate a user’s credit worthiness in the form of a GScore).
The idea of scoring ‘credit-invisible’ markets has caught the attention of global players. In March 2021, credit score specialists Experian announced a partnership with FinScore which delivers telco data credit scoring to the unbanked and underbanked populations in the Philippines.
These new approaches offer great social value too, potentially opening up new sources of credit for Filipinos who may previously have had no other recourse than through informal means and unlicensed “five-six” money lenders.
How does telco data scoring work? Telco data can be used to assess an individual’s credit worthiness without needing to access credit history. In the Philippines, FinScore does this by analysing more than 400 telco variables. These include data and voice usage, top-up patterns, location, and SIM age. Companies use machine learning or AI on the data to produce alternative credit assessment scores which have proved highly reliable.
Amazingly, the answer could be ‘anyone with an appetite for developing new products based on unsecured lending’. The size of the market is not a limiting factor, that’s for sure. For rural banks, finance and lending companies, it’s not such a big stretch from what they are doing now to what’s involved in BNPL. What’s changing is the demand – from consumers and from merchants – both online and in bricks-and-mortar stores.
With commercial banks lending only to =the most affluent 5% of the population, the field is wide open to providers with the right appetite for risk or, perhaps more importantly, the imagination to embrace the new ways of credit scoring that promise to mitigate the risks of uncollateralized loans. The prize is big: It’s estimated that the Philippines current unsecured lending market of US$ 10 billion is just one-fifth of the potential.
Scalability: BNPL is a rapidly growing market with huge potential. Instafin, Oradian’s cloud-based core banking platform, allows for limitless, uninterrupted growth. And our SaaS pricing model means you only pay for what you use. Instafin helps you grow, and grows with you.
A reliable loan management system: A robust and flexible loan management system such as Instafin’s is essential. It’s vital to ensure that the entire loan lifecycle is handled as simply, efficiently, and effectively as the CX at the point-of-sale. Without it, customer relationships will turn out to be short-lived.
Speed to market: As we’ve seen, behind the simple fundamental concept of BNPL lie endless variations. To compete in this market, players must be willing and able to develop new loan products and take them to market rapidly. Instafin vastly reduces the amount of time it takes to do this.
Fast flexibility: The key to staying competitive is being able to adapt fast to an ever-changing market. The most reliable credit/trust scoring services of today may not be those of tomorrow. It’s only possible to adapt and change quickly through a core system’s deep and open APIs.
Limitless interoperability: As with most modern financial products, BNPL involves multiple partners:
Linking between multiple (and potentially changing) partners in a process that is seamless to the customer requires agility, flexibility, security, and speed. This is a combination that can only be provided through Open APIs.
For example, compare the customer experience involved in being asked to upload bank statements as proof of income with simply requesting permission to access bank statements through an open banking API.
Of course, Open APIs are also an essential part of the repayment process to seamlessly allocate payment made via a variety of channels from 7-Eleven stores to GCash wallets to bank transfers.
Instafin is designed to connect with the ever-evolving financial ecosystem using Open APIs, making it quick and easy to connect with – for example – the alternative credit scoring services of today and tomorrow. Instafin is future-proof.
Then we can help you. Email us at hello@oradian.com
How one of the largest microfinance institutions in the Philippines transformed customer experience (CX) with simple and inexpensive SMS messages to its clients.
With a focus on advancing sustainable development in both rural and urban areas, LifeBank Microfinance Foundation is committed to breaking the chains of poverty in the Philippines. The country’s third largest MFI has more than 500 branches across Luzon, Visayas, and Mindanao, and serves almost half a million clients.
In 2019, LifeBank undertook a project to provide its clients with a better, more transparent service by implementing Instafin Messaging. This service empowers organisations which use Oradian’s Instafin core banking platform to communicate with clients via SMS.
The COVID-19 pandemic in 2020 brought severe lockdowns and a widespread need to eliminate unnecessary face-to-face contact. This lent a new urgency to LifeBank’s project to replace in-person exchanges with electronic communications.
Using Instafin Messaging, LifeBank was able to quickly set up a series of automated SMS notifications to its clients’ mobile phones. These confirmed any transactions made and alerted them to missed deadlines. The messages included:
Happily, not all the messages LifeBank sends are about money! They also use Instafin Messaging to wish each client a ‘Happy Birthday’ on their special day.
LifeBank opted for a phased roll-out of the service. The pilot phase involved enabling messaging for all new clients and for existing clients enrolling into a new loan cycle. The reaction from clients was extremely positive and Instafin Messaging was quickly rolled out to other segments.
Today, around 70% of clients are benefitting from Instafin Messaging, and around 3 million messages are sent out each month. As a result:
LifeBank have used Instafin Messaging to transform CX for what might seem a surprisingly low cost. Oradian customers who use Instafin Messaging find the charge can easily be absorbed, or passed on to their clients, or offset by the operational savings which accrue.
Oradian and LifeBank continue to work together to develop the service through monthly review sessions to look at how the service can be further optimised, and explore what other messaging options might be valuable to their clients.
Instafin Messaging enables Instafin subscribers to send messages directly to their customers mobile phones from the Instafin dashboard. Real-time communications improve portfolio performance and improve the customer experience and customer loyalty.
Instafin Messaging allows a wide range of messages to be automatically delivered:
Instafin Messaging can also play a simple but vital role in your digitalisation strategy by helping clients to get used to receiving financial information through a digital channel.
Grows with your business.
Economical, subscription pricing with no surprises.
No servers and infrastructure to buy and maintain.
Customise at the flick of a switch.
Designed for customers even in remote and rural areas. Works with 2G.
Plug in third-party applications instantly using our powerful APIs.
Get in touch with Oradian today. Email us at hello@oradian.com and take the first step on your journey to happier customers.
When this specialist Philippine financial institution digitalised its operations, the results were fast and spectacular with loan defaults falling by 50%.
Motorcycles only became popular in the Philippines in the 1990s but today they outsell cars by a ratio of four to one and an estimated 18 million Filipinos ride them. Motorcycle sales are big business which is why SEC-registered Zurich Finance Corporation (ZFC) partnered with the Venture Motorcycle Sales Corporation to provide financing options to its customers in the rural South Luzon area of The Philippines.
ZFC quickly proved itself to be a successful business with a promising future, but it faced three main problems:
1. Scalability
How to scale up? The business had reached the limit of what could be done with its existing core banking platform leaving no opportunity to grow.
2. Inconsistent operations
ZFC’s loan policies were not being applied consistently across the organisation. Decentralised operations had led to loan policies being interpreted or applied differently from location to location and was unmanageable. The loans monitoring system relied on manual processes and a combination of spreadsheets, emails, and phone calls to manage things. The process needed centralising and digitalising.
3. Internet connectivity
Areas of South Luzon often suffer from slow internet speeds, intermittent connections, and some places have no service at all. Even areas with good access can have it temporarily wiped out thanks to a flood, typhoon or earthquake.
The man tasked with addressing all these problems was Ronaldo Recto, a Managing Director of ZFC who is currently President of the Rural Bank of San Antonio, part of the same family of companies.
Ron had come across Oradian while at business school and he remembered that Instafin, our cloud-based core banking system, was designed specifically to cope with the challenges of rural and remote conditions. He made sure Oradian was one of the companies invited to discuss the project.
“We went through the process of evaluating the core services, benefits, and partnerships, and quickly drew up a shortlist, finally selecting Oradian,” he recalls.
Scalability
Instafin solves scalability challenges in multiple ways. First, there are literally no barriers to growth – Instafin is as capable as supporting a major bank as the smallest microfinance institution. And because it is hosted in the cloud, you never have to buy extra servers or bandwidth to accommodate your growth – everything is taken care of by Oradian in the cloud. Instafin is also the most affordable way to grow – the subscription price you pay is based on portfolio size and there are no hidden extras.
Inconsistent operations
“One of the major improvements was the way that we could implement loan policies over a larger area because of the way Instafin is designed,” says Ron. With customers having to complete mandatory fields when applying for loans, local officers were unable to intervene with tailor-made and unauthorized concessions.
Internet connectivity
It was Oradian’s Customer Success team that first drew ZFC’s attention to the potential of the Instafin Field Officer App (IFOA) to deal with the absence or unreliability of internet connectivity. Originally designed for use by field officers in micro-finance institutions, Oradian customised the app for use by ZFC’s credit investigators to validate information submitted by loan applicants. Credit investigators prepare their risk assessments and photographs the client’s assets in remote offline locations, knowing that as soon as their smartphones reconnect to the internet the information will automatically be uploaded to the Instafin core platform. From there it is accessed by the credit assessment team in the corporation’s head office.
“The default rate went down by 50%”
The most dramatic effect was a rapid decline in the number of customers defaulting on their loans. “The default rate went down by 50% because we were able to implement consistent loan policies,” says Ron. He admits the scale of the improvement was unexpected. “We were surprised by the figures because we were primarily dealing with very risky customers,” he says.
Operational efficiency has improved vastly in many respects. Recording repayments, for example, used to involve many stages to ensure proper oversight. “With Instafin, the repayment is booked and that’s it. It’s posted in real time and there’s no other process,” he says.
The automatic syncing procedures have also overcome the problems of poor internet connectivity, streamlining workflows and greatly improving the day-to-day running of ZFC’s business. Making accurate credit assessments is now much quicker and easier.
Ron says one of the things that distinguishes Oradian is our proactive determination to help ZFC to develop. “One of the things that we like to talk about with your Customer Success team is how we can constantly improve and address operational challenges. Your support for our growth is one of the things that convinced me that Oradian was a very good choice of partner,” he says. “The totality of the Oradian and Instafin service is more than the sum of its parts.”
“The totality of the Oradian and Instafin service is more than the sum of its parts”
Ron says one of the things that distinguishes Oradian is our proactive determination to help ZFC to develop. “One of the things that we like to talk about with your Customer Success team is how we can constantly improve and address operational challenges. Your support for our growth is one of the things that convinced me that Oradian was a very good choice of partner,” he says. “The totality of the Oradian and Instafin service is more than the sum of its parts.”
Some financial institutions are uncomfortable with the idea of their data being stored in the cloud rather than on-premise, despite the obvious advantages in terms of cost and reliability. Ron has no such qualms but he understands where the reluctance comes from. “You feel safer if you can see something,” he says.
“You feel safer if your money is under your bed or your files are in a hard drive. But if you think about it, your bed isn’t safer than a bank. Most car owners don’t know how to fix their own cars, but it doesn’t necessarily mean they’re not a good car owner,” he says. “You just need to trust in your partnerships and entrust the storage of data to the cloud service providers.”
Ron is now President of the Rural Bank of San Antonio (RBSA) where he is continuing to enable growth and improve efficiency with the help of Instafin.
“When Zurich partnered with Oradian it was like a test run for the RBSA board to consider whether this cloud-based system could be used within a more highly regulated environment”, he says. “Rural banking is a very traditional industry and there are there are a lot of hurdles to get over when approaching new technology which is why it took us a long time to make the assessment, but we are finally able to partner with Oradian.”
“Digitalization is really an investment in growth,” says Ron. “If you want to grow, you need to digitalize. The two go hand in hand.”
Grows with your business.
Economical, subscription pricing with no surprises.
No servers and infrastructure to buy and maintain.
Customise at the flick of a switch.
Designed for customers even in remote and rural areas. Works with 2G.
Plug in third-party applications instantly using our powerful APIs.
Get in touch with Oradian today. Email us at hello@oradian.com and take the first step on your journey to growth.
Find out how Oradian’s core banking platform gave RAFI Micro-finance Inc in the Philippines the confidence to experiment and innovate.
RAFI Micro-finance Inc (RMI) supports underprivileged entrepreneurs in the Philippines. With a network of 216 branches it has more than 300,000 customers. RMI is part of the Ramon Aboitiz Foundation Inc and works closely with other parts of the Aboitiz group, including Unionbank.
RMI set out on a journey of digital transformation in 2017/18. It knew that in order to reach and help more customers, it needed to streamline its processes. To do this, it needed to be able to create a solid foundation in the form of a flexible and scalable core banking platform.
“A fool-proof system to make sure our clients get the services that they deserve.”
Mikel Alberto Abotiz, Chairman, RMI
RMI identified Instafin from Oradian as the platform that would give it exactly what it needed. It is built to plug into third-party apps via APIs giving it huge flexibility. In terms of scalability, Instafin is hosted and maintained in the cloud, eliminating the need for customers to worry about building and maintain the infrastructure necessary to support their growth; the subscription charging model means costs are predictable, being .
Although the implementation coincided with the arrival of the COVID-19 pandemic, RMI was able to complete the roll-out across its hundreds of branches. “The implementation was a wonderful experience,” recalls Mr. Florentino Villa, Head of Business Intelligence and Value Management.
Mr. Mikel Alberto Aboitiz, chairman of the Board of RMI, described the result as “a fool-proof system to make sure that our clients get the services that they deserve.”
“If your core platform is safe, solid, and unbreakable, you shouldn’t be afraid of innovation”
With the pandemic came new challenges which needed to be addressed quickly. “We needed to find out how could we ensure the safety of our employees while continuing our operations, and the safety of our clients while they did business with us,” recalls Mr. Villa. “We looked for opportunities to remove non-value-adding processes from the front-end, and strengthen our back-end processes, and limit face to face contact.”
To make these kinds of changes quickly and safely meant innovating and experimenting in a way that RMI was unused to. “But as the saying goes, you either change or you perish,” says Mr. Villa.
Having Instafin as the core banking platform made this possible. “If you are confident that your core platform is safe, solid, and unbreakable, but also flexible and scalable, you shouldn’t be afraid of the ‘innovation garage’ approach,” says Mr. Villa. “We were able to play around with different modalities and channels for loan applications and originations, for example,” he says.
To find new, cashless ways to do collections and disbursements, RMI explored partnering with local remittance companies and fintechs. “We were able to compare potential partners by carrying out small scale tests using just one branch or 100 customers, say. We opened ourselves up to the idea that it was OK if some of them didn’t work. We can fail fast, but we can also learn fast.”
As well as opening the doors to innovation, Instafin has helped make major improvements to the business, reducing processing lead times through:
Above all, it was great for their micro-entrepreneur customers who can now receive their loans faster.
Instafin also made it easier for employees to keep customer data secure and generate accurate up-to-date balances and other information.
“We have accumulated a good amount of data which will help us further our digital transformation journey by eliminating more non-value adding processes and automating others,” says Mr. Villa.
And now that RMI has embraced a more pioneering approach to technology, it has found an appetite for change. “Now that we have Instafin we don’t have to worry about the core and that means we can spend more time on innovation,” he says.
Customise at the flick of a switch.
Designed for customers even in remote and rural areas. Works with 2G.
Plug in third-party applications instantly using our powerful APIs.
Grows with your business.
Economical, subscription pricing with no surprises.
No servers and infrastructure to buy and maintain.
Get in touch with Oradian today. Email us at hello@oradian.com and take the first step on your journey to growth.
Find out how Nigerian lending service Creditville trebled its client base and accelerated its loan application process, with the power of Instafin from Oradian.
Creditville is a private lending institution which specialises in loans to individuals and small businesses in Nigeria. They are aiming to become the country’s most dominant, efficient and reliable provider of private lending services.
Their range of products that includes salary loans, car loans, hire purchase, and business loans. Creditville prides itself on being a business which is based on integrity and is anchored in honesty and transparency.
In early 2020, Creditville was making very ambitious expansion plans. Then the COVID-19 pandemic hit, and the company was faced with a choice: to put its plans on hold, or to press forward. Mr. Richard Rotoye, Creditville’s Group Managing Director, recalls: “We decided to scale up our plans because we believed the lockdown would result in many lenders shutting down temporarily or exiting the market altogether. It was high risk, but we are in the business of taking risks. It paid off dramatically.”
“Instafin really helped our business grow”
In order to scale up, Creditville needed a robust, secure, scalable loan management platform which would grow as Creditville grew. “We talked to Oradian and chose their cloud-based Instafin system. If we had not taken that decision, we could not have scaled as fast as we did,” says Mr. Rotoye.
Crucially, Instafin gave Creditville the power to onboard new customers remotely. This was vital at a time when people were trying to minimise social contact. But it also made the process more efficient, and much faster. “Instafin really helped us in the areas of customer acquisition, customer evaluation, and reporting. It helped our business grow,” he says.
“In 2020 we grew by 320 per cent”
“The first impact Instafin had on our business was speed,” says Mr. Rotoye. “The processing time from loan application to disbursement was reduced by at least 80%.”
Instafin also delighted Creditville’s customers by giving them instant access to their balances and other information about their loan. “Before Instafin we had issues computing the principal, the interest to date, and other aspects of the loan history. Suddenly that became very, very easy,” says Mr. Rotoye. “We’ve gone from manually checking customer balances in 24 hours to giving customers the ability to check their own balances instantly – and apply for new loans or top up existing ones.”
Mr Rotoye says Instafin has improved customer acquisition and customer service. “It has also made it easier for us to scale our business,” he says. “In 2020 we grew by 320%.”
Instafin is helping Creditville to dominate the gap between the smaller finance institutions and the commercial banks. “Using mobile and digital technology, we are better to provide the same service as a commercial bank but faster and cheaper because we have lower overheads. And, of course, we offer the personal touch they often cannot,” he says.
Thanks to Instafin, customers can apply for loans and access their accounts from their own homes. Mr Rotoye says the next stage will be to use Instafin to instantly disburse loans electronically. The entire process from application to disbursement can then be done without the customer needing to call or visit one of the Creditville offices or meet with one of their loan officers.
Instafin also helps Creditville move towards its aim of becoming a lifestyle finance provider. “Instafin provides us with a core banking platform designed to integrate with third-party applications so there are no limits to what we can achieve,” says Mr Rotoye.
Grows with your business.
Our subscription-based model means economical pricing with no surprises.
No need to buy and maintain servers and infrastructure.
Fast and easy to set up, configure, and change. Customise at the flick of a switch.
Designed for customers even in remote and rural areas. Works with 2G.
Instantly plug in third-party applications using our powerful APIs.
Get in touch with Oradian today. Email us at hello@oradian.com and take the first step on your journey to growth.
