How UnionDigital Bank achieved profitability quickly

Written by Kapronasia || August 31 2023

When a digital bank reaches profitability quickly, as in positive net income, it is always worth exploring in detail. After all, it is the exception, not the rule. In the case of the Philippines’ UnionDigital Bank, there is more to the story than meets the eye.

On its official website, UnionDigital Bank claims that it has won “the profitability race in PH [Philippine] digital banking.” That’s a rather bold claim, so let’s take a closer look. By UnionDigital Bank’s calculations, its net income grew by triple digits year-on-year in the first half of the year, which it attributed to a substantial loan portfolio it has built up in its “UnionBank ecosystem.”

To be sure, the numbers are impressive. Deposits grew 113% in the first half of the year, reaching PHP 20 billion, giving UnionDigital Bank a 32% market share among digital banks. Its loan portfolio has grown to PHP 13 billion, up 126% on an annual basis. As of May, the digibanks had a 75% share of loans among online lenders in the Philippines.

We believe that one of the main reasons UnionDigital Bank has been so successful is that it is not a traditional digital banking startup, but an offshoot of a major incumbent lender in the Philippines. UnionBank is the No. 9 bank in the Philippines by assets and is made up of a joint consortium that includes the Aboitiz Group, Insular Life, and the Philippine social security system. It made a profit of roughly US$224 million in 2022.

With these resources available, it is not a surprise that UnionBank’s digital banking project is off to a strong start. It doesn’t have to worry about running out of VC money, brand building, building customer trust and so on – all those things that can make life difficult for a digibanking startup.

Looking ahead, we will be closely watching the embedded finance project that UnionDigital Bank has embarked on with Capital A and three of its subsidiaries: AirAsia, AirAsia Superapp, and BigPay. The Philippine digital bank and Malaysian airline/ aspiring platform company plan to focus on enhancing the travel experience of frequent fliers with flexible payment options with a “Fly Now, Pay Later” (we suppose that would be abbreviated as “FNPL”) offer available in the AirAsia Superapp, as well as by offering exclusive co-branding deals.

For BigPay, this tie-up may help them get a stronger foothold in the Philippines, a more promising market for digital financial services than well banked Malaysia. “Through this partnership, BigPay is one step closer to making our financial services highly accessible in the Philippines, with the mission of empowering people to level up their lives, one transaction at a time,” Zubin Rada Krishnan, CEO of BigPay, said in a statement.