Deal focus: Creador goes early in digital banking

As a mid-market private equity investor, Creador prefers to wait for companies to turn profitable before putting in capital. Philippines-based financial technology start-up UnoAsia is pre-product and pre-revenue, as well as pre-profit, but the GP made an exception given its familiarity with the management team and its belief in digital banking.

“Although this is an earlier-stage transaction than Creador may normally do, we felt it was too good an opportunity to pass. The company is in a regulated space, there is a limited number of digital banking licenses, and we would by partnering with a management team with a proven track record,” said Omar Mahmoud (pictured), a managing director at Creador.

The India and Southeast Asia-focused GP contributed USD 21m of UnoAsia’s USD 33.5m in pre-seed and seed funding. It has now led a Series A round of USD 11m and fully expects to make additional commitments to become the largest shareholder. Other investors include banking and financial services executives and Manish Bhai and Kalidas Ghose, UnoAsia’s founders.

The funding will help bolster the foundations of Uno Digital Bank, which was awarded a digital banking license in the Philippines last year. The company is currently building out its team and technology platform ahead of an anticipated debut product launch before the end of the year.

Bhai previously spent nearly 25 years with Citi, while Ghose founded Vietnam-based consumer finance business FE Credit. Last year, Sumitomo Mitsui Financial Group acquired a 49% stake in FE Credit at a valuation of USD 2.8bn. Vietnam Prosperity Joint Stock Commercial Bank (VP Bank) continues to own 50%. Both founders are well known to Creador.

“They started engaging with Creador when they were looking to apply for the license. Kalidas has demonstrated an ability to build a credit-led consumer finance business from scratch and transform it into a multi-billion-dollar company, and there are plenty of similarities between the Philippines and Vietnam. Equally, Manish has years of banking experience across regional emerging markets," said Mahmoud.

Creador is not the only private equity firm pursuing digital banking. Six licenses have been awarded in total, with the others going to a mixture of traditional banking players (Overseas Filipino Bank and UnionBank Corporation), family and corporate-backed platforms (GoTyme and Maya Bank), and independents (Uno Digital Bank and Tonik).

Tonik was in the first wave to get licensed and launched in March 2021. It secured PHP 1bn (USD 20m) in retail deposits within the first month, said to be a record for the Philippines. Tonik received USD 38m in funding ahead of launch and closed a USD 131m Series B earlier this year featuring Japan’s Mizuho Bank, Sequoia Capital India, and Prosus Ventures.

Maya Bank is controlled by Voyager Innovations, a fintech platform established by local telecom provider PLDT that has raised more than USD 800m from private investors in the last four years. Proceeds from the most recent round of USD 210m – led by SIG Venture Capital – were earmarked for the launch of Maya Bank. Other offerings cover payments, remittances, and enterprise services.

The underlying thesis is financial inclusion. The Philippines central bank said that 41m people – out of an adult population of around 77m – were unbanked as of the second quarter of 2021. It wants 70% of adults to have formal bank accounts by 2023. Moreover, Creador claims only 10% of borrowing nationwide comes from the organised sector.

Technology-enabled services are regarded as a panacea given the country has 76m internet users and the number of mobile phones in circulation is larger than the adult population. Private capital has poured into payments start-ups thinking along the same lines – so much, in fact, that Creador was turned off by the level of competition as well as the emergence of several large platforms.

It opted for the credit-led financial services space instead. Mahmoud isn’t unduly concerned by competition from other digital banks, citing the number of people who are unbanked or underbanked.

 

“There is a large addressable wallet, given the size of the population and the fast-growing nature of the economy,” he said. "So in many ways, the six digital banks that have received the license are not necessarily competing directly against one another, and can all bring something different to what is a relatively underbanked country."

While digital banking services are a good fit for the country’s tech-savvy younger generations, the six license holders will look to differentiate themselves. Given Ghose’s heritage, Uno Digital Bank is expected to be a credit-driven lender, offering short-term unsecured loans and then moving into longer-dated automotive and home financing. Others, like Tonik, appear to be more deposit-driven.

Mahmoud regards credit assessment as one of the most significant operational challenges facing the Philippines’ nascent digital banks. Uno Digital Bank’s ability to establish strong internal credit scoring and credit risk management systems could therefore translate into a competitive advantage.

“In more established markets like Malaysia, credit bureaus can provide information on people’s borrowing history to financial institutions," he said. "Unfortunately, in the Philippines, many consumers have historically been borrowing from the unorganised sector or have never borrowed before."

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• Topics
• Southeast Asia
• Financials
• Technology
• Early-stage
• Philippines
• Fintech
• Creador