Neobanks and the next step: Tonik 20 September 2021

Tonik, the Filipino neobank, has gotten off to an incredible start since its launch earlier this year. Greg Krasnov, their Founder and CEO, explains how they have done it and what will be key to sustaining their growth.
The demographics of neobank users are often surprising; it is not only young people who are signing up, but also older age brackets. What is the standard profile of your target customer? What has been key to your customer acquisition success? 
Our target market has always been the majority of the adult population (around 70%) who are tech-savvy but are currently either underserved or unbanked. This is driven mostly by the lack of better alternatives or financial services that they can openly communicate with and entrust their money to without being intimidated or confused. The technology and usage are steadily growing in this market but what needs more immediate improvement are banking products and services that are more beneficial and attractive to customers. 
The Philippines is one of the most digital-savvy countries in the world. An overwhelming percent of the population are connected online and are avid users of smartphones, around 98.5% according to a 2021 study by We Are Social. That is a considerable number given that there are almost 111 million Filipinos. 
Being a neobank and appealing to such a technology-savvy market, digital and social channels are critical for us in acquisition. These channels allow for more direct and faster communication to customers and potential clients. However, just having a digital proposition and providing access to financial services isn’t enough to succeed. To succeed in the digital world, we believe focusing on providing a great holistic customer experience is key. We make sure to sustain consistent and transparent relationships with users that make them feel listened to as an important part of our journey of growth and development. 

There is sometimes a perception that neobanks are convenient for travel purposes but people maintain a different primary bank account for most of their banking needs. How do you convince people to use neobanks as their primary bank, where they keep a majority of their money and turn to for all of their financial needs? 
The advantage of being a neobank is having the ability to drive financial inclusion to more people in a faster and more cost-effective way. All prospective clients need are a smart device, internet connection, valid ID and five minutes to start their neobanking journey or “romance” with Tonik. With the pandemic and its impacts still raging in the archipelago, cash and physical branch-based banking transactions will continue to be least preferred and decrease over time. This phenomenon should strengthen our purely digital banking proposition in the new normal. 
Tonik also offers accessible, flexible, and inclusive financial services, including industry leading deposit interest rates of up to 6% per annum, and unique saving features such as our Solo Stash and Group Stash products. Further, we offer industry leading rates for these stashes: up to 4% for individuals and 4.5% for groups. This allows for more convenience and better opportunities for customers to save and actually grow their money with us – a far cry from the tedious process and frustratingly low rates that they are accustomed to with traditional banks. 

 While neobanks have shown impressive numbers in terms of customer acquisition, the transition to becoming profitable is proving more challenging. How do you make the necessary leap to becoming profitable while still maintaining the pace of your user acquisition? 
Our strategy is to focus on attracting longer-term consumer deposits and developing them into lending portfolios. We take inspiration on this from the most successful case studies in other countries such as Tinkoff in Russia and NuBank in Brazil. Tinkoff, being the only publicly listed neobank globally, remains one of the most profitable banks in the world. Although its ROE declined from the 70’s to the 40’s percentage mark from year before, the neobank considered and rejected a $5.5B bid from Yandex in the last couple months. An integral part of their growth and profitability is having an attractive consumer lending model which bolstered it to become one of the top 3 players in credit cards in Russia’s highly competitive consumer lending market. 
It is quite a different picture in Southeast Asia, where the priority is accelerating financial inclusion primarily through rapidly providing simplified, accessible, and convenient day-to-day transactions to consumers. However, as many other banks or fintechs have experienced, this poses more challenges in monetization because to attract customers, such banks typically charge very low or zero account fees, and only earn money on interchange – the 1 percent to 2 percent fee that merchants pay on every debit/credit card transaction. Therefore, it is important for us to maintain our focus on effectively evolving our deposit base to a more profitable lending model. 

 Being a bank without branches, customers only interact with you digitally. How do you ensure an excellent customer service experience with interactions being 100% digital? Are there certain advantages or challenges compared to banks that need to manage physical spaces? 
We allocate as many digital and easy-to-use channels as possible for customers to interact with us. They can reach us for their concerns or queries via any of the following support channels 24/7: 
• In-app chat 
• Tonik Digital Bank Viber chat 
• Email: customercare@tonikbank.com 
• Customer Service hotline: (02) 5322 2645 

Being purely digital or physically branchless gives us an advantage over traditional players to reallocate investments to more quick wins for the customer, one of which is our game-changing 6 percent interest rate for time deposits. Whereas more brick and mortar banks have to invest in operational expenses such as maintaining and staffing these branches and other infrastructure, Tonik does not have this need and can easily invest in features that enable customers to save and earn bigger with their money. 

What are your international expansion plans? Could you describe the regulatory or technical challenges to becoming a truly global neobank? 
We will be focusing on accessing and acquiring more customers in the Philippines in the next few years. We are talking about a market with potential values of up to US$140 billion in retail deposits and US$100 billion in lending. It is a very exciting opportunity to be able to make our services available to such a promising market before we venture out into other countries.
Most recently, we have raised US$17M for our Pre-Series B in funding, solidifying Tonik’s position as one of the best funded fintechs in Southeast Asia with US$44M raised to-date. The new funding will help us accelerate our growth in addressing this huge opportunity in lending. In the course of the next 12 months, we plan to significantly broaden our stack of first-in-the-market digital financial products for our clients, rolling out consumer loans and strengthening our payment offers.
We are fortunate to have an innovation-driven and collaborative regulator with Bangko Sentral ng Pilipinas (Central Bank of the Philippines) who shares our vision of establishing a digital banking ecosystem. This is a huge step to encourage more players, traditional and new ones alike, to transform and migrate to digital which should further accelerate financial inclusion. Globally, it may still be a long journey in terms of regulatory and technical upgrades but with significant strides such as this one and in other Southeast Asian markets like Singapore, we may expect these changes to come sooner than later.
 How do you see your bank evolving in the next five to ten years? And more generally how do you see neobanks competing in the future banking landscape? 
We received an overwhelmingly positive response to our commercial launch in the Philippines, having secured over Php1B (USD20M) in retail deposits within only a month of going live – a historic record for any new bank launching in the country. As such, our game plan right now is to sustain this momentum primarily through a shift in Product Development focus to the direction of lending. 
We are targeting to launch our loans portfolio within this quarter. There is a huge market gap for consumer lending in the Philippines in terms of security, greater returns, and accessibility of services from traditional providers that we aim to address. 
Apart from our loan offers, we are working on launching our physical debit cards soon that should enable more customers to do ecommerce transactions more easily and securely. Hopefully through diversifying our suite of services, we would achieve our longer-term vision of climbing up among the top 10 banks in the Philippines in terms of assets within the next few years. 
Neobanks will continue to propagate in most emerging Southeast Asian markets such as the Philippines. Our rapid customer take-up proves that Filipinos are hungry for a financial enabler that makes banking simplified, non-intimidating, digital-driven, and actually makes their money grow. The new normal has effectively curbed consumer banking behavior and we can expect that the future will continue to become digital. We can already see this unfolding with key developments in industry regulations and customer expectations who will continue be on the lookout for and choose banks that encourage a more human relationship built on mutual trust, speed and convenience, rather than usual transactional interactions that are often tedious and frustrating.

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