January 2021
January 2021
January 2021

Summary

Financial services enterprise has been impacted with high delinquency and charge-offs, due to challenges in default management. This has increase manifold during this time when moratoriums were passed on as benefit to end consumer, it has also led to an increase in high operating cost and unable to maintain an optimal customer experience. Read this article to know about how a Philippines bank has gone about leveraging AI to address these problems.

AI that Drives Real Impact

Technology is only as powerful as the quality of its deployment and the specificity of an objective. Leadership and specialist knowledge are integral to this focused approach. Recently, UnionBank added to its ranks world-renowned data science expert Dr David Hardoon, previously MAS’s special advisor on artificial intelligence. The company understands that data and AI are fundamental to the next wave of digital transformation, as it seeks to mobilize a digital-first ecosystem for both individual and institutional customers. Through UBX, its Fintech spin-off, UnionBank is delivering several cutting-edge technologies in the space of B2B and logistics, investment, cryptocurrency innovations, and other key technical capabilities. Framing the pandemic-driven lockdown protocols as an opportunity to accelerate innovation, the bank sees itself developing into a technology company that is also a bank, moving beyond the often limited definition of banking-focused institutions. Similar adoption and technology leadership saw Quicken Loans, an intelligence-driven mortgage lender in the US, swiftly become the country’s largest mortgage originators, overtaking traditional players like Wells Fargo. These technologies are expected to drive the next phase of our evolution.
While the growing consumer appetite for online offerings is driving UnionBank’s focus on AI-led technologies, it also understands the complex risks associated with such technologies. A dedicated AI and Data Policy unit ensures ethical and business standards across AI systems through better data governance, fairness, human control, and intrinsic respect for human rights. The bank is also deploying AI to address performance challenges, specifically portfolio delinquency, using best-in-class tools to address the state of its high stress and high delinquency products.

While the growing consumer appetite for online offerings is driving UnionBank’s focus on AI-led technologies, it also understands the complex risks associated with such technologies. A dedicated AI and Data Policy unit ensures ethical and business standards across AI systems through better data governance, fairness, human control, and intrinsic respect for human rights. The bank is also deploying AI to address performance challenges, specifically portfolio delinquency, using best-in-class tools to address the state of its high stress and high delinquency products.

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How UnionBank is Using AI to Address Portfolio Challenges

At UnionBank, AI is not just part of our customer value proposition, but a capability fundamental to our operations. Specifically, in the lending business, high delinquency can place significant stress on performance.

Given our aim of driving AI adoption in banks and other financial institutions, we wanted to show the efficacy of AI-powered technologies and their impact on the bottom line. In partnership with EdgeVerve, UnionBank ran a pilot of FinXEdge Collect, a data-driven intelligence application designed to reduce delinquency rates and charge-offs. Using FinXEdge Collect for the bank’s credit card and motorcycle loan portfolios was the logical first step given both the relatively larger portfolio size and higher delinquency rates of these verticals. FinXEdge’s use of unstructured and non-traditional data elements to compute risk, its ability to continuously update strategies using even feedback from call records, and proven ability to improve RPC (Right Party Contact) and PTPs (Promise to Pay) drew the bank to work with the platform. The pilot began in the second half of this year and is already showing some impressive initial results.

Employing a Champion-Challenger approach, the experiment with AI-enabled tech has seen the challenger emulate and, sometimes, exceed the efficacy of existing operations. In time, the AI-led model is fully expected to power core systems across functions. An AI-led collections process is significantly more efficient, transparent, and effective when compared to traditional tools and techniques. Early results have been promising with substantial improvements in collection rates, a near 100 basis point reduction in roll rates, and a 15% spike in RPC and corresponding PTPs. As the results continue to deliver consistent outcomes, the bank is confident that its processes will shift from traditional risk modelling techniques to focus on AI-based modelling. With portfolio performance also a function of selection, AI is fully expected to be used at the top of the funnel to revamp our loan origination process, segmenting portfolios with an unprecedented amount of detail.

A View to the Future

As a pioneer of smart technology adoption in the Philippines, UnionBank’s commitment is to harness the power of groundbreaking technology to enhance both customer experience and business performance. With our collections process firmly moving towards an AI-focused ecosystem, we envisage adopting the technology for other portfolio products like home loans. The goal, however, remains to drive UnionBank’s digital leadership through AI, scaling it’s intelligent transformation journey, and continue to power the digital transformation of the BFSI sector in the Philippines, leading the surge towards an intelligent future where an exceptional customer experience is the norm.