Welcome back to another call and it’s actually a catch-up episode with Greg Krasnov, the CEO and founder of the Philippines’ first fully digital bank Tonik. To our longtime listeners, you may remember him from Season 1 Episode 18 when he shared his views on the winning model for consumer neobanks in emerging markets and why he believes the Philippines is ripe for a fully digital banking proposition. 

A digital banking license, an app launch, US$130M in consumer deposits, and a US$131M Series B round later, Greg is now back to bring us up to speed on the amazing momentum Tonik has achieved in such a short time, breaking records among neobanks even globally. Being a user of Tonik myself I was excited to learn more and revisit Tonik’s story on the show.

Timestamps and Highlights

1. (00:13) Paulo recaps Greg’s last call; 
2. (02:38) Paulo re-introduces Greg;
3. (03:27) The latest on Tonik’s growth story; “Basically, with the deposit proposition, which was our MVP, we’ve proven beyond reasonable doubt that the Filipino consumer really understands and likes what we’re doing and really wants that…[but deposits] are just the raw material for the main product that we make, which is loans.” 
4. (05:34) The 4Ps that drove Tonik’s record breaking deposit growth and user acquisition; “People hate banks…[while] we explicitly want our customers to love us…how do we get them to #dump their “ex-banks”?…[and] before we started designing [our] products, we were trying to figure out what they were missing, and the singular message that we got back is “I don’t need another savings account. I need help to save.”
5. (09:48) What Tonik’s deposit records mean globally; “…in the Philippines, the average ticket size of the deposit is actually a lot lower than it would be in a big, [developed] market like the UK or Germany…And that’s part of [the product] having been well-researched, well-designed and then kind of [hitting] the sweet spot.”
6. (12:29) What neobanks from other markets can learn from Tonik; “That’s really what drives most of our competitive advantage; banks have forgotten how to go to our clients and ask them a simple question: What do you want?…keeping within the organization that constant kind of desire to meet and exceed the customer expectation, that’s something that we’ve done very differently from anything that’s ever been done in the field.”
7. (14:35) Redefining scalability for consumer loans; “…in a country the size of the Philippines, with 110 million-plus population, only to have like a couple of million records in the credit bureau. It’s ridiculous. To us that represents, this tremendous opportunity for people who haven’t borrowed before or are new to credit, and who are completely ignored by [banks] today.”
8. (18:39) How Tonik is able to learn from global comps; “And so this group of investors brings together — between them, the VCs that are backing us they probably back 70 plus percent of all the fintech unicorns globally. That gives us amazing access when I want to find out what Nubank has done well…”
9. (20:50) The future of bank fintech partnerships; “There’s a famous phrase, I think, from Bill Gates a long time ago who said, “Everybody needs banking, nobody needs banks.”…And so within that who is going to capture that transition and that within [the industry], is it going to be the current institutions or is it going to be any of the new guys like us and my money is on guys like me, frankly.”
10. (23:14) The Fifth P; “We’ve chosen partnerships because we don’t think these days you need to be redeveloping and become an expert in every part of the technology…That’s the type of thing that we’ll be building a lot because we want to now start to plug into the mainstream consumer.”
11. (26:51) The Sixth P; “…it was amazing for me last week to be in Manila for the first time in two years…I was having the time of my life because I was [brought] to tears almost, to just see what was accomplished and what wonderful people we have on the team now, and how far we’ve gotten…”
12. (29:07) Thoughts on crypto and DeFi; “People are looking for alternative ways of placing some of their savings. As we’re a savings player, that is something that we have to think about as well.
13. (30:40) The future of consumer banking in the Philippines; “The Philippines is a huge banking market…[As for] who will benefit the most from that potential, I think guys that are looking more like Tonik will probably be better positioned to benefit from it than the guys that are more a digital channel or the traditional bank for all of these 6P reasons that I’ve been talking about throughout the last hour.”
14. (32:12) Rapid Fire Round;

About our guest

Greg is a serial fintech entrepreneur with a storied career in the financial services space spanning Europe and Southeast Asia. Prior to founding tonik, he co-founded and chaired four other successful fintech startups in Asia, including Credolab and AsiaKredit. Before coming to Southeast Asia, he was the founder and CEO of one of the top private equity-backed success stories in consumer lending in Eastern Europe, Platinum Bank in Ukraine, which exited in 2013 for US$150 million. Before blazing a trail of fintech success stories, he spent 10 years in private equity at Bank of America in London and Innova Capital in Warsaw.

Transcript

Up to speed on Tonik’s growth story and the 4Ps behind it

Not one of the 4Ps, but still an important P: Progress

Paulo: We’d love to kick things off by talking about what has happened since [our last podcast conversation in 2020 and] bring our audience up to speed.

Greg: Sure. Once again, thanks for having me on. And it’s great to be back. So we launched to the public in March last year. We’ve now been operational for just about a year. The year has really gone well above our expectations to be very frank with you in terms of the traction that we’re able to achieve.

Exceeding expectations on growing deposits

Just to give you a sense, we’re currently [more than] US$130 million of deposits from consumers. We’ve onboarded over 200,000 clients already and within the first three months we hit US$50 million in deposits and we actually started putting the brakes a little bit because the bullets were coming in because our December goal for December last year was $50 million and we hit that just in June. 

Basically, with the deposit proposition, which was our MVP, we’ve proven beyond reasonable doubt that the Filipino consumer really understands and likes what we’re doing and really wants that. What that caused us to do is put a lot of acceleration on the lending side of our proposition because deposits in themselves don’t actually make money for us.

Deposits are just the raw material for loans

[Deposits] are just the raw material for the main product that we make which is loans. Originally we were planning to just do the unsecured cash loans on the asset side, but when we saw that there was a huge pool on our deposit product and we got a lot more raw material, we decided to expand our product range.

And actually we rolled out our cash loan, [called] “Quick Loan”, which we rolled out at the end of last year, and we’re now starting to scale it a little bit, but there are a couple other products that we’re in the process of launching and you will see [coming] out of [the app] over the next two, three months.

We have two more lending products being launched, and each of those is addressing a very, very large market opportunity in the Philippines. These are also consumer loans, but basically we’re trying to solve that huge credit gap issue in the Philippines, which by far has the lowest [rates] in Southeast Asia and one of the lowest anywhere in Asia on lending to consumers, as percentage of GDP. It’s behind Nepal, behind Bangladesh, behind Cambodia, behind everything [on this] metric.

So we really see that it’s a massive gap and we’re very fortunate that we’ve proven we can get that raw material and now we’ve got to put out those lending products.

“Basically, with the deposit proposition, which was our MVP, we’ve proven beyond reasonable doubt that the Filipino consumer really understands and likes what we’re doing and really wants that…[but deposits] are just the raw material for the main product that we make, which is loans.” 

4Ps: Product, Promotion, Process, Price, and which ones are the most important

Paulo: Speaking of getting that raw material pretty quickly, you mentioned that the target was December to reach US$50 million, but then you reached that in the first three months. What do you think were the factors, especially externally and internally, that really drove that growth, and eventually later on [made you] decide to expand that product offering that you were mentioning when it comes to lending? 

Greg: That’s a great question. People are, basically, asking me a lot, “Hey, well, aren’t you offering the top price in the market and isn’t that why people are joining?” 

First P is Promotion / Branding: How to make people dump “ex-banks” and love neo-banking?

Frankly, we’re not offering that big of a price distance from our next two, three competitors down in the kind of digital bank channel space — I don’t really want to call my current competition as digital banks, because they’re just really digital channels or subsidiaries of existing banks — but the price really isn’t that big of a difference. I think that the huge difference [where] we’re really [distanced] ourselves from the competition and what the customers are digging in a big way is the product and our branding.

With our branding team, we were brainstorming about how we can come up with something that’s different. Basically [we] had a big sit down, you know, with a team and said, okay, we need to be [the] anti-bank. We need to [ask ourselves], “What is it about banks [that people don’t like]?”

Well, people hate banks. Typically, they don’t love them, [while] we explicitly want our customers to love us. So #love, how do we get them to #dump their “ex-banks”? We basically came up with this branding, which you see in the app, which is very blatant, very cozy, very “first name basis”; we’re almost flirting with our clients. We celebrate anniversaries when we send statements. 

That messaging seems to resonate really well with our clients, because they’re very, very fed up with the banks being this kind of straight jacket, marble-and-gold type of institution that is intimidating and that communicates only in a very formulaic way. [Let me] remind you, we’re the only bank out there that I’m aware of. Having a sense of humor is one of the corporate values. That helps to bring that fun to the client. And I think that’s one thing that really helped us to get this traction.

Second P is Product: How do you help Filipinos save?

And another thing that has helped us is the product. Some of the product features on the deposit side, that I’m sure as a client you’ve seen, like the stashes, for example, nobody’s 

done the concept of a “stash” in the Philippines so far. Even with the term deposit in the app, there’s literally only one other bank out there of all the big banks that provide the capability for you to [sign up for a] term deposit in their digital channel. All the others require you to go to the branch for that. 

The third one is the group stash, which again, no [other banks] have stashes and nobody [else] definitely has group stashes. We took the concept of “paluwagan”, which is the Filipino kind of group or joint saving activity, and we put that into an app and that really helps to drive virality as well. Because when you enable people to save together into one account, then you open an account, then you invite your buddies or you invite your family and you guys will kind of chip in together.

Guess what? For us that drives user acquisitions because new accounts get opened for free. We don’t have to spend additional marketing dollars. Our users refer more users to us, so it becomes the communal element that helps us drive the [app’s] virality. 

So all these product features together. They’re working to help us service the customers in a very different way, and it really came out of our original market research, which established [what] the Filipinos told us. Before we started designing [our] products, we were trying to figure out what they were missing, and the singular message that we got back is “I don’t need another savings account. I need help to save.”

And so all of these features, they help people save. [You can create] a stash where you can put your savings for your kids’ education. You can put your kids’ tuition there. If you’re saving for a motorbike, you can put your [savings for your] motorbike there, the ideal one, whatever it is, the Ducati, or the Harley or whatever tickles your fancy, and you’ve created that emotional attachment. 

That emotional attachment really drives the behavior and the saving. [The] same [goes] with term deposits. Nothing helps better than locking up the money for a longer period of time and not really being able to touch it without losing the interest. Term deposits are a really good product to help people save. 

Distant 3rd P is Price and a 4th baseline P is Process

So those are the things — I think product and promotion and to some extent price, but actually price I put as a distant third. Of course, there is the process as well, because we have very simple onboarding and a very quick onboarding, and in less than five minutes [with] a selfie and an ID. That to me is part of the baseline, [and] has to be there, in order for our product to fly.

“People hate banks…[while] we explicitly want our customers to love us…how do we get them to #dump their “ex-banks”?…[and] before we started designing [our] products, we were trying to figure out what they were missing, and the singular message that we got back is “I don’t need another savings account. I need help to save.”

Implications and Impact of Tonik’s Breakneck Deposit Growth

Making a Global Record

Paulo: So you definitely covered all the four Ps, I might say. And I really liked how the branding proposition and also the products themselves lend to very much cultural nuances in the Philippines: the humor plus the group stashes, for example, which you mentioned, very much fit perfectly with the Filipino market and the Filipino sensibility. And as you mentioned, it came as a result of your market research prior to designing the product. 

So I want to contextualize that growth and that speed that has really been the theme of the past year and a half for Tonik. So how does that speed [compare] then, you know, relative to other digital banks outside of Southeast Asia? What are the implications for the industry globally as well?

Greg: That’s an interesting one. I think, even in the Philippines, we have certainly broken [records] on the speed of growth of any bank that’s ever been launched and we’ve broken those with a huge [margin]. So even the most successful kind of digital channel contenders so far, we’re basically now 12 months in, and compared to what any of those guys have been able to achieve in their first 12 months of operation, we’re at 5-6x their results [since] launch. 

If you look at international comps, it’s not so easy because most of these virtual banks are private, but we’ve been able to dig up some [of the] numbers of some of the biggest names, the Revoluts, the Monzos, the n26s, and in our first three months — I haven’t actually been able to get data like for 12 months, but I got data for the first three months — none of these guys got US$50 million bucks in three months. Again, we went two-three times faster, at least, than any of those guys at launch.

The great problem of having an overwhelming number of users

And I think a big chunk of the reason is that not only surprisingly in the Philippines, the average ticket size of the deposit is actually a lot lower than it would be in a big, [developed] market like UK or Germany, but we just see that for us, fingers crossed, the product proposition really found a good market-fit. And that’s part of it having been well-researched, well-designed and then kind of [hitting] the sweet spot. 

So the problems that we were having was not with the traction, the product proposition or the promotion, [it was] more on the technology side, problems with the integration, with our payments partners. Initially it was super glitchy, and over time we got better. Some of the aspects of our app, initially were getting completely hammered by the amount of ratings because we got way more people than we thought we would. Of course then the app and the servers and all that stuff that doesn’t perform fast enough for them.

Luckily, we got well over all that. Today I’m happy to say, for many months running, but really since fall last year, we’ve been running at about 4 as our average rating on both iOS and the store, and I think last I checked on play store was 4.4, which probably makes us one of the highest rated apps in the Philippines in the financial sector. I think those were some of the things we’ve been able to do, and that put us in comparison both to the Filipino comps and international.

“…in the Philippines, the average ticket size of the deposit is actually a lot lower than it would be in a big, [developed] market like the UK or Germany…And that’s part of [the product] having been well-researched, well-designed and then kind of [hitting] the sweet spot.”

What other emerging market fintechs can learn from Tonik

Paulo: And I think it’s important to realize that getting a lot of users in a short amount of time is one thing, but actually being able to align the systems and align the operations to meet that demand is another thing entirely as well. And it could have easily gone the other way and [you could have] just been overwhelmed by the amount of users. But you guys were able to really take advantage of that, and retain many of them and eventually offer all these new products. 

If there is one thing — I guess it’s because we usually like to talk to our founders about lessons they can learn from other markets abroad, but I want to reverse that a little bit —

[For] founders in other emerging markets like Latin America or Africa, or all these other places, what can they learn from how Tonik has navigated its way in the Philippines? 

Greg: Customer obsession, I think is like the only thing I would mention, and this is the number one thing that banks all over the world have completely forgotten about. 

Our competitive advantage is asking “what do you want?”

That’s really what drives most of our competitive advantage; banks have forgotten how to go to our clients and ask them a simple question: What do you want? So just doing that and keeping the focus on that, keeping within the organization that constant kind of desire to meet and exceed the customer expectation, that’s something that we’ve done very differently from anything that’s ever been done in the field.

For example, we have a Tonik users group on Facebook, which developed completely spontaneously outside of us. And it has now I think 20 or 30,000 users, and that group is an incredible source of insight for us. You know, I’m on the group a few times a week reading what people say, responding and talking directly to the customer, posting questionnaires to try to understand what the customers want, like, dislike, et cetera. 

The feedback I’ve gotten is “Greg, you’re like the only bank CEO that’s ever been known to do that.” That just blows me away because it’s such an amazing channel of getting that insight and getting that information. There’s nothing better than talking directly to the customer. That just testifies to how the banks have forgotten how to do that. And as long as you can do that and talk to the customer and be the customer advocate internally, you’ll get very far.

Paulo: And I am a part of some of those groups, so it’s really fascinating to see the conversations amongst [users]…

Greg: Yeah. The people don’t hesitate to tag me if they have an issue. It happens all the time. They will just tag me and go, “Greg, what’s going on with this? What are you guys going to do about it? You know, I have a problem” and I reply. I haven’t left a question like that on reply ever.

So I just think that’s part of what we stand for. Reliability is one of our core corporate values and that’s part of what we bring to the table. And that has to start with me being reliable. 

“That’s really what drives most of our competitive advantage; banks have forgotten how to go to our clients and ask them a simple question: What do you want?…keeping within the organization that constant kind of desire to meet and exceed the customer expectation, that’s something that we’ve done very differently from anything that’s ever been done in the field.”

Delivering Scalable, Small Ticket Consumer Loans

Paulo: Well said. And I’d like to shift gears a little bit into the next stage, as you mentioned, you’ve been [collecting] all this fuel and all this foundation for what is really the monetization aspect of the business, which is lending. And so I would love for you to show a little bit more on, what’s your approach [rolling out] loans and lending to one, obviously to stand out versus the status quo and obviously [reach] lots of underserved population. but as well, as this whole new rise of BNPLs and these, short-term loans that could be accessed digitally as well.

Greg: As you say, there are two types of competition that we have. One is the traditional banking and kind of traditional consumer finance players. And the other one is the digital economy players or the fintechs. 

110 million Filipinos and only 5% being serviced by banks

So when it comes to traditional banks, and traditional consumer finance companies, those guys have been very focused in the Philippines on the top 5% of the credit bureau in the Philippines, which is like where the banks report all the clients that have ordered from them. You’d have I think like three or four million records out of which more than half are duplicates. Because [there’s] somebody that has two credit cards, one for personal loans and one for mortgage or something.

So that says a lot in a country the size of the Philippines, with 110 million-plus population, only to have like a couple of million records in the credit bureau. It’s ridiculous. To us that represents, this tremendous opportunity for people who haven’t borrowed before or are new to credit, and who are completely ignored by [banks] today. And the reason they’re ignored by the banking sector, I think, is because banks don’t really know how to credit assess this population and how to lend small ticket loans.

The opportunity of providing scalable small-ticket loans

So the challenge for them is how do you make that cost efficient, because if you’re landing a $10,000 loan, you can afford to have some humans making credit decisions, contemplating it for a couple of weeks, researching it, et cetera. You can afford to have field collection people if the loan goes sideways. You can afford to do TV and billboards for advertising. 

But if you do a $500 loan, which is what the average Filipino loans, and there are tens of millions of Filipinos who want a $500 loan. You cannot do that effectively with those types of advertising and that type of infrastructure.

So you need to be able to underwrite based on big data. You need to be able to underwrite based on predictive analytics, without humans involved in the process. You need to be able to collect in a highly cost efficient manner, where your contact centers are super streamlined, and you really only contact through physical call the clients that who give you the highest probability of returning, while everybody else is getting SMS or getting emails, et cetera, and using these robotized actions to elicit repayment behavior on the collection side.

So it’s a lot of automation on all elements of the credit value chain: origination, credit risk, and servicing. You need to just automate the hell out of it because that’s what the banks in the Philippines haven’t really known how to do very well, so they don’t go there. 

The opportunity of lending through scalable liabilities

On the other hand, you have the budding digital lending sector but the total digital lender credit portfolio today in the Philippines, I think is probably a couple of hundred million bucks, which is completely nothing compared to the scale of lending opportunity. The unsecured consumer lending market in the Philippines has the potential over US$50 to 100 billion just based on today’s population. 

And compared to Vietnam or Indonesia on a per capita basis, it needs to be US$50 billion and today, like less than 10. So all of these guys, the digital lending guys, it’s so great that they’re doing it, and there are some guys that are bringing some really good know-how, but they don’t have scalable liabilities. They’re borrowing from banks, for example credit lines of US$1 million or US$2 million here and there.

And that’s just not gonna feed the fire. You know, we’re talking about huge elephants. It’s going to take a village to eat the elephant, and if you don’t have access to a big amount of funding, you’re going to be marginalized. That for us is a very exciting opportunity.

And as I mentioned, [Tonik’s] cash loan is very differentiated from both the digital lenders, because they mostly focused on short term loans with very high interest rates. We focus on a much more reasonable interest rate, up to two year term. So we’ve also launched buy-now-pay-later, in the online channel where you’ll see some announcements from us. We’re partnering with some offline merchants to go and do that, and there are multiple other products in the pipeline right now, one of which, as I mentioned, should be launching in the next few months from now. 

“…in a country the size of the Philippines, with 110 million-plus population, only to have like a couple of million records in the credit bureau. It’s ridiculous. To us that represents, this tremendous opportunity for people who haven’t borrowed before or are new to credit, and who are completely ignored by [banks] today.”

Two more Ps: Partners and People

Nubank IPO and Neobank Funding Landscape

Paulo: A lot to look forward to. And as you mentioned, it’s really just the tip of the iceberg and this ability to really scale your lending proposition only goes back to the fact that you guys have again built up this deposit base as well.

Now I also like to talk about, at the end of 2021, we saw a Nubank IPO, really as one of these like successful new backing stories coming out of an emerging market would like to just quickly get your thoughts on, you’ve learned from their journey thus far and how it does influence the way you think about doing it? 

Greg: We’ve been in a fantastic fundraising environment over the last couple of years for anything fintech and especially for digital banking. Because of that and because there are a lot more people seeing this success in other parts of the world, and recognizing the opportunity to be here in Southeast Asia, there’s been a lot of [efforts] to try and play this market here. 

So we’ve been benefiting from that and we’ve been very fortunate to assemble an amazing group full of backers, including of course Insignia, which backed us from the seed stage. and then, a couple others, like Sequoia India, Point72, iGlobe, Altarra, and in the latest round, we got Mizuho, one of the largest Japanese banks and one of the top 10 banks in Asia, to come in and back us as well, as well as Prosus, another very big international fund very active in fintech. 

Tapping into global learnings through investors

And so this group of investors brings together — between them, the VCs that are backing us they probably back 70 plus percent of all the fintech unicorns globally. That gives us amazing access when I want to find out what Nubank has done well, guess what, the guy that started Nubank, he actually used to be a Sequoia partner in Latin America. 

We have access to just about anyone we want to talk with globally, and that also gives us speed and insight, because we can learn from the lessons, figure out how these lessons applied to our markets and then try to do things differently so that we don’t step on the same [potholes]…

Paulo: And do things in three months instead of a year…

Greg: Yeah, exactly. That accelerates [things] because then we don’t make mistakes. We don’t burn as much money. We don’t have to iterate as much if we can just absorb that I feel. So for example, initially when we were looking at our onboarding conversion ratio, we were getting pretty worried because there was substantial dropoff between download and actually completing onboarding, and then we asked our shareholders to give us some comps from other neobanks they invested in. And we got three of those comps and calmed down, because apparently we’re actually — from the outset, they have already like three years old traction.

Paulo: Gives you perspective. 

Greg: And we said, “Okay, so maybe we don’t need to spend so much time and effort right now on this issue. Let’s focus on some other stuff.”

“And so this group of investors brings together — between them, the VCs that are backing us they probably back 70 plus percent of all the fintech unicorns globally. That gives us amazing access when I want to find out what Nubank has done well…”

What happens to banks now?

Paulo: Speaking of backers, I want to zoom in on the latest round, that US$131 million round, which is pretty sizable Series B on its own, but really what’s interesting is that it was led by one of the top banks in APAC, Mizuho Bank. How does this square with this bigger picture of a lot more traditional institutions and regional banking institutions working with digital-first, digital-only players like Tonik? 

Greg: For a large institution, especially like large banks, it’s very difficult for them to innovate, just because of the way that a large thing has to be run these days: a lot of risks, compliance, ops risk, AML, KYC, all sorts of considerations, that take huge priority and then banks tend to be run by committees.

And in a committee, in a larger organization like this, when there’s a lot of people whose full-time job it is to keep their foot on the pedal, then the guys who want to achieve something new and really create change, it’s super hard for them. So I think that’s really the big part of what makes the opportunity exciting for me, because I don’t know that the big banks are capable of innovating nearly as fast as us.  

Betting on the new guys on the block

As I mentioned, you [need] product and branding. Those are two things that we did that takes guts, and that takes speed, and you need to keep iterating that because the client’s expectations change. You need to adapt to those. So this is where we’re probably seeing that in 20 years, most of the business will be done digitally. The customer doesn’t wake up in the morning and go, “Oh, gee, wouldn’t it be great to go to the bank branch today?”

This is just like, not on people’s wishlist for the day. There’s a famous phrase, I think, from Bill Gates a long time ago who said, “Everybody needs banking, nobody needs banks.” So that’s going to change. And so within that who is going to capture that transition and that within [the industry], is it going to be the current institutions or is it going to be any of the new guys like us and my money is on guys like me, frankly. That’s the reason why I’m on this side of the mountain, not on the side of a large corporate bank, and a large corporate bank wouldn’t hire me, because I’m too wild. 

That’s the innovation and the speed of innovation that’s going to win clients over and, we’ll see that guys like me, we’ll be taking very significant market share over time. And the guys that don’t adapt fast enough will go the way of the Dodo. So I would be shorting the index of incumbents right now in any Southeast Asia market.

“There’s a famous phrase, I think, from Bill Gates a long time ago who said, “Everybody needs banking, nobody needs banks.”…And so within that who is going to capture that transition and that within [the industry], is it going to be the current institutions or is it going to be any of the new guys like us and my money is on guys like me, frankly.”

A Fifth P: Partnerships

Paulo: You’ve talked about product and promotion as one of the key drivers of growth for Tonik in the past year and a half. And I also want to talk about another P, which is, partnerships, for example, with Google Cloud for APIs, and then, more recently the one with Tinder as well for user acquisition. What is your best approach to prioritizing and creating win-win partnerships with various brands that are not necessarily financial services?

Greg: There’s kind of two big groups of these partnerships. There are distribution partnerships and there’s technology partners. 

We don’t need to buy the cow to have our milk

And on the technology side, the approach we’ve taken from the beginning is we want milk, so we don’t necessarily need to buy the cow to have milk. So in our technology stack, the only thing basically that we’ve developed on our own is the app, but all the other elements: the core banking, the card processing, the API management, there’s about 30 to 35 positions, I think at this point in our tech vendor stack. 

We’ve entered [into partnerships] with world-class stuff, where we ran very open tenders. We evaluated whatever solutions that we could find and we found the best solution that best fits our needs on quality, on cost efficiency, et cetera. And we took that solution and we made that part of our tech stack. So that’s very different for us compared to some of the other digital banks out there that choose to develop everything on their own.

We’ve chosen partnerships because we don’t think these days you need to be redeveloping and become an expert in every part of the technology. I find that counter-intuitive. I think Google is doing a way better job at API management than I ever could. So why the hell would I want to mess with that? 

Or like Finastra is doing an amazing job in core banking. And now that they have [had] a cloud solution for the last few years and these guys have been in core banking business for 30 to 40 years since the mainframe days, I think, what value am I going to add to them on core banking? 

Nada. That’s the position we’ve taken on technology and we’re very, very happy that we have some great partners there that continue to support us and we’ll continue to grow with them.

Ramping up distribution partnerships 

On distribution, frankly, we’re at the very beginning of the journey so far. We’ve taken an organic route to customer acquisition. Most of it has been completely organic, so with very little advertisements, so far, mostly like word of mouth or some Facebook stuff here and there, but we haven’t really advertised that much, and you probably have noticed we got a couple of clips running on YouTube about articles and products, but that’s really the only brand advertisement we’ve done and we’re not putting much capital behind that at all right now, because we already went too fast with the deposits. 

Now we need to make sure we have the lending that can catch up to that. And only then can we kind of lift both sides of the balance sheet in proportion. But on distribution, one thing that we’re really keen to do now that we’ve gotten a bit of scale and a bit of muscle around is we’re starting to talk to a variety of players in the market about strategic partnerships. 

As I mentioned to you on the BNPL [side], for example, we’re going into the offline merchant business for consumer electronics, furniture PCs, laptops, consumer goods, consumer durables, that’s going to be the mainstay of our BNP business. And we have a couple of announcements that will be coming out quite soon. 

We’re also talking to a number of players in the F&B space about referral partnerships and just referral programs, where they help us originate flies by virtue of all these like client loyalty programs and all these points of sale. It’s just like a cross promotion that we’re starting to build with them and so again, the announcements are going to be coming out soon. 

That’s the type of thing that we’ll be building a lot because we want to now start to plug into the mainstream consumer, and through these partnerships with F&B and FMCG types of companies, we think we can accelerate our penetration of the market.

And a year ago for us, it was really hard to talk to them because they were kind of all like, “Who the heck are you? And what do you have? Why should I partner with you? I got like 500 stores, and what are you guys?” But at this point, I think people have recognized us a little more, what is Tonik, and they appreciate the brand fit and the brand synergy that we can create by kind of feeding off of each other.

“We’ve chosen partnerships because we don’t think these days you need to be redeveloping and become an expert in every part of the technology…That’s the type of thing that we’ll be building a lot because we want to now start to plug into the mainstream consumer.”

A Sixth P: People

Paulo: So I like to also touch on Tonik’s team as well. Since obviously when we, in our last conversation with you, Tonik was just starting out, it had just acquired its license and had just been building its product and its team. But now obviously the team has significantly grown. and you have a lot more leaders as well in the company. So we’d love to ask you as a CEO, what has been your approach to building out senior leadership to help you navigate the Philippines?

Greg: Yeah, thanks Paulo. Well, we’re at this point where we have over 500 Tonizens, and that’s split between about 300 [people] in the Philippines, then we got about 160, 170 in India at this point, which is our R&D center. Then there’s around 30 people in Singapore, which is kind of where some of our top management and a lot of our key technologists are actually based, because they’re the translators between the product and strategy and the R&D. 

Revisiting Manila

So it’s been a very exciting level of growth, and I think for us, managing that remotely has been really rough, because how do you create a culture [remotely]? But now that COVID is actually subsiding and travel is opening up, it was amazing for me last week to be in Manila for the first time in two years.

Paulo: I’ve seen all the photos [on LinkedIn]; you were really enjoying your time there. 

Greg: I was having the time of my life because I was [brought] to tears almost, to just see what was accomplished and what wonderful people we have on the team now, and how far we’ve gotten, without really being able to see each other and feel each other at the kind of [in-person] level.

As we go forward, we continue to reinforce our values and our culture. I mean, those are the key things that make us Tonizens and make us do our job right, and looking forward to actually being able to get to India in the next month or two, coming back to Manila, and just like continuing to get in front of our team and together with our team, and really helping them all to integrate with each other as well better.

Even the top management, we haven’t yet had the opportunity because our top management is actually based out of five countries right now. It’s pretty crazy what we’ve been able to pull off with this kind of setup.

“…it was amazing for me last week to be in Manila for the first time in two years…I was having the time of my life because I was [brought] to tears almost, to just see what was accomplished and what wonderful people we have on the team now, and how far we’ve gotten…”

The Future of Consumer Banking in the Philippines 

Implications of the rise of Crypto and DeFi for Tonik Bank

Paulo: Yeah, I’m sure it must have been energizing as well for, the folks in Manila see chief bulldozer in and they finally figured out like, who’s this guy I’m working for. but it’s great. And Obviously the team can only grow from here. And, we’ll be leaving a link the episode description for anyone who wants to become attorneys and see what opportunities there are, working with tonic.

So to wrap things up before we head into our next segment, just want to touch on, obviously when it comes to consumer finance we would be remiss not to talk about this whole crypto and DeFi adoption that’s really emerged, especially in markets like the Philippines, where we have a lot of adoption in terms of crypto wallets and usage and all of that.

So I’d love for you to share your thoughts on what are the implications of this for a company like Tonik and how do you see this digital backing movie as you’ve called it in our last conversation playing out in the Philippines in the next five years. 

Greg: Yeah, that’s a really good question. We’re looking at the crypto space. We’ve analyzed the interests and needs and desires of our customers when it comes to the space, and we’re in the process of designing products that will hopefully address some of these customer needs.

As you say, the situation has changed fundamentally in the last couple of years where it’s gone from this thing that just a few nerdy guys were super keen on, to the mass market kind of realizing the potential of it.

And I think the investment options are not huge in the traditional world, like funds haven’t really been returning that much, real estate, now people are very worried about real estate, but when are the interest rates going to be going up? So people are looking for alternative ways of placing some of their savings.

As we’re a savings player, that is something that we have to think about as well. We are in the process of developing something. We’ll be able to announce something hopefully in the next few months. But I’ll just leave you with the fact that we do think that mass-market adoption is happening in the Philippines and if you were one of the early movers in that, it could really give you a bit of a competitive edge over [the rest].

“People are looking for alternative ways of placing some of their savings. As we’re a savings player, that is something that we have to think about as well.” 

The Future of Consumer Banking in the Philippines

Paulo: How about the whole digital banking story here in the Philippines? We’ve had the privilege of being in a front row seat with you guys, partnering with you and seeing it unfold, but how do you see it moving forward in the next five to 10 years?

Greg: Yeah, the Philippine central bank has granted, I think five or six of these licenses in addition to us, none of the other guys have [launched], so I know, we’re in conversation with them. We’ve actually joined with them in the process of creating a digital bank association right now. So, we’re well in touch.

They’re in the process of coming to the market and we’ll see kind of how that one goes and what speed it goes. I’m sure it will go great, because what I’m seeing in the market is that the capacity of the market is enormous. 

As I was saying, the Philippines is a huge banking market. Consumer lending alone is going to go to US$50 to a 100 billion. It’s definitely going to take a village, and the village is not going to consist of like five people. It’s going to consist of a few dozen people that are going to be eating the elephant. Then on the deposit side, we have a US$300 billion preexisting deposit market, and again, a lot of them are going to shift into digital. 

I see very, very big potential for it. [As for] who will benefit the most from that potential, I think guys that are looking more like Tonik will probably be better positioned to benefit from it than the guys that are more a digital channel or the traditional bank for all of these 6P reasons that I’ve been talking about throughout the last hour, that is just like much harder to replicate those 6Ps when you come from a traditional bank. So I’m very excited about the potential for digital banking in the Philippines.

Rapid Fire Round

What are the top 3 traits a startup CEO should /not/ have? 

Greg: Trait number one that you shouldn’t have as a startup CEO is patience. If you’re too patient, then you’re not going to be pushing as hard enough. 

Second thing is complacency, or getting too comfortable. If somebody is right behind you, they’re going to eat your lunch if you don’t run fast enough. 

And the third one is humility, because you know, to lift a startup, you need to get a team together that is better than you and every single one of them needs to be better than you at what they do and hopefully, you know, smarter than you in general.

The good skill of a leader is not that you’re the smartest guy in the room. The skill of a leader is if you can get a bunch of smart people together make sure that they all run towards a common purpose. 

What digital technology/innovation or sector (apart from the tech you are working on) excites you the most today? 

Greg: I’m very excited by AI. At this point, [with] the decisions that AI is able to make, it is already in position to make better decisions than humans. I’m both excited and scared by it. Because of course Skynet is coming and the Terminator hasn’t shown up to rescue me, which means I’m probably not going to be the leader of humanity against evil machines. 

But it is also very, very exciting because I think that if we manage to harness it, then it will really free up the human mind and the human spirit for what AI so far can not really do well, which is to be creative, ask the right kinds of creative questions, juxtapose and connect the things that are maybe not as obviously, connectable, and then from that create something. 

I think the human spirit is about creating, and that’s something that AI cannot do. So if we can release more humans to be more creative, then we can really give humanity a huge boost.

What’s the most memorable class you’ve been in?

Greg: I was very lucky in my thirties to have attended a week-long leadership course at Stanford, that was put together by the YPO or the Young Presidents Organization, which is a global network for executives of significant companies. 

And so [Stanford] held a YPO-only event for a week that brought together some of the best professors in Stanford, and all of the audience were CEOs of big companies globally, and I just became a CEO building this bank in Europe. For me it was a huge aha moment on — when I moved from private equity to being a CEO — what does it mean to be a leader? It was just like an eye opener and really helped inform my leadership in the last 15 years.