Naughty but not so niche

Winning hearts

and minds: Tonik’s quirkiness, as much as its interest rates, appeals to Filipinos In a market where there’s all to play for, the first digital-only bank has smashed its deposit targets as it takes financial services mainstream. Founder Greg Krasnov tells us why Tonik is proving just that for the Philippines

It might cheekily call customers ‘luv’ and invite new ones for a ‘quickie’, but Tonik Bank has no intention of being a one-night stand.

Quite the contrary: eight months into its launch in a country where the average age is 24 and 70 per cent of the population remains unbanked, the ‘naughty’ neobank is already playing a key role in helping more Filipinos build long and lasting financial relationships. Pitched at one of the youngest, digitally-native economies in the world, Tonik’s fun façade masks a deadly serious intent: to gain substantial market share and have influence way beyond the famous palm-fringed shores. As the first privately owned neobank to be granted a digital banking licence by the Philippines central bank Bangko Sentral ng Pilipinas (BSP), the Tonik template – and the country’s regulatory approach – could pave the way for future digital banking developments in areas of the world that suffer similarly low financial engagement. Tonik and five others that have since been granted the much-coveted licences, are being regulated by BSP’s IT department, which has been given a mandate to experiment in finding new ways to improve financial inclusion and grow the consumer economy. As part of that process, Tonik is also deeply involved in a pilot study to create an open banking ecosystem. Driving all of that is BSP’s mission to boost the banked population Naughty not-so-niche!

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from 70 per unbanked to 70 banked and to have 50 per cent of payments carried out online within an ambitious timeframe that has an end goal of 2023.

For its opening salvo to disrupt the market, Tonik’s branchless, Cloud-based model, backed by global big hitters Finastra, Amazon Web Services (AWS) and Mastercard, allowed it to offer industry-leading annual interest rates of up to six per cent per annum for term deposits and between four and 4.5 per cent on creative products dubbed Stashes that enable customers to compartmentalise their savings for specific financial goals.

Both support its stated aim of enabling customers to ‘dream big, save bigger’. The results, so far, have been impressive, says Tonik founder and CEO Greg Krasnov.

Target-busting demand

Since its March launch, Tonik has attracted US$100million in retail deposits, with minimal advertising, as increasing numbers of customers take advantage of the ‘quickie’ five-minute onboarding process.

“We basically blew past our December target in June, so definitely it looks like the population is responsive to what we have to offer,” Krasnov remarks.

“We see a huge demand from customers for a good digital solution. Basically, 70 per cent of Filipinos are unbanked, but they’re digitally native. Of the 30 per cent that are banked, more than half of those consumers who hold a traditional account are saying ‘give me a good digital channel and I’m out of here with my deposit’. And that’s really what we’ve seen since we launched. “The key to that, of course, is onboarding, and the Philippines’ central bank has been very, very proactive in creating a fantastic digital onboarding pathway, because it is keen to solve financial inclusion. It understands that all-digital onboarding is key. So, we’re onboarding customers in under five minutes based on a selfie,

ID and a lot of background processes.

“At the end of that five minutes, they get an open, functional account straightaway, with a virtual debit card, full payments functionality and access to our deposit products, with credit and other products coming on stream soon. That’s definitely something the consumer wants, but, unfortunately the incumbent banks have not been able to offer anything sufficiently attractive so far.”

The first open banking pilot kicked off in the Philippines in 2021 with Tonik one of the early participants.

“We’re preparing to start integration of the statement-sharing APIs, because we think, as a first step, that could help us a lot on the credit processing side,” says Krasnov, “since the majority of even banked customers don’t have prior credit history, or a credit bureau record.”

The neo is also blazing a trail with security solutions.

“There’s a huge, huge issue anywhere in the emerging markets around customer safety, security and authentication,” says Krasnov. “We’ve been putting a lot of thought into how to make sure that the customer’s money stays safe in the Cloud, and working with a variety of vendors on app security and cyber protection. We’re enabling some in-app features that are among the first in the market, such as card blocking, which no incumbent offers.”

The central bank in the Philippines has been very proactive in creating a fantastic digital onboarding pathway, because it is keen to solve financial inclusion

After securing US$17million in pre-Series B funding two months after launch, Tonik unveiled a physical debit card in August, in partnership with Mastercard. It’s an area where Krasnov sees huge potential for growth, despite there being a substantial rise in the use of mobile wallets among Filipinos. The most popular, GCash, has seen its user numbers soar from 20 million in January 2020 to 46 million in June 2021.

“In the Philippines, payments have historically been dominated by cash and, within the consumer economy, the penetration of card payments is minimal; in our estimation, it’s still below 25 per cent of all consumer transactions,” says Krasnov.

“We’ve had a couple of large e-wallets pop up, backed by the largest telcos in the country and some financial investors. They’ve been making inroads into getting people to switch some of their payments to digital. But we think there is still a huge opportunity to drive penetration.”

Meanwhile, Krasnov is sceptical about the level of take-up of QR payments, which are also being pushed hard by BSP. It is requiring all banks to implement the technology in the next couple of years.

“I think QR pay still requires too many steps from the customer,” Krasnov says. “They have to open the app, access the QR scanner, etc. So, while it is active in Singapore, for example, I hardly ever use it, and I hardly know anybody that wants to use it because the card is just simpler.”

He’s much more keen to see another digital payments revolution head the country’s way. Surprisingly, in a land with such high mobile phone use, Apple and Google have yet to enable their wallets.

“As neither has enabled its infrastructure in the Philippines yet, we’re not able to integrate. However, we think that will happen some time next year, and it will be huge – Google especially, because Android phones are the dominant operating system.”

Tonik, itself, has major expansion plans as it starts a loans business, continues to develop its payments options and further concentrates on providing for underserved microentrepreneurs who account for almost a quarter of the country’s consumer income.

“We’re going commercial with our cash loan product and we will be rolling out more consumer lending products before the end of this year,” says Krasnov. “Our short-term focus is very much on that because we’ve proven that we can attract a lot of savings from consumers; now we need to make sure we can channel those into a profitable lending portfolio.

“In terms of monetisation, consumer lending, revenue-wise, is about a 10-to-20 times larger financial opportunity than consumer payments in the Philippines, so that’s why it’s our primary business case. We’re also starting to build what we call the Tonik 2.0 payments and transaction banking capability, which will let us help customers transact in a completely new and differentiated way.”

Underpinning it all is the ambition Tonik shares with the central bank to help boost financial inclusion and economic growth.

“Over the next five-to-10 years, this will create a complete revolution in financial access,” says Krasnov.