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Services for lenders: �Funding�Cash management services��Sept 2021��Gus Poston, gp@netbank.ph�www.netbank.ph

Video - see here

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Netbank is a bank focused on serving Fintech companies

Description of Netbank

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  • A Filipino bank, working through partnerships. �

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  • A bank that accelerates fintech partners

Mission

Fully regulated BSP bank, with national license

Focused on B2B / white-label services. Will not build its own brand or expand via direct client relationships

Offers fintech a full range of digital banking services

Fintech can launch very fast, focus on their clients and product

Offers accounts and payment tools to simplify the digital economy

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  • Book loans on Netbank balance sheet
  • Bank account under control of lender, to receive payments for invoice discounting / loans repayments
  • Track loan repayments from bank transfers
  • Disburse loans via PesoNet / Instapay
  • Sell insurance
  • Account under a ‘deposit account control agreement’

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What Netbank offers�alternative lenders

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High level description of services

What?

Why?

  • Netbank books loans on its balance sheet
  • You earn income via fees for origination, collection

Fund your loans �Netbank taking risk

  • Open account in Netbank. These funds are used as cash collateral
  • Netbank is the legal lender
  • Netbank sets up payment structures

Fund your loans �You keep credit risk

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  • Grow without raising fund or raising capital
  • Increase ROE
  • Ensures founders control
  • Efficient balance sheet structure
  • Lend without needing a license
  • Suitable for lenders without track record in lending
  • Originator captures more of the value, as also takes on credit risk

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  • Uploan
  • GMS
  • Blend
  • + 2 others
  • Zetl
  • + 2 others (not announced)

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  • Automated disbursements
  • Accounts under joint control
  • Accounts for each of your partners, clients

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Facilitate disbursement and collection

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  • Lower operating cost
  • Fewer errors
  • Lower credit risk
  • Increased customer satisfaction

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  • Investree
  • Kayamo
  • + 2 others

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Who?

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Fund your loans: How does it work?

  • Selects loans

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  • Takes on the loan onto its balance sheet.
  • Legal agreement between Netbank and the end client

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  • Takes credit risk

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  • Reports to the BSP
  • Originates client

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  • Manages KYC gathering, on-boarding, etc. (as now)

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  • Gathers data on loan clients to pass to Netbank

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  • Manages collections (as now)

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Lender

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  • Continues to have a relationship with lender

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  • Needs to be informed who the lender is, achieved via the terms and conditions�Netbank product is ‘white-labelled’

Client

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Benefits to lenders – allows you to grow your loan portfolio without raising capital / diluting your ownership

  • Grow rapidly – beyond their current debt or equity limitations
  • Avoid ‘giving away’ some of their capital
  • Maximize their return on equity
  • Lender does not need to raise funds
  • Owners do not need to raise additional capital
  • Creates a ‘capital light’ company, with very high returns on equity

Off-balance sheet

  • Lender raises debt funding
  • Lender also raises equity to maintain leverage
  • Lender is responsible for credit risk
  • Lender takes foreign exchange risk (if off-shore)

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On-balance sheet

Suitable for lenders who want to:

  • Financial impact for equity holders is the same for:
    • 8% USD wholesale loan (on-balance sheet)
    • 13% PhP wholesale loan (on-balance sheet)
    • 22% interest charge for off-balance sheet loans

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Case studies

  • Salary loan for private sector employees

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  • Uploan identifies clients, via a relationship with employers

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  • Loan repayments are managed by Uploan

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  • Loan is initially booked by Uploan, passed to Netbank via an assignment of receivables
  • Loans for motorbikes, 3-wheelers

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  • GMS identifies clients, implements a tool within the motorbike to track in case of non-payment

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  • Loan repayments are managed through Dragonpay

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  • Loan booked by Netbank directly

Uploan

  • Franchise loans, originated by Blend.ph

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  • Agreement with Franchise operator in case of default

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  • Blend.ph identifies clients, manages loan repayments

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  • Loan booked by Netbank directly

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Steps in on-boarding

  • Interview to understand:
    • Loan program: tenor, interest rate, target market
    • Loss rates
    • Collections
    • Licensing
    • Technology
    • Volumes, now and expected
    • Operational assessment (how to book and fund loans)

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Initial assessment

  • Gather data to assess :
    • Reputation
    • Counterparty
    • Operational
    • Compliance
    • Individual and systemic credit
    • Fraud
  • Write-up and approve (at bank ExCom):
    • Risk Assessment,
    • Loan Acceptance Criteria

Risk review

  • 5-10 loans

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  • Test processes, train staff
  • Ensure payments operate well

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  • Update Loan Acceptance Criteria, if needed

Pilot

  • Typically take P5-10m initially
  • Once processes are working well, can take considerably more – expect to have a P10bn balance sheet within next few years

Scale-up

  • Also able to offer payment services to support disbursement and collection
    • Automated payments (PesoNet, Instapay)
    • Virtual accounts
    • Cards for loan disbursement, etc.

Additional services

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Structure that allows you to retain credit risk

  • You open an account in Netbank, funded to the level of the loans you will offer
  • There is an agreement that if the loans do not repay, this account will be used as a ‘cash collateral, to make the repayment.
  • This results in the partner providing both ‘funding (if balance is 1.25x the total loans, due to liquidity requirement) and credit risk

Deposit account (with hold-out agreement)

BSP requirement on cash collateralized loans

“Loans to the extent covered by hold-out on, or assignment of, deposits or deposit substitutes maintained in the lending bank. A loan shall be considered as secured by a hold-out on, or assignment of deposit or deposit substitute only if such deposit or deposit substitute account is covered by a hold-out agreement or deed of assignment signed by the depositor or investor/placer in favor of the bank. This shall not include loans transferred to/carried by the bank’s trust department secured by deposit hold-out/assignment.

For credit exposures secured by deposits, FIs shall likewise require obligors to provide a written waiver of his rights under existing laws to the confidentiality of his deposits, and make this available for inspection and/or examination by the appropriate supervising department of the Bangko Sentral.” (supervising department of the Bangko Sentral in Netbank’s case is BSP FINANCIAL SUPERVISION DEPARTMENT 7 [FSD-7])

  • Loan is issued to end client, from Netbank funds.
    • Can be completed via API, from partner system
  • Loan repayments are made to Netbank, credited to the loans
  • If loans become past-due, funds are deducted from the ‘Deposit account (with hold-out agreement)’

Loan agreement (with hold-out agreement)

1a

  • Partner is providing both funding and taking credit risk
  • … so Netbank only charges a low fee for this service

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Additional options to consider

Use your IT

  • Avoids need to re-key loans into Netbank’s CBS
  • Requires your IT system to meet the standards (reporting, stability, info security, etc.) of the BSP

Option

Reason

Netbank provides funding

  • Different structure for guarantee – a partial deposit rather than a 100% deposit
  • Suitable for clients which want to lend more than their current funding

1a

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Cash management solutions: What can we offer?

  • Understand your business processes, business needs

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  • Design a low-cost solution that addresses these needs
    • Adapt account structure
    • Adapt legal agreements
    • Design technical integration

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  • Pilot and test in partnership with you to perfect the model

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  • This should be an open discussion, based on your needs

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  • Bank account under control of lender, to receive payments for invoice discounting
  • Track loan repayments from bank transfers
  • Disburse loans via PesoNet / Instapay

Solutions described below

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How we work

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3b: We can also create a bank account solution for you, using a Mobile app which is already built

Description

  • Our Core Banking System is connected to an app, which has all the above functionality needed (see right)

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  • This app can be re-branded, re-formatted, etc, to create a personalized service for each account / wallet partner – Just have to reference Netbank in the app

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  • Much cheaper alternative than building own app

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  • Sign-up (KYC, data gathering, etc.)

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  • Activation

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  • Account management
    • Account history
    • Send money
    • Spend
    • Maintain accounts, etc.

Features

  • To open an account (if we gather KYC documentation)

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  • To activate an account

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  • To operate an account

Demo

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Netbank has the capabilities needed for this offering to be a success

Legal understanding

  • Have drafted wording for waiver of bank secrecy and giving client ability to transfer funds out of the account

Critical success factor

Netbank capabilities

Give clients access to balances

  • Can provide clients information on client accounts directly on your web-site
  • … or by creating an app (with your branding) that provides simple access

Simple on-boarding process for you or your clients

  • Able to open accounts using your KYC data
  • No need to have direct contact with your clients
  • Just need your clients to provide us a scan of a written waiver (TBC)

Simple to transfer funds out of client account

  • Member of PesoNet, integrating with Instapay
  • Can give you ability to do transactions on these accounts via API or ‘terminal access’

Simple commercials

  • Set-up fee
  • Cost per new account opening and per monthly account, subject to a minimum
  • Cost per transfer
  • Set-up of mobile app

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Next steps

  • Send NDA
  • Share commercial offer

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  • Set-up account opening process. Define process flows, APIs, etc.
  • Conduct risk assessment
  • Set-up product and branch on CBS.
  • Set-up terminal access, or APIs.
  • Legal review of your TnCs

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Netbank actions

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  • Confirm commercials.

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  • Determine account opening process
  • Decide how to send funds to client (Manual return of funds, mobile access, terminal access)
  • Send funds (PesoNet, Check)
  • Confirm legal position, wording on waiver

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  • Conduct pilot
  • Scale-up

Client actions

Implementation project

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To find out more, pls contact the below

  • Email to: 

�Michael Estipona

  • me@netbank.ph 

�Adrian Baysa

  • ab@netbank.ph 

Read the full presentation:

Here

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