When you think of global leaders in digital banking, the conversation must start with Tencent-backed, WeBank, the first digital-only bank in China. Launched at the end of 2014, WeBank has experienced extraordinary growth with digital technology that is considered an industry best.
Today, WeBank has over 200 million customers and it’s the leader in assets, loans, net profits, return on equity and other major categories in the Chinese digital banking space. WeBank was founded with the mission of providing affordable, accessible, appropriate, and sustainable banking services for the underserved individuals and small businesses.
As opposed to being a bank with technology advantages, it is a shining example of a technology company with banking licenses. I had the opportunity to discuss the creation and growth of WeBank with Henry Ma, Executive Vice President, CIO, WeBank, who I met when I visited WeBank in Shenzhen as part of the Banking Transformed podcast. During the interview, Ma discusses WeBank’s mission of delivering financial inclusion at scale by leveraging AI, blockchain, cloud technology, and big data.
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Can you provide a bit of a background on WeBank?
Henry Ma: For those not familiar with WeBank, we are the very first privately funded bank and digital-only bank in China. We were incorporated at the end of 2014, with a very specific mission to fulfill. We wanted to focus on improving the accessibility and quality of financial services for the underbanked and unbanked individuals and small businesses in China … especially micro SMEs (small and mid-sized enterprises).
We leverage as much leading edge technology as possible to drive our business model, and to constantly conduct research and deploy applications using the ABCD’s of Fintech … AI, blockchain, cloud computing, and big data. We serve more than 200 million individual clients and also 1.3 million SME clients.
How has the growth been supported?
Henry Ma: We have an in-house built and in-house designed architecture, that in one business day in 2019 processed more than 574 million transactions. This is the scale that you’re probably looking at the largest bank in the world. But, the transactions that we process are quite different from what the traditional bank would process, because we have a lot of low-value transactions.
We have just a little more than 2,000 employees at WeBank, and more than 56% percent of them are in the technology and R&D space. They’re either doing programming, coding, architecture design or are data scientists. We put a very strong emphasis on open source technology and commoditized hardware so that we can drive down the cost as much as possible.
Who is your target market?
Henry Ma: We want to serve the part of the market that is underbanked or unbanked. Many of our customers are very small mom-and-pop shops … a market which is highly overlooked by the traditional banking industry. We try to tackle this financial inclusion topic with technology. The key is to try to tackle this particular market with a vastly different cost structure. Because, if you’re a traditional bank, the reason why they wouldn’t try to tackle this market is because it’s too costly for them to run a sustainable business based on the cost structure that they have.
If you look at our costs, the per-account operation cost is only 3.6 RMB, or around $.50 USD. In China, that number for legacy banks is probably 10 times of what we are paying right now. But if you’ve been talking about multinational banks, the number could be 20 or 30 times higher. So, the cost savings that we achieve enables us to actually serve the target market, which has a very low ticket size.
So, not every customer needs to generate a large revenue stream?
Henry Ma: The majority of the customers that we serve don’t really bring us a very large transaction size or revenue stream. If you look at the numbers on our annual reports for 2019, the average revenue per user is only around $10 USD. If you compare that to other incumbent banks, they are typically more than 10 times higher in China, and for foreign banks, it is probably 20 or 30 times our revenue per customer.
And yet we have been able to make profit since 2015. You have to tackle the market with a different cost structure to build a sustainable business. This allows us to achieve the goal of financial inclusion, even though some of the customers may be causing us a loss.
How important is simplicity and speed to your product line?
Henry Ma: You have to look at it from two angles. When a customer tries to apply for credit from us, it typically takes them less than five seconds. In fact, five seconds is the commitment that we give to the customers. The second part is when they try to do a draw down, it’s only a few clicks away and they can do a draw down and the money will be deposited into the associated bank account within minutes. In fact, typically the money will go out of our bank within a second. It actually takes a while for the receiving bank to process the transactions.
This is the customer experience that we are trying to offer to the market. This is also the customer experience that our target segment would expect from services like ours, because they are very much used to the internet experience. Everything is only a few clicks away and everything happens in real time.
How can credit be accessed?
Henry Ma: We work with a lot of internet platforms. Essentially, we embed our financial products into our partner platforms. And we also work with our partner platforms and leverage the data and the user base that they have, and do a lot of pre-underwriting on the users. When we work with a particular platform, the user will get pre-underwriten and receive an invitation from us. Once the user accepts the invitation, we have already gotten some idea of what kind of a credit worthiness this user deserves.
When the prospect accepts the consent, we start trying to grab external data sources, and then put all those data into a real-time combination model and come up with the final number to show to the customer. And everything is happening on the mobile device. They don’t even have to interact with any real person to apply for a credit. So, strict protocols, very streamlined process, and very quick response is the experience that we try to offer.
Do you use biometrics?
Henry Ma: We use biometrics to verify the identity of the customers. This is also something our market of people are getting very used to. A lot of education on user behavior has already been completed over the years, and that’s why the adoption is strong.
How quickly are products and services updated?
Henry Ma: We spent quite a bit of time to build up our command center to illustrate how our digital banking business really looks in action. We can do hundreds or maybe even thousands of updates in a single month. And unlike a typical banking institution where they want to control the number of changes as much as possible to mitigate the change risk, we actually operate in a very agile way because the architecture that we have adopted is fully distributed.
It operates more like a massively parallel computing kind of architecture. We run more than 100 deposit codes and another 100 loan codes at the same time. So, every time we want to make some new changes to our system, we actually randomly pick one or two codes, apply the updates, the new features, the new products on those codes, and then try it out with new customers.
And because we are only changing the features of the products on a very small percentage of the customers, even if things go wrong, it’s not going to create too big of an impact. And that’s exactly how we actually manage and maintain a very high availability for the platform. We want to do sufficient testing for maybe a week or two, and then we’ll try to put it into production and test it out with real customers very quickly. The record that we hold is going from ideation to production within 10 days.
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What advantage does leveraging AI, Blockchain, the Cloud and Data (ABCD) provide?
Henry Ma: The ABCDs of fintech allows us to optimize our efficiency and improve user experience. We want to be able to scale up quickly and also in a very cost effective manner. We also want to better mitigate our risk.
We run a customer service very much based on artificial intelligence. We are handling more than 1 million inquires on a regular day. These inquiries are being handled by our chatbots for more than 98% of the total incoming customer inquiries.
With the blockchain, we record a lot of the transactional details as digital evidence onto blockchain.
With cloud computing, everything runs on a private cloud and we don’t rely on proprietary technologies. This allows us to achieve the scalability that we have today, with hundreds of millions of transactions in a single day, and still being able to maintain a very low cost with high availability. In terms of the overall availability of our system, we have a telco-grade availability number.
Finally, we use big data to do precision underwriting and marketing, reaching out to a very specific audience who may be in need of the financial products that we offer. So these
are the ways that we apply this technology to address the business requirements that we have.
Does WeBank support open banking?
Henry Ma: Yes. Because of the fact that we use a lot of open source technologies to build our whole banking architecture, we truly believe in open banking. We believe that open banking is actually more than API banking. We have a strategy around three open paradigms, namely open platform, open innovation and open collaboration.
We believe that open innovation and open collaboration is really the next level of forum openness for open banking. We benefit a lot from open source technology. We really want to open up our technology stack for our industry and even others as well. We believe that when we and our partners are more digital ready, we will be able to go into the next phase, which is what we term the open collaboration phase, where we will be able to interconnect and also interoperate with each other.
Do you export any of your technologies to other organizations?
Henry Ma: We have been leveraging a lot of our technologies to enable the city commercial banks and rural commercial banks in China to build very sophisticated banking platforms. Beyond banking in China, I think the capabilities that we have built are actually quite universally applicable. We also see applicability in developing economies
where the banking coverage is still low and the cost to support is high.
What suggestions would you give firms trying to build a ‘digital bank’?
Henry Ma: For any new digital organization to be successful in the long term, it’s important to think big, but also being able to start small. The upfront work is also very important. Have the right blueprint in mind, but be able to start humble, start small, and scale up iteratively.
Where do you see WeBank expanding next?
Henry Ma: I think, because of COVID-19, we were able to accelerate a lot of the development around SME financial services. Because of the fact that during the pandemic there were a lot of these SMEs that we were serving that had liquidity challenges, the pure digital and online experience that we brought to these companies was very handy at the time when they were not able to go to a bank’s branch or talk to the banks’ customer representatives.
Perspectives on the Interview
Talking to Henry Ma from WeBank gives you an idea of the possible. Everything they’re doing is focused on technology, data, and the ability to use analytics to drive an immediate solution. We have just completed a Digital Banking Report talking about lending in five to 10 minutes on a mobile device. WeBank has found a way to collect data and perform the same process in seconds, at a cost of $.50 a customer.
It’s time for banking organizations worldwide to take notice and realize that building a digital bank from the ground up product by product, not relying on traditional thought processes and ways of doing business is the future. And just because WeBank is in China does not mean that WeBank is not coming to the West, or that another organization is not going to be able to replicate the digital capabilities of WeBank.