WeBank is China’s first digital-only bank, serving over 300 million individual customers and 2.7 million small businesses, many of which have no traditional credit record. Founded in 2014, and backed by Tencent, WeBank targets unbanked and underbanked individuals and SMEs with financial services that include loans, deposits, and investments.
Most impressive is that WeBank had operating revenues and net profits grow by 35.75% and 38.87% respectively year-over-year in 2021, with a non-performing loan ratio of 1.20% … the same as a year earlier. To put these numbers into perspective, WeBank’s profits accounted for over half of all the profits posted by privately operated China banks in 2021.
Part of the secret to that growth is related to the fact that WeBank has access to over a billion active users of Tencent’s social network WeChat. This gives WeBank access to a massive prospect universe, along with mobile data that is used to evaluate the credit risk of potential borrowers. With the combination of data and mobile technology, WeBank provides quick and easily accessible services to retail consumers and small businesses that are often ignored by the state-owned banks in China.
I had the opportunity to interview Henry Ma, Chief Information Officer at WeBank for a second time on the Banking Transformed podcast.
Ma discusses WeBank’s mission of delivering financial inclusion at scale by leveraging AI, blockchain, cloud computing, and big data and how WeBank is using blockchain technologies to serve industries outside of finance. He also discusses the importance of speed and scale with innovation.
Listen Here: WeBank: A Model for the Future of Digital Banking
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1. Meeting the Needs of the Underserved
In every country, there are millions of consumers and small businesses that are either completely unbanked or don’t have access to all of the financial services needed to become financially secure. This has been a challenge for decades, and many believe the problem became worse since the pandemic.
The global unbanked population is not only those without regular employment, but also people who are younger, are recent immigrants, or those who do not trust traditional financial organizations. These segments are less likely to have credit or other financial data in third-party databases used by traditional banks, limiting accessibility to traditional financial services.
“We focus on low ticket size financial services, serving the tail-end of the market, by leveraging leading edge technologies. We think the model is highly replicable to other markets in the world.”
— Henry Ma, WeBank
WeBank worked to fill this massive exclusionary gap by using alternative data sources, and delivering products more efficiently than legacy banks by using advanced technology and mobile delivery channels. By looking at everything from rent and utility bill payments, to how people use their mobile device, WeBank built models that eliminate the highest risk consumers and small businesses, while creating financial products that are customized for these segments such as short-term, small dollar loans, app-based payments and digital investment options.
The new customer acquisition strategy is the difference between the ‘risk avoidance’ posture of traditional banks and the ‘risk management’ posture of WeBank. In many instances, WeBank provides access to financial services early in a consumer’s or small business’ financial lifecycle, creating loyalty and building the foundation for an extended relationship later by using data collected on the segment’s income, spending habits, needs and wants.
2. Continuous Investment in Modern Technology
When dealing a with crisis beyond the control of an organization (like a pandemic or recession), the best leaders look beyond the short-term needs for sustaining business, seizing the opportunities for long-term advantage. In fact, research has found that investment in technology and innovation during downturns can positively impact success by improving a firm’s position relative to competitors during a subsequent recovery period.
This mentality has served WeBank well since its inception. With a relentless focus on investing in modern technologies and focusing on continuous, incremental innovation, WeBank continues to drive down the cost of servicing a client, while improving the customer experience at scale. According to Ma, “Being a fully digital banking operation from day one, our focus on technology advancement to drive innovation, and our commitment to invest in technology has not changed, despite the shift of the macro environment.
“Our fundamental belief is that technology is really the core engine for continuous development – not just in good times, but also in bad times as well. “
— Henry Ma
The impact on the bottom line at WeBank is significant. The technology (back-office) cost of operation per account is currently less than $.40 US per account per year. This is not only substantially lower than what any traditional bank is able to achieve, but lower than the vast majority of digital banking organizations. In addition, the service availability for WeBank is 99.999%, comparable to the best telco firms, according to Ma.
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3. Innovation at Speed and Scale
The most progressive digital banking organizations focus on delivering incremental innovations as rapidly as possible, scaling quickly with limited resources. As opposed to trying to create ‘the next big thing’, most agile start-ups innovate, test, deploy and scale to stay ahead of the marketplace. This is one of the most impressive ways WeBank has supported unprecedented growth.
When I visited WeBank in January of 2020, I was astounded that WeBank was able to move from ideation to implementation in 14 days on average. During 2021, with the lockdown period still in place, WeBank was able to go from product initiation to production in just ten days.
One example offered by Henry Ma in our interview was an emergency liquidity product to serve small businesses in early 2020. Despite working remotely, engineers and product managers worked together to create a completely new liquidity solution in less than ten days, helping SMBs at a time of significant uncertainty. This new product leveraged the functionality of digital accessibility to deliver funds to small businesses, on their mobile device, in minutes as opposed to days (as offered by traditional banking organizations).
4. Focus on Efficiency
For WeBank, the application of leading edge technologies is the key to delivering basic financial services to lower value underbanked consumers. By definition, the underbanked segment involves very high volume transactions, while at the same time, having mostly small ticket value. This is why traditional financial institutions ignore this segment. The key is to support each customer at a fraction of the cost of what a traditional bank can do … without sacrificing service or experience.
WeBank leverages the advantage of an ‘ABCD’ model (AI, Blockchain, Cloud Computing and Data) to optimize efficiency at scale. Not only does data and AI support innovation and the building of customer service models, it is the foundation of the entire organization. WeBank also runs multiple cloud platforms at once, supporting daily transactions while also providing the foundation for testing innovations with real-time account and transaction data. The blockchain is increasingly being leveraged to automate functions.
“We are among the first financial institutions to run an ARM-based cloud server in a production environment. The benefits are more cost savings and greater energy efficiency.”
— Henry Ma
This ABCD approach allows WeBank to reach the scale without having a single branch. To support this focus, over half the employees of WeBank are considered engineers.
5. Moving Beyond Traditional Banking
Recently, WeBank introduced the WeBank Blockchain brand, allowing the organization to move forward on ESG – environmental, sustainable and governance – initiatives, both within WeBank and outside the organization. In addition, there are hundreds of applications built on top of the WeBank ABCD open-sourced technology platform that are being used outside the bank. According to Ma, there are already more than 30 open-sourced projects worldwide.
“We have a very strong open-source culture within WeBank, and even though the key mandate is to support our own business, they’re also being encouraged to contribute to the open source community.”
— Henry Ma
Another outshoot of what WeBank is doing is to support embedded banking across the customer journey. The focus is to enable embedded banking in order to provide better customer experience for both their customer base and organizations that the customer frequents. Having an open platform with collaboration helps non-financial services companies provide financial services using API tools to drive shared business outcomes.
6. Embracing a ‘Challenger Mindset’
According to Ma, a very important part of the WeBank culture is the idea of letting employees understand that they’re the owner of the business. As part of this employee ownership mentality is to encourage a lot of bottom up decision making – encouraging innovations from their team. This includes a ‘fail fast’ mentality where teams can try out new things, and fail with low cost.
“That’s why building up the right technical architecture to support testing new ideas is also very important. When we design the overall architecture, we want to make sure that it’s scalable on one hand, but that the cost structure is low enough for our staff to be able to try new things.”