Two former air force generals are bringing a Mindanao-based rural bank into the cloud, paving the way for the first bank in the Philippines that fully runs on a paperless, Internet-based core-banking platform.
Cantilan Bank Inc., one of the largest rural banks in southern Philippines with 42 branches and extension offices, is switching to Instafin, the core-banking software of Croatia-based financial technology company Oradian, with the help of a $150,000 grant from the Asian Development Bank.
“With this technology, you just need an Internet connection. You don’t have to maintain your data center. Everything will be in the cloud. All you have to do when you open a branch is bring a laptop, as long as you have a facility ready,” Cantilan Bank Inc. president Charles Hotchkiss, a retired brigadier general and commander of the 600th Air Base Wing of the Philippine Air Force, says in an interview in Makati City.
All financial records and transactions of Cantilan Bank will be in the cloud, or the Internet, stored in the European servers of Oradian. Every transaction will be transparent and an instant report can be generated anytime and anywhere through Instafin, says Julian Oerhlein, the chief operating officer of Oradian.
Charles’ elder brother, retired Lt. Gen. William Hotchkiss, a former commanding general of the Philippine Air Force and ex-director general of the Civil Aviation Authority of the Philippines, is the chairman of Cantilan Bank, while William’s daughter, Harvard-educated Tanya Hotchkiss is the bank’s executive vice president.
Cantilan Bank, which started in 1980 as one brick-and-mortar rural bank in the second-class town of Cantilan, Surigao del Sur where the Hotchkiss brothers were born, is now one of the largest in Mindanao. It now has 42 branches and offices with 24 automated teller machines located across Caraga Region, Misamis Oriental, Compostela Valley, Davao provinces, Davao City and Southern Leyte. It had total assets of P2.4 billion as of December 2016. It was the first rural bank in Surigao to offer an ATM service and provided mobile phone banking through GCash as early as 2006.
“The bank started in 1980 and our father was an incorporator. My brother [William], Tanya’s dad, retired from the Air Force in 1989. He went back to Cantilan and he was offered to join the bank as chairman and president. At that time, our bank had only three branches. My brother expanded the bank. When I retired [from the Air Force] in 2005, I also joined the bank. We continued with expansion. Now, we have 25 branches and 18 extension offices,” Charles Hotchkiss says.
“We have around 400 employees. We have branches that have seven to eight people, while there are branches with 20 people. An extension office has three or four,” he says.
He says at present, the rural bank spends nearly half a million pesos monthly for connectivity of the branches and extension offices, an amount that he hopes will be substantially reduced with the switch to the cloud.
The Asian Development Bank provided a $150,000 grant to launch the cloud-based core banking technology in the Philippines, with Catilan Bank as the pilot institution. Cantilan Bank will use Oradian’s subscription-based banking platform to demonstrate how digital services can unlock financial opportunities for the unbanked and underserved segments of the population.
“Right now we are reviewing our strategic plan, because of this technology. We are going to expand definitely in Leyte because the banks there are small,” says Hotchkiss. “We want to serve the unserved.”
The Bangko Sentral ng Pilipinas’ 2014 Consumer Finance Survey shows that 86 percent of Filipino households were unbanked in that year. About 582 of the 1,634 cities and municipalities nationwide had no banks.
Charles Hotchkiss says with the cloud technology, opening a branch will be faster and less costly. “Where we are now, we have to deepen it. We want to reach more people,” says Hotchkiss.
and chief operating officer Julian Oerhlein
Oerhlein, a German national who co-founded Oradian in 2012, says Instafin—the flagship core-banking platform product—is an all-in-one software which enables microfinance institutions, cooperatives and rural banks to manage their day-to-day operations more effectively and serve their clients more efficiently.
Oerhlein says Instafin will replace Cantilan Bank’s existing system. “Our system has everything integrated—loans, savings, accounting and business intelligence. On a click of a button, if someone enters a transaction in some branch, and you click the system to see a report, instantly you see what is going on. It really increases transparency and it allows them to be fully in control of what is happening,” he says.
“The integration depends on the customers requirements. We can integrate ATM cards, we can integrate bank transfers, we can integrate remittance, we can integrate directly with credit bureau.
It really goes just a week or two, so it is really fast,” says Oerhlein.
Tanya Hotckiss says the Bangko Sentral ng Pilipinas supports the project and waits for the result of Cantilan Bank’s migration to the cloud.
“They want to see how this affects operation efficiency, so that they can see the impact when it comes to scale. It is very helpful for us to be partners of organizations like ADB as they provide financial support. More importantly, they provide the monitoring and evaluation aspect,” she says.
“We are required by regulation to have a pilot that is running in parallel with our current system. So you can imagine the financial cost. This is why we looked for financial help [from ADB]. We knew that the impact of this project does not affect just Cantilan. It may affect the entire industry. So we wanted to ensure that a third party [ADB] is watching this. Basically, this is the first rural bank for them here in the Philippines,” says Tanya.
Tanya hopes that the full transition to the cloud will be accomplished in three to four months.
Oradian, a software-as-a-service provider founded in May 2012, has three servers in Europe. Established by experts in microfinance technology, it now has more than 40 clients in Nigeria, Ghana, Liberia, Malawi and the Philippines who are using Instafin to serve 1 million microfinance clients.
It has 13 clients in the Philippines, including cooperatives and microinsurance companies. “We have 13 other clients up and running in the Philippines, which have been using it for several months. I am sure they will be happy to share their success stories of what it did for their business, just having access to real-time information, and without having the need to rely on their old, expensive hardware which was usually very unreliable,” says Oerhlein.
He says the core-banking platform was designed in such a way that new modules can be easily integrated into the system. “Maybe in the next years, someone will have a big innovation in payments channels, we can instantly integrate that into this core banking system. It is really agnostic of channels. This is the beauty of it. They can just pick whatever works, and they can pilot it. And we don’t charge for this integration,” he says.
“It is subscription model, with no upfront cost. It is roughly based on the number of end clients, so when you grow, you pay a bit more. If you have less clients, you pay a bit less. It directly aligns our incentives with the incentives from our customers. Our customers grow and increase their reach and we help them to become more efficient,” he says.
“One part of this is the tool—the software. The other part is introducing best practices, allowing them to add other channels, new business model. We help them grow, and they will help us grow,” says Oerhlein.
Oerhlein says Instafin software is easy to use. “We always say that in terms of user interface, if someone is able to use facebook, they should be able to use our system. And we have a whole team responsible for customers,” he says.
Lotte Schou-Zibell, a technical advisor for finance at ADB, says financial technology is revolutionizing finance.
“Recent innovations in digital and mobile phone technology have made it easier to expand access to financial services to peopleand small businesses in hard-to-reach areas,” says Schou-Zibell. “These services have the potential to serve as a pathway for the poor and underserved to leap over traditional barriers to financial inclusion.”
Tanya Hotckiss agrees, saying with Oradian’s SaaS model, Cantilan Bank can spend less annually for a faster, real-time system with best in class data security. “This will give Cantilan more capacity to focus on our core business and financial inclusion mission,” says Tanya.
The cloud-based core banking technology pilot project will be implemented in five stages including the full migration of Cantilan Bank’s data and information to the cloud infrastructure; mobility enhancement of loan officers in the field through mobile applications linked to the core system; integration with third parties including payments and remittance services; enabling clients to have direct digital access of their finances; and measuring impact on financial access.
Bangko Sentral Governor Nestor Espenilla Jr. says the introduction of cloud banking in the Philippines is a key moment in resolving the challenges of financial inclusion. “Cloud technology can upgrade the competitiveness of rural banks and enable them to provide affordable, high-quality financial services,” says Espenilla.
Oerhlein believes that all banks, including big commercial banks, will migrate to the cloud in the future. “I don’t think any financial institution will survive in the long run if they don’t move to the cloud. It might come in different flavors but many other industries have already shown that cloud is the way to go and I think the financial industry is in the middle of it,” he says.
“They will have to if they want to stay competitive. I don’t think they have another option,” says Oerhlein.
