Empowering rural banks and microfinance through fintech: A Q&A with Oradian

By Mariedel Irish U. Catilogo, Researcher

THE GROWING financial technology (fintech) in the Philippines prompted the international software company, Oradian to enter the financial services industry in the country especially in upscaling digitalization efforts of the rural and thrift banks as well as microfinance institutions (MFIs).

Founded in 2011 in Croatia, Oradian banks on providing MFIs with core banking software which includes tools such as accounting, security, administration, loan portfolio management, and deposit tracking. The cloud platform serves as the foundation for developing and running core applications, which are designed to be flexible and scalable.

According to the 2021 Financial Inclusion Survey conducted by the Bangko Sentral ng Pilipinas, the number of account holders grew to 56% in 2021 from 29% in 2019. This is equivalent to an additional 22 million banked Filipinos within the period.

Notably, there are 27.5 million e-money account users in 2021, up by 36% compared with 5.7 million recorded in 2019.

BusinessWorld reached out Oradian’s founder, Julian Oehrlein, to know more about the company’s journey in providing core banking solutions.

Here is the excerpt of the interview:

1. What is Oradian? How does it differ from other financial technology companies in the country?

We’ve built our technology to provide direct return on investment for ambitious financial businesses in the Philippines. Over 10 years we’ve worked in close partnership with fintechs, digital lenders, rural banks, MFIs, and financing companies across the country to deliver cloud-native, application programming interface (API)-powered core banking solutions where they’re most needed.

While other providers have seen the Philippines as an extra market, this is Oradian’s core. We’ve invested in building a local team of implementation and customer success experts in our office in Makati where we regularly host customers and prospects to demonstrate product developments and gather input for our product roadmap.

Our technology is rock solid. We offer unlimited scalability and provide full access to connect existing systems or third-party applications via APIs. The Oradian system is low/no code. This means that it is fully parameterizable — new products can be designed, built, and launched in a matter of minutes without the need for external development or in-house coding.

We’re offering a more reliable, secure, and consistently updated solution than many of our competitors in the market. However, what really sets us apart is our service. We offer full technical support, a dedicated management team, and full implementation and migration as part of our subscription service. We do not outsource to third parties, who can be less invested in the success of our customers than we are.

2. What are you offering rural banks and MFIs?

We offer growth. Many of the more traditional institutions we serve faced the challenges that come with success — they found it difficult to scale, adapt, or expand their deposit and lending operations due to the high operational costs of brick-and-mortar branches or agent networks.

When they turned to the market for a tech solution to improve efficiency, they faced incredibly high capex costs in combination with a high level of risk in implementation and migration. Many were frozen, understanding that they needed a robust digitalization strategy to scale efficiently, but unable to accept the level of risk and cost of bringing in a cloud-based core banking system.

Oradian saw this as a big opportunity. We designed an agile and extensible core banking solution that brings cutting-edge, future-proof technology to banks and lenders in the Philippines with very little upfront costs through our Software-as-a-Service (SaaS) model — where we have short contract terms, and customers only pay for what they use.

This means we’re fully aligned with our customers’ success. And the proof is in the numbers: over the last year the total number of end-clients served by our customers on the Oradian system has grown by 125%.

What’s more, we focus on how best to de-risk the implementation and migration process. Our implementation experts are knowledge transfer specialists. We don’t sign off on an implementation until our customers are as expert in the use of their system as we are.

3. Who do you consider your target markets?

Oradian serves a range of financial institutions. Our customers all faced similar challenges in scaling their business efficiently, and rapidly innovating to keep up with the competition and changing customer expectations, especially as the pandemic accelerated the move to digital banking across the country.

However, our primary focus is on delivering growth for financial institutions that can have the biggest impact. This means working with MFIs and rural banks, thrift banks and financing companies, but it also means providing the core systems for the new wave of digital, mobile-first lenders that are able to reach more customers much faster with digital services. These companies are poised to make the biggest leaps in reach and scale over the next few years.

The Philippines is where we have our team and we know there’s work to do across the country, especially in serving more remote communities, agricultural businesses and those without direct access to bank branches. We see similar trends in other countries across Southeast Asia and in Sub-Saharan Africa. Oradian also works with a range of fintechs, digital lenders, and more traditional organizations across these markets. Today we serve growing businesses in 13 countries across the world.

4. As a financial inclusion company that primarily serves rural communities, what are the challenges in rural bank’s digital transformations and how do you overcome it?

There’s a high level of awareness of the need for digital transformation and the benefits it can bring, but the risks and the upfront costs are prohibitive.

Add to this the shifts in how customers want to access financial services following the lockdowns of Covid-19. Customers have quickly come to expect digital financial services, but the underlying systems of many rural banks are complex and often incompatible.

There are other factors too. More traditional financial organizations are under serious competitive pressure from institutions that are operating much more efficiently, having replaced manual work with software to automate processes. Customers expect more affordable and more reliable financial services which can only be provided by financial institutions that are willing to act quickly and holistically to digitalize all aspects of their operations and reduce costs. Other institutions simply will not survive much longer in the current market.

I think it’s become clear to leadership in rural banks that they need to move quickly to survive, but digitalization is a major project and a big barrier to success is the digital knowledge gap, both within the teams of traditional financial companies and among their customers.

This can be a gap between the leadership of a financial institution and the technical or operational teams, or it can be a skills gap in navigating and de-risking the procurement and implementation process when bringing in a new core system.

This is why we focus so keenly on closing any knowledge gap we find with our customers by training and educating their teams in how to use, implement, and effectively integrate a core banking system. We call it a “full-service implementation process” and it takes a multi-spoked approach, ensuring all project stakeholders have full transparency on the entire process.

5. In the latest financial inclusion survey of the Bangko Sentral ng Pilipinas, the number of unbanked Filipinos dropped to 34.3 million of the total adult population in 2021 from 51.2 million in 2019. With this, how do you think your company played a role in this development? What steps that the company have taken in order to support the government’s goal?

It’s good news, and it’s clear that the increase has been driven in large part by the digitalization of financial services, something that has been actively supported by policy decisions from the BSP. The improvements are the fruits of careful collaboration between the regulator, financial institutions, and technology providers. I see the Philippines as a case study for other countries in the region in how to collaborate to unlock financial inclusion in areas previously unreachable by traditional finance.

I also think that Oradian has played a not inconsiderable role in this success. Not just by working with our customers, but also by investing in our relationships across the ecosystem, be it with the BSP or through working with other tech companies to become a full solutions provider for financial institutions. Oradian was the very first cloud banking provider to be approved by the BSP. So, the story is a happy one, but it’s taken a lot of work to get us here.

All that being said, many rural and hard-to-reach communities remain financially isolated. Many micro-finance institutions and rural banks still lack the digital infrastructure to develop new financial products and services, provide an efficient banking experience and engage new customers as rapidly as is needed. There’s plenty more work to do!

6. The BSP has closed a total of 21 rural banks while two rural banks voluntarily surrendered their banking licenses. How do you think the challenges faced by rural bank industry can affect your plans for the country’s banking system? What are your expectations?

For a few years now we’ve been predicting consolidation in the market. I think the BSP has been proactive in pushing rural banks to adapt and digitize, and the BSP’s motives have always focused on providing Filipinos with better and more inclusive banking experiences.

What’s hard is that the rural banks are being challenged on two fronts. On one side the regulator is saying “modernize to survive,” and on the other, mobile-based fintechs are beginning to eat into their market share. The second of these isn’t as advanced in the Philippines as it is in other countries — for example, see the recent surge in fintech in Kenya — but it’s an additional worry for the leaders of Filipino rural banks.

You can see rural banks on a spectrum. There are those who are far advanced in their digitalization journey (many of these are Oradian customers) and those who have fallen behind. So, when it comes to ensuring the country continues to increase financial inclusion, I think some consolidation in the market is right.

However, we need to be careful not to throw the baby out with the bathwater. Many rural banks have long histories and are actively contributing to financial inclusion. They have a high level of brand trust and deep roots within their communities. What’s more, if we look again at Kenya as a case study, a few unregulated and sometimes unscrupulous digital lenders can cause more problems for the regulator and for customers than they solve.

I believe in coexistence and mutual benefit. We’ve seen successful implementations of mobile banking with rural banks provided by fintech in the Philippines. In fact, Oradian partners with Genuisto to provide mobile banking for two of our larger Filipino customers.

The Philippines has 75% smartphone coverage, so infrastructure is no barrier to financial inclusion. Consumers are willing and able to access financial services using a mobile app — they simply need a provider that can offer the right service. I see rural banks embracing this and looking for ways to work with fintech to enable digital banking services.

There’s a middle way here and I believe all parties should be open to collaboration and integration — and of course, having an extensible core banking system is the foundation for all of this.

7. In terms of cybersecurity, what is the company’s stand on this? How do you plan to protect the consumers from possible cyberattacks?

Security underpins everything we do as a company. We operate three managed data centers; each has a backup of the other.

Our security governance policies ensure our customers can operate continuously, comply with local regulations, and maintain the lowest possible security risk. Included in our base subscription is secure and unlimited data storage, a firewall protected network, and a secure community cloud-based core banking system that is frequently updated to apply the most robust security protocols.

We’re a member of the Cloud Security Alliance, which means we are constantly aware of new threats as they emerge. We are also ISO 27001 certified with a yearly audit. We operate distributed denial of service protection engines such as Cloudflare and our full stack is submitted to automatic monthly vulnerability scans, with reports sent to relevant parties. On top of that we undergo yearly penetration testing completed by an independent third party. Our full network is always backed up and we have a long-term archive database that is fully encrypted through HTTPS.

We take security pretty seriously!

8. Can you share the most notable project you had?

Oh, there are too many to choose from. I think one that we’re especially proud of is our collaboration with Cantilan Bank. Cantilan are an amazing team. They were the first bank to move to the cloud in the Philippines and we worked closely with the BSP to show how a migration to the cloud should go. It was an amazingly successful project, in a parge part due to how open and willing the Cantilan team are. Now they’ve just integrated with a mobile banking layer so their customers can interact with them through a mobile app.

Another project to mention is how the Oradian system helped a lending organization lead the local recovery effort in the wake of Typhoon Odette. People were unprepared for Typhoon Odette. Unlike Typhoon Yolanda, there was no massive information drive to alert people of its danger. When Odette came it caused landslides in many areas across Cebu. It badly hit six of our customers’ branches in the south of the island.

Oradian’s real-time data was vital in helping the customer’s team assess their operations, deploy capital where it was needed, keep ATMs stocked, and give relief. The dashboard data allowed them to monitor their customers’ situations in real time — this is when most other financial organizations in the area were flying blind due to the damage to infrastructure.

9. What can the market expect in the fintech company for this year? In the next three to five years?

We are predicting the trend towards digital transformation to continue and so we’ll see growth in demand for core banking solutions and therefore growth for us as a company over the next 12 months. We’re already in some advanced conversations with some big players in the Philippines, so we’re expecting to make some announcements in Q1.

Over the past 24 months we have been approached by larger, more tech-enabled companies, including mobile-first fintechs. This reflects the progress being made in the Philippines. For our business this means shorter implementation times, quicker migrations and launches and for our customers the ability to integrate with a greater range of tech service providers.

We also predict more partnerships and core developments to our banking system as we work with more financial institutions that want to offer mobile services to their customers.