Alior Bank Accelerates the Implementation of the Digital Disruptor Strategy
The Management Board of Alior Bank has approved the implementation plan for the Digital Disruptor Strategy by 2020. According to the plan, the key strategic targets will be achieved earlier than expected. Concurrently, The Bank has announced in its current report the successful completion of bookbuilding for PLN 400m 8Y subordinated bonds addressed to institutional investors. Given the very high demand, the Bank has decided to place an additional PLN 200m issue, also addressed to institutional investors. The margin (WIBOR 6M plus 2.7 pps) is the lowest in Alior Bank’s history of subordinated bond issuance. Since the beginning of July, Alior Bank’s share price has gained as much as 13.3% (as at 3 October 2017), well above the WIGBanks (0.0%) and WIG20 (6.3%) indices.
Key highlights of the Digital Disruptor Strategy implementation plan:
Steady business growth: individuals and businesses
In retail banking, Alior Bank is planning to grow the base customers for whom it is the bank of first choice by 77% in 2020. This will be driven by a new behavioural segmentation and a focus on customers who use digital channels and make cashless transactions mainly with cards and smartphones. The Bank expects to acquire through digital channels 30% of daily banking clients (5% in 2016), open half of savings accounts (23% in 2016) and sell 32% of loans (6% in 2016) in 2020. The position of the Bank will be boosted by its unique offer of services including biometric solutions (face and voice recognition to log in the mobile application) and a virtual wallet with a package of integrated services (such as urban transport tickets, bill payments and facilitated digital communication with the public administration).
In the business segment, Alior Bank will focus on microfirms, small and mid-sized companies. Alior Bank wants to be the bank of first choice for startups and to provide comprehensive support to SMEs.
Already in 2018, the Bank will use e-government architecture (including e.g. the Unified Control File) for fully automated, immediate credit rating of companies. The Bank aspires to develop complete automated credit processes embedded in electronic banking channels while maintaining the top quality of advisory services for companies at the brick-and-mortar branches.
The strategy implementation plan includes further development of the product offer with additional cash management products, dedicated corporate insurance products, as well as extended distribution of factoring and leasing products. The Bank will continue to actively develop support for SMEs in the distribution of individual and portfolio aid programmes from national and EU funds in 2014-2020.
“With the implementation of the Digital Disruptor Strategy, Alior Bank will keep up the high annual gross loan growth of PLN 5-6B per year while maintaining the capital adequacy ratios at a safe level,” said Filip Gorczyca, Deputy CEO of Alior Bank. “According to the strategy implementation plan, Alior Bank will achieve the highest profitability levels in the Polish banking sector with ROE at 14% and NIM at 5.1%. As a result, the Bank will achieve dividend payout capacity in 2020, subject to the regulator’s guidelines and expectations,” said Mr Gorczyca.
With the online platform zafirmowani.pl, the Bank is planning to develop an offer of complementary services beyond traditional banking. Alior Bank will provide products capturing synergies of common procurement and the identification of new business partners. The zafirmowani.pl portal will become a key landing page offering comprehensive tools useful in opening, running and developing a business. The platform already helps business owners to keep their accounting books and it will provide a complete online finance application process as of next year.
“By growing the share of customers for whom we are the bank of first choice and by switching to digital channels, we will reduce the cost of risk. We will develop remote channels, grow the share of sales by the in-house salesforce, and improve the structure of assets. As a result, CoR will be reduced to 1.6% in 2020,” said Katarzyna Sułkowska, Deputy CEO of Alior Bank. “State-of-the-art technologies help to tailor processes to individual needs of clients and to better assess related risks,” said Ms Sułkowska. The Bank is planning to improve cost efficiency through robotisation of 118 processes. The business transformation will involve the robotisation of operating and back-office processes. Three processes have already been successfully robotised in a pilot.
Innovations and fintechs
Alior’s new Innovation Management Model will build the bridge between client needs and strategy, through the use of the newest technologies. We will innovate with a purpose – to better serve our clients and to deliver higher profitability.
Our Innovation Management Model is based on internal and external ecosystems that capture ideas from employees, from clients and from the new global fintech sector and develop them into innovative solutions for our clients. We will introduce a new career path for innovation and crowdsourcing tools to foster and capture the innovative power of Alior’s workforce. We also already created a Fintech Department, a new unit that will scout fintechs globally and partner with those that better fit Alior’s strategy. We aim to deliver 20 working partnerships with fintechs until 2020 and we aim to be recognized as the first bank of choice for fintechs across Europe.
A key pillar to build this external ecosystem is our PSD2/OpenAPI strategy which captures the opportunities created by PSD2 standards adoption. We want to go further than just comply with PSD2, and even further than just to become an external data aggregator (both models we will explore and monetize). But we mainly will also leverage the OpenAPI model to enable a partnership ecosystem where fintechs from other markets will be able to come to Poland and innovate together with us in our sandbox (a test platform to be ready in the first quarter of 2018 where external companies will connect with Alior through APIs and develop new products). Our PSD2/OpenAPI strategy will allow us to improve daily banking solutions, leverage external data, reduce time2market of the best-in-class solutions, increase fee and commission income and deliver bundled services outside of the normal banking industry. Thanks to Agilor and our new Innovation Management Model, Alior will become one of the most innovative banks in Europe.
Co-operation within the PZU Group
The Bank is planning to work closer with entities within the PZU Group in order to achieve cost and income synergies. The co-operation involves, among others, innovation, digital channels, IT, real estate, marketing, development projects, procurement, and financial products.
In the strategy implementation plan, Alior Bank expects to launch a range of business initiatives which may provide additional advantages not covered by the baseline plan. These include the launch of an innovative online intermediary operating under PSD2 which could become a leading non-bank financial service platform in 2020.
- In line with the strategy implementation plan, Alior Bank aims to achieve the ROE 14%, C/I 39% and NIM 5.1% targets already in 2019 (one year earlier than assumed in the strategy) and to maintain annual growth of gross loan volume at the level of PLN 5-6 B (in line with the strategy).
- Alior Bank’s strategy implementation plan assumes achieving dividend payout capacity already in 2020 (i.e. distribution from 2019 profit) subject to the regulator’s guidelines and expectations.
- Alior Bank does not plan to issue equity with an objective of raising capital throughout the strategy time horizon.
- The capital plan until 2020 assumes that Alior Bank will meet Tier 1 regulatory requirements without the need to utilize any capital optimization instruments (such as guarantees or securitization) while maintaining the planned growth.
- Alior Bank’s capital plan assumes maintaining a capital buffer of minimum 50 bps above the Tier 1 minimum regulatory requirement. Consequently, the Bank plans to temporarily (in 2018) utilize a guarantee line with Tier 1 capital release potential of up to PLN 300 M. In addition, Alior Bank will consider conducting one securitization transaction. The Bank assumes utilization of the above mentioned instruments at the combined amount of up to PLN 230 M release of Tier 1 capital.
- According to the plan, Alior Bank aims to achieve Cost of Risk (CoR) of 1.6% in 2020.
- The strategic target for cost of financing remains unchanged at 1.1%.
- Alior Bank’s objective is to maintain its current equity allocation structure between business clients (~51%) and retail clients (~49%).
- In the business client segment, Alior Bank plans to increase equity allocation to micro and small enterprises from the current level of 31% to 47% in 2020 while concurrently implementing initiatives aimed at stabilizing the cost of risk (CoR).
- The increased capital allocation to micro and small enterprises will lead to a release of approximately PLN 350 M of Tier 1 capital in the strategy time horizon.
- In the retail client segment, Alior Bank plans to increase the number of current account holders by 77% until 2020 and achieve a 55% share of such clients in the total number of newly acquired daily banking clients.
- The plan assumes that approximately 30% of new daily banking clients will be acquired through digital channels.
- The Bank is currently implementing both a proprietary IT development methodology (AGILOR) as well as the Alior Bank Innovation Management Model to strengthen its competitive advantages based on technology.
- Alior Bank plans to invest PLN 100 M each year in IT and innovation in four key areas:
- IT infrastructure,
- new systems and mobile tools,
- innovation and fintech,
- cyber security.
- Alior Bank will develop cooperation with PZU and Pekao in order to achieve both revenue and cost synergies.
- The Digital Disruptor Strategy implementation plan will be delivered through 70 initiatives in 12 areas.
- Following the Digital Disruptor Strategy, Alior Bank will analyze growth opportunities through further M&A transactions.
Steady business growth: individuals and businesses
In retail banking, Alior Bank is planning to grow the base customers for whom it is the bank of first choice by 77% in 2020. This will be driven by a new behavioural segmentation and a focus on customers who use digital channels and make cashless transactions mainly with cards and smartphones. The Bank expects to acquire through digital channels 30% of daily banking clients (5% in 2016), open half of savings accounts (23% in 2016) and sell 32% of loans (6% in 2016) in 2020. The position of the Bank will be boosted by its unique offer of services including biometric solutions (face and voice recognition to log in the mobile application) and a virtual wallet with a package of integrated services (such as urban transport tickets, bill payments and facilitated digital communication with the public administration).
In the business segment, Alior Bank will focus on microfirms, small and mid-sized companies. Alior Bank wants to be the bank of first choice for startups and to provide comprehensive support to SMEs.
Already in 2018, the Bank will use e-government architecture (including e.g. the Unified Control File) for fully automated, immediate credit rating of companies. The Bank aspires to develop complete automated credit processes embedded in electronic banking channels while maintaining the top quality of advisory services for companies at the brick-and-mortar branches.
The strategy implementation plan includes further development of the product offer with additional cash management products, dedicated corporate insurance products, as well as extended distribution of factoring and leasing products. The Bank will continue to actively develop support for SMEs in the distribution of individual and portfolio aid programmes from national and EU funds in 2014-2020.
“With the implementation of the Digital Disruptor Strategy, Alior Bank will keep up the high annual gross loan growth of PLN 5-6B per year while maintaining the capital adequacy ratios at a safe level,” said Filip Gorczyca, Deputy CEO of Alior Bank. “According to the strategy implementation plan, Alior Bank will achieve the highest profitability levels in the Polish banking sector with ROE at 14% and NIM at 5.1%. As a result, the Bank will achieve dividend payout capacity in 2020, subject to the regulator’s guidelines and expectations,” said Mr Gorczyca.
With the online platform zafirmowani.pl, the Bank is planning to develop an offer of complementary services beyond traditional banking. Alior Bank will provide products capturing synergies of common procurement and the identification of new business partners. The zafirmowani.pl portal will become a key landing page offering comprehensive tools useful in opening, running and developing a business. The platform already helps business owners to keep their accounting books and it will provide a complete online finance application process as of next year.
“By growing the share of customers for whom we are the bank of first choice and by switching to digital channels, we will reduce the cost of risk. We will develop remote channels, grow the share of sales by the in-house salesforce, and improve the structure of assets. As a result, CoR will be reduced to 1.6% in 2020,” said Katarzyna Sułkowska, Deputy CEO of Alior Bank. “State-of-the-art technologies help to tailor processes to individual needs of clients and to better assess related risks,” said Ms Sułkowska. The Bank is planning to improve cost efficiency through robotisation of 118 processes. The business transformation will involve the robotisation of operating and back-office processes. Three processes have already been successfully robotised in a pilot.
Innovations and fintechs
Alior’s new Innovation Management Model will build the bridge between client needs and strategy, through the use of the newest technologies. We will innovate with a purpose – to better serve our clients and to deliver higher profitability.
Our Innovation Management Model is based on internal and external ecosystems that capture ideas from employees, from clients and from the new global fintech sector and develop them into innovative solutions for our clients. We will introduce a new career path for innovation and crowdsourcing tools to foster and capture the innovative power of Alior’s workforce. We also already created a Fintech Department, a new unit that will scout fintechs globally and partner with those that better fit Alior’s strategy. We aim to deliver 20 working partnerships with fintechs until 2020 and we aim to be recognized as the first bank of choice for fintechs across Europe.
A key pillar to build this external ecosystem is our PSD2/OpenAPI strategy which captures the opportunities created by PSD2 standards adoption. We want to go further than just comply with PSD2, and even further than just to become an external data aggregator (both models we will explore and monetize). But we mainly will also leverage the OpenAPI model to enable a partnership ecosystem where fintechs from other markets will be able to come to Poland and innovate together with us in our sandbox (a test platform to be ready in the first quarter of 2018 where external companies will connect with Alior through APIs and develop new products). Our PSD2/OpenAPI strategy will allow us to improve daily banking solutions, leverage external data, reduce time2market of the best-in-class solutions, increase fee and commission income and deliver bundled services outside of the normal banking industry. Thanks to Agilor and our new Innovation Management Model, Alior will become one of the most innovative banks in Europe.
Co-operation within the PZU Group
The Bank is planning to work closer with entities within the PZU Group in order to achieve cost and income synergies. The co-operation involves, among others, innovation, digital channels, IT, real estate, marketing, development projects, procurement, and financial products.
In the strategy implementation plan, Alior Bank expects to launch a range of business initiatives which may provide additional advantages not covered by the baseline plan. These include the launch of an innovative online intermediary operating under PSD2 which could become a leading non-bank financial service platform in 2020.