Branch Busters - Latin American banks start online banking

Latin Trade, June, 2000 by Matthew Estevez

Banks hustle to get Latin Americans online.

WHEN BANCO SANTANDER Central Hispano (BSCH) forked over US$529 million in cash for online financial-services site Patagon.com in March, it became clear that banks serious about competing in Latin America would back up their virtual plans with real dollars.

The reason is simple: Online banking saves money. Lots of money.

"We save 90% on every transaction done on the Internet," says Eugenio Zubiria, head of the Internet division for Mexico's Banamex. "It costs us $1 for every transaction done at a branch and 10 cents for every transaction online."

With such tremendous savings as an incentive, banks in Latin America are scrambling frantically to get clients online at the same time they broaden their roster of digital offerings. In the race for customers, Brazil's Bradesco set an industry standard when it became the first to offer free Internet access to its customers. Competitor Unibanco quickly followed suit. Now, both Brazilian financial houses boast websites that are dynamic, fun and interesting--in short, very un-banklike.

Banamex offers the latest sports scores on its site while Colombia's Conavi promotes its "Club Abejita Conavi" or "Little Conavi Bee Club" for kids between 6 and 12. The children have to memorize a pin number to obtain sticker books featuring the much-loved Conavi bee. Mexico's Bancomer offers everything from the latest winning lottery numbers to breaking headlines from the nation's major newspapers

Tucked into the gimmicks are banking's backbone operations--loans, bill paying, investments, credit card applications, account updates and changes of address. Except now they're unfolding online.

As the calendar flipped to 2000, banks began to roar into cyberspace. The clumsy and sometimes comical mating of the stodgy Old Economy bastions and the hot and sexy Internet scene has raised the mercury in the financial thermometer.

"Things are really overheated right now," says Patagon CEO Wenceslao Casares. "There is so much hype when, in reality, if you turned the Internet off for a week in Latin America it wouldn't hurt anyone."

Fueling the fury is a quest to be No. 1. For Spanish financial houses, that means being top dog in the region. Banco Bilbao Vizcaya Argentaria (BBVA) got out of the gate early, allying with Telefonica de Espana in a multibillion dollar digital deal. The arrangement between Spain's two largest companies, in terms of market capitalization, included giving domineering Telefonica CEO Juan Villalonga a seat on BBVA's board of directors. Since the deal, BBVA has been less than enthusiastic about conceding control to Villalonga, who recently lost two top executives at Telefonica's Terra Networks over a lack of freedom.

Provided control issues are ironed out, the Spanish alliance will unveil a global digital bank with no branches. The new bank, Unofirst, will merge England's First-e and Spain's Uno-e to create a financial megabank in Asia, Europe, Latin America and the United States, with an initial public offering on the horizon.

BSCH jumped into the fray with the surprise purchase of Patagon.com--its weapon to create online banking facilities in Spain and Latin America. BBVA countered by buying a 30% stake, along with operating control, of Grupo Financiero Bancomer for $1.75 billion to form Mexico's largest bank. A week later, the company announced it would dole out $25 million in 2000 on Internet projects designed to reel in 500,000 customers.

Once BBVA and BSCH finish duking it out, they'll have to take on the local favorites in Latin America. And the local banks are getting ready.

Mexico's Banamex is bulking up against foreign invaders by installing personal computers and hiring branch personnel who'll teach the ins and outs of online transactions to anyone who walks through the door.

"Our goal is to maintain our leadership on the Internet," says Zubiria at Banamex, which teamed with California-based Commerce One to launch an e-commerce operation and business procurement site. The site will focus first on Mexico, where it claims to have a relationship with 75% of domestic businesses, before branching into the rest of Latin America.

But there are still challenges, including an attachment to bureaucracy and red tape. "People here always want receipts for everything and you don't always get that online," Zubiria explains. He also says the bank is lobbying the Mexican Congress to facilitate online transactions. Open arms in Brazil. The story is quite different in Brazil, where the banking system has been ready for the online switch for some time.

"Brazil has one of the most sophisticated banking systems in the world today:" says Alkimar Moura, a professor of banking and finance at Getulio Vargas School of Business in Sao Paulo. During the hyperinflation of the 1980s and 1990s, the banks learned to operate swiftly, he says. "Time was money and the longer you waited, the more you would lose."

Brazilians now expect high-speed transactions and check clearing with as little red tape as possible. Moura says the biggest problem is that only a small percentage of the population can afford computers. But Brazil's largest private bank, Bradesco, hopes to change that.