Banking & financial services: the trends, the issues, the solutions

Latin Trade, Sept, 2005

Latin American banks and financial service providers are looking ahead to 2006 with a positive outlook. Stronger economies throughout the region are creating growth opportunities in trade finance, private banking, corporate card issurance, electronic payments and insurance benefits.

At the same time, the deployment of new technology allows financial companies to deliver their services more quickly and efficiently. "International banks are using technology to serve their customers effectively over longer distances," says Agustin Abalo, immediate past president of the Florida International Bankers Association (FIBA) in Miami. "And we are still only at the beginning of their revolution in technology."

In Brazil alone, more than 18 million clients use the Internet for banking transactions, according to Aldo Luiz Mendes, vice president, Banco do Brasil. "For 2006, we are investing in options like mobile banking to bring us closer to our clients," he says.

Increased responsiveness to customers is becoming even more important as financial service providers respond to the pressures of globalization, as well as regulatory and compliance requirements. "Financial institutions must satisfy requests for information from their customers, as well as from regulators," adds David Konfino, president, International Division, Regions Bank in Coral Gables, Florida.

Other challenges for financial service providers include ensuring the security of data, and building customer awareness of new electronic tools like the corporate card and automated supply chain payment programs. And it's not just technology--employers must provide attractive benefits programs to recruit and retain skilled managers.

Here's a closer look at the key challenges and opportunities for Latin America's banking and financial service sector.

BRAZIL TO ENJOY EXPANSIVE MARKET

Thanks to continuing job growth, stable prices and increased purchases of consumer goods, the Brazilian financial sector is expected to expand in 2006. "We believe there are market opportunities on the credit side, such as lending for micro and small businesses, as well as for foreign trade," says Aldo Luiz Mendes, vice president of finance, capital markets and investor relations, Banco do Brasil. "We also expect to see increased demand for non-banking services, such as credit and corporate cards, as well as insurance products."

Mendes believes online banking volume will grow significantly as well. "Most of the Brazilian financial providers are already online," he says. "This is part of a continuous move toward greater efficiency throughout Latin America's financial system." In 2004, for instance, 83.5 percent of all Brazilian transactions were made through non-traditional delivery channels, he adds.

To build revenue, Brazilian banks will be seeking to increase their client bases by adding consumers who do not currently have accounts. Other growth strategies include cross-selling products and services to existing customers, increasing the volume of credit operations and cutting costs through automated technology and strategic partnerships. Mendes says banks will also invest more in hiring and training of their employees.

"Banco do Brasil invests systematically in new technology to improve its services to customers, its profitability for shareholders and its support for the community," says Mendes. "For 2006, we are investing in the development of options like mobile banking to bring our bank closer to our clients," he adds. For more information, visit: www.bb.com.br.

ELECTRONIC PAYMENT THE MISSING LINK IN SUPPLY CHAIN EFFICIENCY

In today's global economy, improvements in how supply chains are managed allow raw materials for a personal computer to be sourced in Brazil, manufactured in China, assembled in the US, and shipped anywhere in the world. Such a complex flow requires planning to be successful. In the words of Professor Warren H. Hausman from the Department of Management Science & Engineering at Stanford University, "tremendous strides have been made regarding product supply chain efficiencies--resulting in sharply reduced lead times, lower inventories, more responsiveness and variety, collaboration on planning and forecasting, and improved customer service."

However, financial flows have not been addressed with the same sense of urgency as material and product flows. As a result, business-to-business payment has not seen a corresponding increase in efficiency in the last 10 years, despite the availability of automated payment programs such as Visa Commercial Solutions. Most companies have not integrated payment into their supply chain management systems, resulting in inefficient financial processes.

What is it meant by "inefficient financial processes"? Most companies manage their financial flows manually, using paper-based invoicing and payment systems; initiating, tracking and reconciling these paper-based invoices and payments can be a significant part of a company's treasury costs. In a white paper on supply chain efficiencies, Professor Hausman uses the example of a major hotel in Latin America that moved from operating several chains with numerous hotels per chain, to a Shared Services Center across all their hotels chains for procurement, A/P, and A/R. By unifying the business process of all the hotels, they have increased productivity and estimate $2.5 million-$3.5 Million (USD) in annual benefits.