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Latin America on the edge of a new digital banking age 

William Moss, CEO, COBIS

Latin America is an area that is majorly overlooked when it comes to banking technology. While not being completely neglected, one of the many challenges that companies in this region face is the inability to attract international attention that can be converted into some form of concrete investment. We take a look at what is changing. 

Without funding, the internationally competitive skills that have been thriving in urban areas across Central and South America are either neglected, going to waste, or finding better luck overseas. It is not all negative, however. The political instability of some of the regions, which naturally spills over to currency volatility, has not only polarised the population of these countries, but at the same time created new needs and opportunities. As a result, places such as Venezuela have become a hidden hub of cryptocurrency trading, with many local traders on a par with European traders when it comes to technical knowledge and skills. 

Latin American companies struggle to reach beyond the confines of Spanish-speaking countries, as other up-and-coming global giants such as India and China are receiving the spotlight. This is confined to a global level, however, as the proximity and shared population of the US makes it easier for American companies to turn their eyes towards Latin American talent. Past the Pond, and the excitement for this market fades. We talked to COBIS, an American core banking system supplier operating across many of the Spanish-speaking countries in the area. William Moss, CEO, has an international perspective that sheds much light on the issue. 

Old and new 

The focus for COBIS has been to help with banks’ digital transformation, a key topic around the world, but especially in Latin America, where traditional and analogue channels and structures in the most rural areas battle the wave of innovation and transformation sweeping cities. From Santiago, Buenos Aires, to Mexico City, these areas breed talent and hone the skills and interests of digital natives, for whom terms like bitcoin and blockchain are part of their everyday life. At the other end of the spectrum, rural areas struggle to access internet and mobile channels, with a great deal of financial exclusion taking place from the Pampa to Tijuana.  

So how do banks approach this? According to Moss, banks need to make a “modernisation effort to overcome legacy constraints”, and COBIS is trying to play along – modernising its own platform while keeping it adaptive, focusing on scalability and agility. One of the hurdles of having to reach customers from such distinct backgrounds is the need to keep the platform modular, componentising services and systems. Again, while the 20-something urbanite may operate from their phones, it is hard to keep the rural sexagenarian engaged if not through branch banking and phone calls. These issues aren’t very different from what we face in the US and Europe, but the lack of reliable internet coverage in so many areas, or access to it at all, rules out mobile banking here. “The nature of having less digitised interactions in proportion means that banks need to adapt their businesses to more traditional channels,” Moss said.  

Ramon Heredia is director at Digital Bank, a company that aims to create an ecosystem where banks and FIs can find and link up with fintechs, with the aim to operate in Latin America. In a conversation with IBS Journal, he pointed out how in many cities, the average mobile phone per capita is near 1.5, but outside them, the internet reaches less than 40% of the population, particularly in countries such as Paraguay. Instead, banking through SMS and USSB has thrived and so has e-money in other places, like Peru, with companies including BIM, which has managed to reach areas with coverage challenges.  

Miguel Santos, CEO of digital system supplier Technisys, has a slightly different view on the topic. Technisys helps both banks and fintechs to either transform or jumpstart the digital engagement with their customers. Internet coverage is indeed limited, but since in countries such as Argentina and Brazil over 90% of the population live in and around large cities, there is always access to the internet. The issue is financial inclusion, as around 60% of the population do not have a bank account. Santos calls it “a greenfield”, not only for banks, but also for fintechs and digital unicorns able to satisfy the financial needs of those financially excluded.  

A landscape of opportunities 

In general, Moss stresses that in such a diverse environment, there are many opportunities for fintechs and FIs. Moss urges the community to start keeping an eye on Latin America, and the investment opportunities that lie dormant. And Heredia thinks the same – the diverse population with antagonistic behaviour or lack of access to modern technologies presents a problem, but at the same time, digital transformation is paramount for the development of the region.  

Santos reiterates that digital adoption is really not a problem, and that there are banks that have had plenty of success taking things digitally, particularly in Brazil, with purely digital banks, such as Nubank or Banco Original. The latter has onboarded a million customers so far, and quickly began receiving thousands of account applications a day. In five years, Banco Original expects to hold accounts from 20 million different customers, all thanks to the digital end-to-end approach.  

The type of technologies Digital Bank deals with testifies to the ambition and technological level that Hispanic fintechs aspire to. “Europe and America have nothing on the technology our fintechs are working on, only that this is adapted to their respective market type. Chatbots, neural networks and AI, RPA, digital networks, digital channels, international debit cards, and other payment technology for e-commerce sites are just some of the examples of technologies by companies we work with,” points out Heredia. As he speaks, he remarks on how proud the community is to keep up with state-of-the-art levels of innovation in their range of fintech labs. “We’re even connected with Silicon Valley in many of our projects,” he says.  

A very important industry all across Latin America has been micro lending, as it is a staple in areas with low income, with companies such as Afluenta in Argentina, or Rent Capital in Chile. According to Moss, the state of micro finance corroborates the potential of the new projects that are being launched through these loans. Heredia remarks on the abundance of banks, credit unions and microfinance institutions that have now made micro lending available for a wide population in each respective country, having paid special attention to risk assessment and to keeping the standards in processing loans without cutting corners in business models.  

Trying to keep up. 

Much like in the rest of the world, governments are still trying to figure out the state of the fintech industry in Latin America. According to Heredia, while regulation hasn’t been hostile towards new technologies, it hasn’t been supportive, either. Regulating entities are trying to keep up with these new changes, but governments have other priorities. Cybersecurity has prompted governments to start looking into AML legislature, but as they scramble to establish regulation, fintechs experience flexibility.  

Just like many of the challenges that the industry faces, the topic of security is a cultural issue that affects all areas. Gangs from countries such as Colombia or Argentina are using phishing and pharming en masse, and card cloning – particularly when it comes to NFC technology – has been an increasing concern in the past few years. Many of them have been forced to opt for self-regulation, as countries such as Mexico start considering fintech laws. Even when it comes to bitcoin, pyramidal schemes have also taken a dent in the public view, but fintechs are pushing to educate regulating entities on the best way to proceed to avoid these.  

New players, big players 

However, the focus does vary from market to market. COBIS’ omnichannel approach to Latin American countries matches the market and population, but depending on the country, the game changes. According to Moss, in Mexico, for example, the need for a robust and compliant cloud platform is the main priority. Banking groups are materialising as well, rearranging the banking environment. And this goes beyond the bigger countries, such as Colombia, where the Sarmiento family owns a great share of the banking market, or Chile, with the Luksic family; but in smaller countries such as Honduras, with examples like the Ficohsa banking group; or in Panama, Banco General.  

On the other end of the spectrum, fintech laboratories, either sponsored by many of these big companies or by fintech associations, which act as aggregators of medium and large companies, have been appearing across the subcontinent. Banco de Chile, for instance, has already launched a series of hackathons to involve fintechs in their labs and projects.  

Alongside banks and fintechs, there’s a new wave of non-financial companies that is spreading throughout Latin America, aiming to turn themselves into the most attractive alternative. Alipay and Alibaba,, Uber, MoneyGram, Cumplo and Mercadolibre are examples of digital unicorns that threaten the status quo of traditional financial solutions. Through digital financial alternatives, including e-money, e-commerce sites, and others, these companies are providing more accessible ways of managing money, while being able to bypass many of the regulatory requirements that traditional banks have to meet.  

On the other hand, cryptocurrencies have picked up popularity, particularly in the past year, which has tempted many young techies in countries where currency volatility is an issue, such as Venezuela. Trading platforms such as BitInca, SurBTC and CryptoMarket have raised the profile of these currencies and – similarly to the greater multinationals – they started pushing away traditional financial solutions. In response, the message from Heredia is of collaboration between fintechs and banks, as fintechs are the best defence banks have got to fend off these new threats. All in all, financial inclusion is good overall, and for those with little access, it matters little what shape lenders and money management solutions take.  

This article first appeared in the IBS Journal September 2017

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