It is hard to take a sober look at Argentina and have something positive to say: It churned through five presidents in two weeks, defaulted on a $141 billion foreign debt, abruptly shelved its 10-year currency and restricted the ability of consumers to withdraw their own money from banks. And yet the Internet sites of Argentine banks have been abuzz with activity, marking a development that has provided a degree of satisfaction to both banks and consumers alike in the country.
Hopes are high that Argentines will not be alone in Latin America in the aggressive move to bank on the Net, and that it won't take additional catastrophes to stoke usage.
If, in 2002, the region's banks follow the lead of a handful of financial institutions in Brazil, Mexico, Argentina and Chile that have implemented among the world's best practices online, Internet banking rates should soar.
The Atlanta, GA-based financial services consulting firm Speer & Associates Inc. (S&A) found that Latin American banks have made enormous strides in the past year. The Mexican institution Banamex, a unit of Citibank, jumped from being the 34th best Internet bank worldwide in S&A's survey of December 2000 to becoming the second-best Internet bank in the firm's December 2001 survey.
While the U.S. bank Wells Fargo & Co. took first prize in both the December 2000 and 2001 surveys, in the latter study Argentina-based Banco Galicia climbed to the third position, having placed 11th a year earlier.
Banks in Argentina, Mexico and Chile ranked as the regional leaders in S&A's survey.
The study did have a discouraging note: Latin American banks on the whole remain bogged down in the last position in Internet banking behind major U.S. diversified banks, large U.S. regional banks, Internet-only banks, Canadian banks and midsize U.S. banks. Business development features and functionality are among the areas in which Latin banks continue trailing their North American counterparts.
Nonetheless, in perhaps the strongest testament to the seriousness in which Latin banks are now bringing forth advanced Internet offerings, they are rapidly closing the gap. Half of the 16 sites that moved up in S&A's ranking at least 50 points in the past year are Latin. These banks are making strides in areas such as internal transfers/payments, external/third party bill pay and customer service orientation.
For example, 90% of the 68 Latin American banks surveyed now provide external bill pay, compared with only 62% in December 2000. Latin banks are even outperforming Canadian and North American institutions in their focus on site- owner banner ads, third-party banner ads, external search engines with multilingual capabilities and online shopping.
Several Latin banks also are making special attempts to coax their small business customers towards the Internet channel. In an even more recent study, from January 2002, S&A found that three of the world's top 10 sites for serving small businesses are Latin: Brazil's ABNAmro Real (No. 2), Banamex (No. 7) and Mexico's Bital (No. 9). Wells Fargo once again claimed the top spot.
That Argentina's banks are suddenly making rapid gains in Internet banking is a special case.
This past December, with banks short on cash-like the government-then- President Fernando de la Rua limited Argentines to a maximum withdrawal of $1,000 per month from their accounts at bank branches and ATMs.
Angry citizens, unable to get wads of their own cash to pay for products and services, began to mob banks and attack ATMs. The result: interactions via the Internet soared.
According to The Yankee Group, a technology research and consulting services firm headquartered in Boston, MA, BBVA Banco Frances signed up 3,500 new customers alone in the first five days after the economic announcements. Normally, the Buenos Aires-based bank's growth would total about 4,200 monthly.
With the current president, Eduardo Duhalde, maintaining the withdrawal restriction-dubbed "corralito"-bank customers have remained hungry to find ways to easily move around their cash and make payments.
Since the corralito, Banco Galicia has seen three to four times the quantity of new clients on the Internet, according to Hernan Mattiussi, the bank's product manager. Last December the bank saw three to four times the Internet activity that it witnessed in November, in terms of the number of hits, clients and transactions. Some operations saw particularly heightened activity; for instance, payment of services on the Net grew seven to eight times in December from November.
As of early February, Banco Galicia was recording 2.1 million consultations and monetary transactions online per month-double the number in November 2000. Its total number of Internet banking clients reached 140,000 in February, up from 100,000 at the end of November 2001.
The bank offers everything from transferring funds to third parties and obtaining insurance to chatting with financial specialists online. Its top applications during the corralito have been transferring funds between accounts, paying services and paying credit card bills.
"The growth of these last two is directly linked to the restrictions imposed on the population to manage money in cash, which generated a great demand for online services," says Mattiussi.
The spurt in Internet banking has been the norm among Argentine banks during the corralito, which, although it will inevitably be lifted, is introducing the benefits of Internet banking to many Argentines.
It also is forcing Argentine banks to ratchet up Internet offerings.
While unnecessary at Galicia-a bank that is among the world's Internet banking leaders and one that spent $6 million from the end of 2000 through 2001 on Internet technology and the marketing of e-galicia.com-many Argentine banks are playing catch-up and are retooling their online platforms, notes Mattiussi.
The Yankee Group, in a research note, concurred: "This experience will encourage less sophisticated banks to consider the advantages of an online strategy to stem transactions with hundreds of customers that are visiting branch offices and generating inbound calls."
Banco Bradesco, based in Cidade de Deus, Brazil, has continued to serve as the model for those Latin banks seeking mass appeal. The bank claims to have the largest Internet banking client list in the world. As of February 2002, Bradesco Internet Bank had 3.8 million clients and was growing at the rate of 5,000 to 6,000 new Internet users per day. It offers more than 250 different types of transactions for consumers and companies online, although the bulk (75%) of those used by clients are for statement and balance inquiries.
For Bradesco, the push to offer the payment of bills and other transactions online is smart economics. Candido Leonelli, Internet director for Banco Bradesco, says the cost to the bank is six to eight times greater when a customer pays a bill at a branch window instead of via the Internet. The fact that Bradesco has still not found its way onto the computers of households in Classes C and D-the third and fourth tiers of purchasing power-speaks to the enormous potential of Internet banking in a country like Brazil, home to 170 million people.
Today, however, only about one in 16 Brazilians has Internet access.
There is no shortage of optimism that Internet banking will indeed permeate society. One of the leading indicators underpinning Internet banking growth in Latin America is found in the increased penetration of the Net there. Partly due to continuing privatization and declining telecommunication costs, Latin America is witnessing the greatest percentage growth of Internet use in the world, rising at a 40% clip from 2000 to 2004, compared with 19% worldwide, according to eMarketer Inc., a New York-based provider of e-business and Internet statistics. The firm projects that there will be more than 60 million Internet users in the region by 2004, compared with about 22 million last year.
This expansion is crucial for banks in their drive to reach out to a broader base of clients.
"Our challenge is to go down to classes C and D and also to move people from making inquiries to actually making transactions," says Leonelli.
Bradesco and other Brazilian bank titans have initiated creative measures to bring Internet banking to the less affluent. The bank, with assets of about $48 million, has moved into television banking, has been financing microcomputers and providing free Internet access to its customers, and plans to hold lotteries for clients who pay bills on the Internet, with a new car among the prizes.
Further, given the widespread cellular phone use in Brazil, Bradesco has been trying to develop its mobile banking platform, which it launched in March 2000. The undertaking has yielded significant results, as Bradesco has approximately 81,000 mobile banking customers and recorded 647,000 transactions in 2001. Still, mobile banking hasn't caught on at a breakneck pace: Bradesco's rate of new customer acquisition in the area lies at 5% per month.
Indeed, Latin American institutions have been criticized for failing to test the limits of mobile banking. Take Mexico, for instance, a market that is ripe for mobile banking. It has one of the best cellular phone service penetration rates in Latin America, as well as the region's top cellular competition, according to the Yankee Group. Yet, in its December 2001 study, the research firm found that while every major bank in Mexico was offering online activities, only four were offering mobile banking services.
Moreover, these banks-Banamex, BBVA Bancomer, Bital and Scotiabank Inverlat- only provide a limited set of mobile services, such as balance inquiries for checking and savings accounts and credit cards.
Indeed, as of December 2001, Banamex offered those services alone, even while enjoying the distinction of being the only Mexican bank working with every Mexican mobile carrier and, according to S&A, being the No. 2 Internet bank in the world.
Only two banks offer advanced services, such as transfers and payment for services, and the market still has not introduced highly sophisticated options, such as m-commerce payments and interbank transactions.
"Most importantly for the bottom line of both banks and operators, mobile banking services must be targeted not only to top end users but also to low- balance bank customers to increase the profitability within these consumer segments," suggests Felipe Gonzalez, author of the Yankee Group report. "Increased data usage among lower-income mobile subscribers would be an important element for operators struggling to fend off continued ARPU decreases."
Gonzalez says the challenge facing Mexican banks is a marketing issue: "developing the services that users want and effectively letting users know about them."
Better marketing may help spread mobile and Internet banking, but it won't be enough to bring Latin America to an overall level akin to that of North America and Canada. The difficulty in corralling Classes C and D onto the Internet is complicated by the economic morass facing the region. The economic slowdown in the U.S., which significantly affects both capital flows to and exports from Latin America, combined with the Argentine crisis, helped lead the Economic Commission for Latin America and the Caribbean (Cepal) to reduce its growth estimate for Latin America to 0%-0.5% for 2002. Earlier, the group had projected 1.1% growth in the region. Taken together, the economies only grew a cumulative 0.5% in 2001.
Argentina, meanwhile, is expected to see its gross domestic product fall 7% this year.
While this won't necessarily derail banks' ability to provide Internet products and services or curtail their online budgets, it will affect the purchasing power of Latin Americans.
"Internet penetration is linked to the economic development of each country, and if the economic development is lower as a result of what happened, then Internet penetration will also grow more slowly than anticipated," explains Jose Garcia-Cantera, a Latin American bank analyst for Salomon Smith Barney.
PC acquisition could be sluggish in the region this year and Internet access costs, which could rise in Argentina due to inflation, may well keep many other prospective Internet banking clients offline.
