Latin American banks and fintechs are racing towards financial inclusion

Source: Temenos

Temenos (SIX: TEMN), the banking software company, today announced that it has published the Latin American results for its annual retail banking survey, conducted by the Economist Intelligence Unit (EIU), ‘A whole new world: How technology is driving the evolution of intelligent banking in Latin America’.

To cash in on financial inclusion, banks need to invest in digital technologies such as cloud, mobile, omni-channel capabilities and analytics, while at the same time cutting costs or improving margins, a top priority cited by 35% of retail bankers for 2020.

According to World Bank figures, two in every five Latin American workers have no bank or savings account.[1] Historical hyperinflation, economic volatility and poor credit infrastructure means banks often overprice risk, leading to high charges and interest rates. Cost is the reason 60% of the unbanked say they do not have accounts.

The EIU report highlights that politicians and regulators are taking action to make the banking system more competitive, and tackle the high cost of charges inhibiting consumers from pursuing banking services. New regulations such as Mexico’s Ley Fintech aim to open up the market by providing oversight for fintechs.

As competition and regulatory initiatives erode margins, banks are focusing on stripping out costs. Other immediate priorities include investing in digital technologies to deliver outstanding experiences and lower costs. According to the report, 39% of respondents cite migrating client usage to digital from physical channels as their top strategic priority for 2020 followed by humanizing the customer experience (38%) and mastering digital marketing and engagement (32%).

Initiatives to open up the market seem to be working though. According to the report, competition is driving banks to act - with e-commerce growing fast, partnerships between the tech giants and fintechs rank second (cited by 31% for 2020) to payment players (44% for 2020) as the biggest, immediate non-traditional competitive threat to their business. Furthermore, nearly seven in ten (68%) respondents also expect peer-to-peer lending to be available on banking platforms by 2025.

To be able to deliver personalized, rich banking services at scale, with a low cost-income ratio, taking advantage of cloud-based technology will be vital for the region. Latin American bankers focus their digital investment on cybersecurity (47% compared with 39% globally) and cloud technologies (29%) which the report highlights may help Latin Americans to move from physical channels and cash to digital accounts, payment apps and intelligent data services.

Enrique Ramos O’Reilly, Managing Director - Latin America & Caribbean, Temenos, said: “Banks need to digitally transform in order to create innovative ecosystems, move to the cloud to drive down costs and provide more accessible banking services, or offer highly personalized services to consumers. There is a definite need in Latin America for banking services that address consumer demands. That’s why banks like Prestanómico and Banco Azul choose Temenos. We offer the winning combination of the richest packaged banking functionality and the most advanced cloud-native, cloud-agnostic API-first technology delivering tangible business benefits to banks. With our solutions, Prestanómico enables customers to apply for a loan and receive a response within four minutes - their solution is so efficient that Prestanómico started offering “lending as a service” to process loans that are distributed by other financial institutions in Mexico. Banco Azul, a locally owned startup in El Salvador is one of the fastest growing banks in the country. We look forward to continuing to partner with banks in the region to expand the reach of financial inclusion and deliver outstanding customer experiences.”

About the survey
The Economist Intelligence Unit surveyed 400 global banking executives about the challenges retail banks expect to face between now and 2020/2025, and the strategies they are deploying in response. Fifty-one percent of respondents were at C-Suite level and 10% were board members. The Latin America report was based on 66 respondents from the region and was supplemented with in-depth interviews with senior executives from leading banks in the region.

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