In a context of increasing competition, marked by the arrival of new players such as digital banks and fintech startups, local banks are rushing to adjust. Digital transformation hasn’t caught Argentina’s financial institutions by surprise, however: they’re ready to invest in creating a better user experience.
Over the past 50 years, information technologies have changed the way people interact with one other. The rise of personal computers and widespread access to the Internet have accentuated trends that had been on the horizon since the first industrial revolution. Communications are freer, access to information, faster. If personal relationships have changed, so have businesses: consumer demands are not the same anymore and as technology becomes a commodity, the fight to stand out in the crowd becomes fierce.
This is the context in which banks operate today in Argentina: they're sailing in the river of digital transformation, knowing that if they don’t, they’ll lose market share to another competitor ready to invest in upgrading its systems or delivering a better user experience. In this game there are a number of different players: incumbent banks competing against new digital native entrants – such as fintechs or digital banks - that apply the same agile methodologies as technology startups. These methodologies are adapted to the finance industry, enabling the newcomers to innovate faster, free of the burden of legacy systems.
Banks will be able to outsource their technology services in the cloud, an option banned until now"
Aware of this, the country’s central bank, the BCRA (Banco Central de la República Argentina) – under the leadership of Federico Sturzzenegger - created a new area of technological innovation, which has reached out to the different players to gain a better understanding of the new reality now taking shape. With 50% of the population still unbanked and a relatively low debt-to-GDP ratio - aproximately 14%, compared to Chile's 110% -it's clear that much can be done to stimulate innovation.
Government officials decided, for example, not to develop any fintech-specific regulations, a measure welcomed by the Argentine Fintech Chamber, created in October, 2017 with a membership list that includes heavyweights such as MercadoLibre and Western Union. But the banks also received the green light from the BCRA: they can now make equity investments in the fintech sector, either by creating their own business ventures or by investing in existing startups. The month of November ended with another positive development: banks will be allowed to outsource their services in the cloud, an option that had previously been banned.
These measures are helping banks to gradually shed some weight and become more innovative, a trend that had already been heralded by the sector’s heavy investments technology in recent years. According to NXTP, an accelerator with a portfolio focused on fintech startups, Argentina is Latin America's third most active country in the sector accounting for 15.6% of the region's total volume, after Brazil and Mexico. How are Argentine banks investing that considerable amount of resources?
A mixed strategy
Over the past two years, building an multi-channel model has probably been the top priority for banks. Aside from investing in hardware to support each their core business processes, the banks' goal has been to deliver a better user experience. With standard interest rates and products, one way to grow organically is through differentiation. Local banks looked at their global peers but also at other digital native segments, such as e-Commerce, for inspiration: investing in User Experience (UX) became the dominant strategy in the battle to retain customers.
Realizing that a significant segment of the population with access to financial services no longer sees a visit to a branch office as the best way to bank, industry players are looking into the future. Their new customers are millennials. To reach this demographic group, they are investing world-class digital experiences. According to VeriTrans figures, there are about five million mobile customers in Argentina; the total digital customer base, taking into account online banking customers, stands at 6.5 million. "Banks are going through a stage of digital reinvestment and must be able to keep up eith the ever-evolving expectations of their customers", said Diego Castiglioni of IBM Argentina, in an interview with the local financial publication Alzas y Bajas.
The banking sector invests to create a digital experience keeping in mind their new millennial clients"
To compete against the new digital entrants, Argentina's traditional banks are following the example of their counterparts around the world, by developing spin-off models with 100% digital brands. Creating these low-cost business units enables them to both curb expenditure and access a broader range of customers.
The development of in-house solutions - or in partnership with external service providers, such as Red Link, Prisma o Gire – is still the rule at present. However, the acquisition of bundled, easy-to-deploy third-party solutions would allow banks to focus on their core businesses. The same goes for the new fintech options that keep appearing. Argentina has a significant number of startups striving to offer better payments solutions, develop blockchain-based proposals or digitize outdated analog processes. These startups don’t always present themselves as competitors, but as providers of complementary solutions for the traditional banking business.
Shyly but firmly, we are starting to see specific changes that will foster the adoption of new technologies in the financial sector. The traditional banks, the new digital competitors set to launch in 2018, and the fintech startups all share the same goal: to expand the market, provide better solutions and deliver a successful banking experience across all channels.
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