INTERNET BANKING BOOM EXPECTED IN LATIN AMERICA

Although the branch remains the primary channel of choice among Latin American banks, competitive pressures will eventually force financial institutions to improve Internet and other alternative service avenues, said Virginia H Philipp, an analyst for TowerGroup, at the company's 2001 Financial Services Technology Conference held recently in Boston.

According to Philipp, many Latin American banks continue to emphasize branch operations for economic reasons. Indeed, the cost per branch transaction in some Latin countries is as low as $1.08 per transaction, compared to $1.40 per transaction in the United States. Meanwhile, the cost in these countries for an online transaction is 33 cents, high in comparison to developed nations such as the U.S., where an online bank transaction averages 20 cents.

Also hindering the move toward internet-based delivery channels is the relatively high-cost of computers and Internet access in many Latin American countries.

But some large Latin American financial institutions are attempting to overcome these hurdles by offering free Internet access and the ability to finance computers. This is forcing direct banks to follow along or else risk losing out on the potentially lucrative online banking market, Philipp said.

These banks could be missing out on quite a payday, if TowerGroup predictions hold true. Although less than 4% of the population in most Latin American countries currently go online, TowerGroup predicts that by 2003 12% of the population in Brazil and Argentina and over 10% of the people in Chile and Venezuela will by using the Internet. In addition, the company believes percentage of population conducting online banking transactions, currently negligible in most Latin American countries, will jump to 5% or over in Chile, Argentina, Brazil, Mexico, Columbia and Venezuela by 2004. In Brazil alone, TowerGroup predicts there will be 14 million Internet banking users by 2004.

Part of the reason for these rosy predictions is that several online banking ventures have already found success in Latin America. For example, Bradesco Internet banking already boasts 1.8 million customers, and is adding up to 3,000 new customers per day. Other successful Internet brands include Itau, with 725,000 customers, Unibanco with 700,000, and BancaNet with 375,000.

The prosperity of these operations, combined with the need for other banks to catch up, will dramatically boost Internet bank IT spending. By 2004, Philipps predicts Latin American banks will spend a total of $1.2 billion on Internet banking, more than double the current spend of $600 million. Part of this money will be devoted to adding account initiation, loan application and bill payment functionality to existing online sites.

In addition to improving Internet offerings, Latin American financial institutions will likely spend more resources on wireless applications going forward, Philipp said. The reason: mobile phone penetration rates already surpass PC rates in Chile, Venezuela, Argentina, Brazil and Mexico.