The biggest profits from digital banking will not be in Europe or North America but in Brazil and other key emerging markets, writes Brian Caplen.
Digital transformation in Europe means cutting costs to repair squeezed margins. In Brazil and other key emerging markets such as Mexico and India it means reaching out to both new and existing customers to boost revenues.
In the North-South digital divide, the South sees digital as a big opportunity to grow the business through financial inclusion and upscaling existing customers, whereas the North is more focused on lowering costs by reducing branch numbers and head count.
This geographic digital divide is different in character from the classic digital divide between the tech haves – who are happy to do everything online – and the tech have nots, often the poorer and older folks in developed countries who do not have internet access.
But even with the classic version, large emerging markets seem better placed as they have younger populations whose first experience of banking will be online. Banks are rolling out digital financial inclusion programmes to capture this new market.
In Brazil I met with Santander's country CEO, Sergio Rial, who says that the whole way of understanding and measuring banking has been changed by digital. While Santander has a 10.6% share of deposits and 8.7% of loans (the traditional market share measures) in Brazil, it has much larger shares in credit cards (14%), car loans (25%) and mortgages. "Scale has been redefined by the digital space... deposits do not define a bank's scale any more. [Instead] it's the number of transactions per minute," says Mr Rial.
One example from Santander is its digital car loan business, which gives quotes in 10 minutes and wraps up the finance inside 24 hours. Every month the bank gives out 1.2 million quotes and converts 10% to 15% of these quotes into loans. Another example is the Santander Way app, which is a credit card that customers can use for all their regular expenditure and planning, giving them control of their finances. There is also a virtual card element for safer online shopping.
Unsurprisingly, fintech entrepreneurs have also noticed the potential for revenue upside in Brazil. The country's best known fintech, Nubank, offers credit cards via smartphones and is working at gaining share in Brazil's 165 million-strong credit card market.
But, as is the case in Europe, it is the banks with brand names and scale that stand to gain more of the upside. The difference in the South is that the upside has much greater potential because of being on the right side of both kinds of digital divide – geographic and generational.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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