Three mid-sized Chilean banks have handed their entire back-office and IT operations to national telecoms carrier Entel.
A retail banking revolution is happening as unbanked millions from emerging economies across the globe discover an appetite for financial products. Our cover story highlights the huge banking opportunities in these markets, but another revolution is happening as banks seek new production and distribution models in this highly competitive industry.
In Chile, three medium-sized banks have decided that if they are to compete with bigger rivals on cost and issues such as speed to market for new products, they need to radically change their back-office procedures. Rather than shaving costs here and there they have sought Chile’s largest telecom carrier, Entel, to take over the banks’ entire back office and IT support function.
In a landmark agreement earlier this year Entel signed a long-term agreement with the three banks, Banco del Desarrollo, Banco Internacional and Banco Security, to provide their back-office banking application needs on a pay-as-you-go or transaction fee basis.
The five-year contract, which also involves Madrid-based DMR Consulting and India-based software house i-Flex, changes the operating model for banks and allows smaller banks to achieve the economies of scale of bigger rivals in core banking applications.
Efficiency gains
By putting the back office through Entel, Banco Internacional’s general manager Álvaro Achondo González believes he can make savings, help reduce his cost/income ratio from near 65% to nearer 50%, allowing his bank to compete better against the big banks as well as improving his flexibility and time-to-market for new products.
This new Club de Bancos model, due to go operational late next year, is a win-win situation both for banks, unable to compete against bigger, better resourced competitors, and for telecoms providers anxious to extend their technology to broader corporate markets.
And the regulator is pleased by the opportunity to extend state-of-the-art banking applications to a wider range of banks. This model may also be extended to include three more banks in Chile.
Taking the back office out of banks and handing it over to telcoms to administer allows banks to get on with what they should do best, dealing with customers in the front office. It is a simple yet revolutionary idea that could be used around the world to extract more value out of telcoms and banks alike, while providing better services for more customers. Such new banking models are set to change the way banking is done in the future.
