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AmericasApril 4 2004

Banking for the bankless

Young Argentines who sold a small internet site to Banco Santander for millions of dollars at the height of the internet bubble are jumping into Brazilian banking to compete with the region’s largest financial institutions.
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Brazilian banks such as Banco do Brasil, Latin America’s largest commercial bank, and Banco Bradesco, Brazil’s biggest non-government bank are expanding services targeted at Brazil’s rich. Bradesco also recently started going after the affluent, opening offices called Prime for clients with at least 50,000 real ($17,000) to invest.

Argentines Wenceslao Casares and Guillermo Kirchner have a different idea: target Brazil’s poor. There certainly are a lot more poor people in a country with a minimum wage of $1,072 a year. Per capita income dropped 1.5% last year and is less than the equivalent of $300 a month, according to the federal statistics institute.

Mr Casares and Mr Kirchner are investing $40m in Lemon Bank, a bank in Brazil aimed at providing services to the estimated 39 million Brazilians, approximately the population of Spain, who do not have a bank account. This is especially important because most invoices, including those for bottled gas, electricity and telephone service, are paid through banks. Benefits such as state pensions are also disbursed through banks, harking back to before Brazil had an efficient postal service.

“We have formed the largest network of correspondent banks maintained by a private bank in Brazil,” says Michael Esrubilsky, the 29-year old general manager of Lemon Bank. “We will reach 5,500 service points this year, up from the 3,600 we set up last year, our first year.”

Lemon is based in Săo Paulo although its target customers generally live in villages in poor northeastern states such as Sergipe, Piauí and Maranhăo.

A typical correspondent might be the general store, petrol station or chemist in the village. “The store owner will know everyone and his ability to pay,” Mr Esrubilsky says.

Unlike with a typical bank, potential customers do not have to prove their income. Lemon Bank’s Conta Brasil, a current account, can be opened by anyone with proof of residence and national identity and tax documents. Clients have to pay one real (about 34 US cents) for each transaction above the first five free ones a month.

“The name Lemon Bank was chosen because we wanted to be different,” says Mr Esrubilsky.

Lemon faces competition from Banco do Brasil, Caixa Econômica Federal and Bradesco, which are also starting services for low income Brazilians without a bank account. “There is space for everyone,” says Mr Esrubilsky, a native of Săo Paulo and formerly an analyst at Goldman Sachs in New York.

Doubts should be tempered by remembering the business smarts of Mr Casares and Mr Kirchner. They and other shareholders sold 75% of Patagon.com, a personal finance site, to Banco Santander for $529m in March 2000, the peak of the internet bubble.

The Spanish bank sold back all of Patagon America to Mr Casares and Mr Kirchner for $9.8m in May 2002, according to a Santander press release. Santander continued with the expensive Patagon brand in Europe.

Lemon Bank, declining to specify its target dates for reaching operating profit and net profit, says it will be self-financing starting next year. “This is a long-term project,” says Mr Esrubilsky.

The partners chose to invest in Brazil over their native Argentina because “it has the maturity of regulatory agency after the central bank regulated the correspondent rules three years ago. Brazil also has the technology to move the money,” says Mr Esrubilsky, who estimates that Lemon Bank will move 4.7bn real through its vast correspondent network this year, up 81% from last year.

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