Many banks in Latin America are facing major challenges, while going through one of the most prosperous economic periods in recent history. Despite the global turmoil affecting the US, Asia and most of Europe, Latin America has maintained stable fiscal results.

In this region, portfolios are growing at a constant double-digit rate. At Banco Occidental de Descuento (BOD), we have observed a strengthening of the equity base, which has increased corporate income and profitability, while maintaining margins to deal with adversity.

The prudence of Latin American bankers is to – among other factors – maintain enough liquid reserves to allow a positive response to national and international economic downturns by being precautious. These precautions have allowed greater capitalisation and an increase in credit and regional bank expansion, according to the latest reports by the Latin American Banks Federation, Felaban.

Gaining a wider client reach
The challenge now is to attain a larger coverage of individual and entrepreneurial clients. This is ascertained by reaching out to the production sector – particularly small to middle-size companies – while looking for larger opportunities, with a strong awareness of risk assessment and sourcing innovation.

I personally think that a greater availability of reasonably priced financial services, including services of a higher effective usage is still needed in the region. Until now, access to formal financial services has been implemented with a particular emphasis on non-traditional channels.

Additionally, in several countries in the region, non-banking correspondents already outnumber traditional channels, and have since continued to grow. Given that trend, new channels for financial access are required.

As the President of Cartera de Inversiones Venezolanas – a Venezuelan entrepreneurial holding that extends to several Caribbean countries – I am able to assure you that with the present situation, there are a number of challenges in innovation that once they are solved, would provide more customers and company growth.

It is impossible to bank without technology, and even harder to compete in the global economy without it. I understand that for this very reason, banks in Latin America are largely focusing their technology investments in innovation.

In order to take advantage of the emerging technological opportunities used to generate growth, companies in Latin American are reducing costs, improving product quality and customer experience.

Harnessing social media
In the industry we need to develop new access channels, oriented towards fostering inclusion for non-banking segments. We should take advantage of social media and networks in order to connect, communicate and collaborate with customers in real time and in multiple ways.

According to a recent study by Gartner, almost 60 percent of Latin American banks project to increase their investment in updatable applications, especially in core systems and service-oriented architectures. This is in order to improve the integration levels across all of their apps, reduce costs, and improve the ‘time to market’ ratio, therefore winning over a larger competitive advantage. In this regard, I consider that the Latin American banking industry needs to tackle important challenges in the years to come by implementing changes.

These are to reduce the low banking-inclusion levels in the region, reduce risks and fight fraud. There is a need to reinvent the banking model, fostering the adoption and use of new technologies in order to reduce branch-office transactions and improve its role as a centre for financial advice and doing business.

To achieve this, emerging technologies offer a world of opportunities. Proof of that is the case of the cell phones’ ever-increasing presence, and the advances this entails for mobile banking. Cell phone usage in Latin America is already reaching levels close to 100 percent, and has grown exponentially in the last few years. This has also been the case with the use of 3G and 4G technologies and smart phones, which have been growing dramatically – especially in Brazil, Argentina and Mexico – according to a report on the future of Mobile Banking in Latin America, published by the Deloitte consultancy (see Fig. 1 and Fig. 2).

In 2010, cell phone connections in Latin America already exceeded 563 million, with an average of 1.02 connections per capita, and it is estimated that by 2015 mobile banking will have 140 million users and a penetration of mobile payments close to six percent, similar to penetration levels expected in other regions.

Collaborative development
This mobile penetration – together with important developments attained in the region by non-banking correspondents – has encouraged government policies to support the development of mobile technology. We will also develop and deepen the financial support in the banking industry, especially in the low-income areas.

In fact, a study by Gartner reveals that almost 45 percent of Latin American countries now offer the so-called G2P – Government To Person – operations, for payments of social benefits and other subsidies. Of course, if we go beyond cell phones, we find that other technologies also offer great opportunities to shift service operations from branch offices to self-service channels that are more convenient for the customers.

Such is the case of kiosks and multi-function ATMs that today allow operations such as payment of utilities and services, the purchase of travel tickets, cash and check deposits, cell-phone card reloads, among others. Banks are changing their services portfolio so that many include new transaction possibilities, such as web, IVR and other modalities, 365 days a year, 24 hours a day. This service frees up branch offices, optimising response time for specialised services.

Technological advances have allowed banks to rapidly get in touch with their customers in order to offer new products and services

Currently, internet penetration in the region is close to 38 percent, with more than 220 million users. It is expected that by 2014 this will reach 47 percent. If we consider internet access over mobile devices, this could reach 65 percent by 2015, according to a projection by Deloitte. This penetration level will allow the development of financial and business models over social media, networks, blogs, video streaming and others, making use of every advantage offered by the web in order to leverage the growth of the banking business in the region, and to improve contact experience with all of our current and potential customers.

Technological advances have allowed banks to rapidly get in touch with their customers in order to offer new products and services, while also competing with other institutions to capture a larger market share. Banks must also compete with companies that offer financial services, and to achieve this they should regularly survey the market, ready to make timely decisions, by relying on their strengths and experience in the banking and financial sector as well as on the necessary investments required for updating technology, and recruit qualified personnel.

In terms of attacking the scourge of fraud, Latin America is one of the regions that have rapidly adopted the EMV or “smart card” technology, worldwide. According to figures published by EMVCO, the adoption of such cards and suitable terminals has already surpassed 49 percent and 78 percent respectively, with over 400 million cards in use and more than 5.6 million terminals. The region is now behind only Europe in this regard.

On another front, many banks in the region are implementing biometric authentication systems and digital certifications, to reinforce security in their channels. In general and based on the experience of the banks I preside in, I consider that technology has transformed and will keep on transforming the banking industry.

The adoption of cell phone-based technologies, mobile payments, and electronic transactions over the internet, ATMs and points of purchase will soon cast aside the use of cash and cheques. Imagination is limitless, and with it, new trends will blossom in the banking industry to reach and service more customers, and for transforming the business of banking into a more innovative, high quality, and reliable experience than it already is.