A large part of Chile’s growth story has been the conservative regulation of its banks: the country has avoided bank and debt crises that have stymied the other large economies in past decades.
But that conservatism can hold back innovation, and the number of fintech launches has been noticeably lower in Chile than in other large markets in the region.
The financial portability law could be the spark that changes that.
By making it much easier and cheaper for businesses and retail customers to switch providers of bank accounts, credit cards, loans and mortgages, the central bank is lowering the barrier to entry. This reduces the turnover friction that can make incumbents slow to adapt to the digital forces tearing up the financial markets elsewhere in the world.
For example, Itaú and Scotiabank still don’t have 100% digital opening of accounts – a surprising fact given these banks have international businesses that should have helped anticipate the digital drive.
Taking the lead
Meanwhile, Banco Santander has taken a jump on the market. In June last year, the bank launched a Santander Life account that is fully digital and nudges customers to increase savings.
The bank then went further, and this year launched Superdigital, positioned as a standalone fintech that offers fully digital pre-paid accounts aimed at unbanked segments in the market.
While Santander Chile is keeping this operation separate, it will undoubtedly generate data in this opaque sector that will be useful to identify potential candidates for full digital banking services in the future.
Chile could soon become a more interesting and competitive banking story
Spurred by Santander’s digital leadership, Banco de Chile has responded by launching its own fully digital account. Called FAN, it is also aiming at the country’s six million unbanked individuals, though the bank has reported that higher-income individuals have also joined the platform and the bank intends to offer credit products in the near future.
Given the impact of Covid-19 on banks’ provisions, it is impossible to detect any impact on these banks’ profit ratios. But Credit Suisse expects Santander Chile to nudge its efficiency ratio down to 41.7% this year and it predicts that Banco de Chile – slightly behind its rival in terms of investment – should see a reduction in its efficiency ratio to 43.6% in 2022 from 45.3% this year.
Competition
Banco de Crédito e Inversiones is also well positioned – launching its pre-paid MACH card first – ahead of Santander – and has already built up a customer base of 1.7 million.
And the competition is set to grow: local bank BICE is preparing the launch of its digital account Go, and Peruvian neighbour Credicorp is entering the Chilean market with its prepaid card Tenpo.
If fintechs find the regulatory environment more conducive, there could also be a wave of those, too. Chile could soon become a more interesting and competitive banking story – and not in a way that adds risk.
