The growing threat from new fintechs and the opportunity for efficiencies mean that ambitious digitization projects are no longer just the domain of the Latin America’s large banks.
Banco Caja Social, a 107-year-old Colombian bank that has 2.83 million active customers in the lower-income segments, has been working with banking platform fintech provider Backbase to migrate large sections of its clients online.
In the past year – since Banco Caja Social went live with the Backbase platform – the bank has seen a 74% increase in its customers interacting digitally (through the app or internet) to 400,000 monthly users and a 128% increase in online monetary transactions. The digital participation in the transactional mix of the bank has grown 192% this year.
Digitalization has a huge benefit on the bottom line
Ethan Clark, Backbase
Elsa Patricia Manrique, vice-president of strategy and development for Banco Caja Social, tells Euromoney that the bank’s Backbase initiative is part of a multi-year project to improve its operational processes. “We are evolving from a bank that sells products to one that is useful to its customers with an emphasis on the value generated and perceived by them,” she says.
“With that purpose in mind, we developed a transformation programme for the bank that includes a strengthening of its digital capabilities in order to consolidate a multichannel service of greater ease and convenience, which at the same time allows us to reduce service costs.”
She adds that the timing, which saw the enhanced digital proposition go live in the first quarter of 2020 was, was fortuitous. “This project was not started by the pandemic, but its materialization did coincide with it.”
Unsurprisingly, the bank has seen most growth in online management of its clients’ current accounts and products, but Manrique says the next step is to use the platform to drive new sales.
“The sale of products in digital channels compared to the results in traditional channels is still incipient, but our clients are making use of this option incrementally for second products, such as fiduciary services or savings,” she says. The digitization project has also led the bank: “To rethink the roles of operational positions towards commercial or advisory and customer engagement responsibilities, which undoubtedly generates greater efficiencies.”
Fintech revolution
Banco Caja Social’s move to digitization anticipates a greater challenge for the bank’s traditional client segments. Ethan Clark, Backbase’s vice president for Latin America, points to the fintech revolution happening elsewhere in the region as a sign of things to come in Caja Social’s home market.
Clark believes the region has huge potential for digital banking, following Mexico’s lead, which has seen rapid growth in both domestic and international startups aimed at the low-income and unbanked segments of the market.
“The region will become a leader in digital banking because of the largely untapped potential with the unbanked and under-banked population, coupled with the high penetration of smartphones. Mexican challenger bank, albo, for example, has reached more than 500,000 clients because of strong customer acquisition between January and September.”
Only 36% of Mexicans have bank accounts, compared with 64% of Colombians – which, nevertheless, still leaves a large potential market. Around 36% of Colombians do not have an account and that number rises to 79% for those without access to credit cards. While the growth opportunity is probably clearest in Mexico, Clark thinks the fintech opportunity in Colombia and elsewhere in the region is strong.
Latin America is currently experiencing a silent revolution
Jouk Pleiter, Backbase
Brazil’s Nubank and Argentina’s Ualá have started operations in Mexico, heightening the belief that there will also be increased international competition in Colombia’s low-income segments in the future and that Banco Casa Social’s move was in part to generate efficiencies but also in part defensive.
Clark says such competition is an opportunity for companies such as Backbase. “With this new digital banking platform, Banco Baja Social is prepared to provide a better service to the unbanked and under-banked segments of the region, attract new market segments and guarantee their sustainable growth in a world where digitization is the norm,” he says.
However, he adds that as well as being a potential driver of revenues, the first step on a bank’s digitization journey is to capture greater operational efficiencies.
“On the banks’ side, overall efficiency will be the main driver for digitalization, not only in terms of operations but also in terms of costs, as digitalization has a huge benefit on the bottom line,” says Clark.
“However, even more important than that is the level of personalization you can obtain through digitalization. And that means that you can tailor products to clients’ needs, increasing cross-selling and up-selling, which in turn helps grow the business even more.”
Meanwhile, Backbase’s chief executive, Jouk Pleiter, thinks his firm’s project for Banco Caja Social will help it to win more bank mandates in the coming months.
“The success of this project will support our expansion in Latin America, a region that is currently experiencing a silent revolution in the demand for more agile and effective access to banking services as their economies continue to mature,” he says.
