Large banks in Latin America enjoy many benefits. Some, such as lower funding costs, are a natural result of their success. Others have tilted the playing field in their favour.
Their natural competitive advantages have been reinforced by regulations and market structure.
Regulators across the region are finally taking a hard look at some of these built-in privileges. Interestingly, this is happening just as a wave of digital competition seems to be reducing their impact.
Instead of competitors struggling to break through and having to lobbying regulators to reduce the large banks’ moats, they have simply gone the fintech route instead.
And these changes are often significant. In Mexico, antitrust agency COFECE has ruled that Prosa – the payments company owned by a consortium of six banks, which includes some of Mexico’s largest card issuers – creates a barrier to entry.
The news comes as the banks have been losing share of the payments industry to fintechs, a trend that this ruling will only accelerate.
Brazil complaints
The Brazilian banks are also feeling the regulatory ground shifting under their feet.
At the end of May, Brazil’s central bank issued a report on the potential for a digitized version of the real, which could disintermediate much of the banking system. This time the banks would not be losing market share to fintechs but to the regulator itself.
Meanwhile, Brazil’s banks are beginning to complain about the twin regulatory systems the central bank has brought in to foster the fintechs.
A recent online conference of Febraban, the country’s banking association, saw many chief executives of the large banks arguing that reform to create a regulatory-lite environment has gone too far and they themselves are now facing asymptomatic regulation.
“We are in favour of competition but also of equality,” says Milton Maluhy Filho, CEO of Itaú Unibanco.
Roberto Sallouti, CEO of BTG Pactual, adds: “After a certain size, it’s important to have the same rules [for all banks].”
In response, Rafael Pereira, president of the Brazilian Association of Digital Credit, says the “antiquated” big banks should “adapt to modern reality and stop crying”.
After years of enjoying inbuilt regulatory advantage, the big banks won’t find much sympathy among their competitors if the pendulum swings back a little too far.
