Banking with a social cause

Latin American banks and fintechs are racing to lower costs and access for the unbanked millions.

Just over half of all Latin American adults now have bank accounts. But credit and debit card ownership and usage lag that in the US and Europe. This has a subsequent effect on e-commerce purchases: 41% of internet shoppers paid cash on delivery last year.

However, an increasingly confident fintech sector that puts simplicity, low cost and social inclusion at the top of the agenda means that digitisation is a tool for improving access and equality in Latin America. Banks have responded by accelerating their digitalisation strategies.

Much of this regional change is being driven by changing customer behaviour and demands—often at a phenomenal pace.

But with over 200m potential new customers also at stake, Latin American banks see a bigger impact coming from new entrants than their peers see in the rest of the world (48% v 36% globally).

However, for the established banks, new payment players are the biggest threat, according to 51% of respondents. This is followed by neo-banks (23%), which offer bank-like transaction services without a full service current account.

Mobile money operators have also taken root in Latin America, with the number of registered accounts growing by 35% in the year to December 2016. Yet, just 10m mobile money accounts were active at the end of that year, leaving many consumers still without the means to make online, mobile or point-of-sale payments electronically. Accordingly, just 21% of Latin American bankers think that non financial firms, such as telecommunications or retailers, could become the biggest competition threat by 2020.

China leads Asia’s diverse digital banking markets

If you want to see what universal digital banking looks like, skip Silicon Valley or London’s fintech hubs. China’s Alipay and WeChat Pay show how to do smart, mobile-based banking on a massive scale. Regulators are now adapting to new customer demands.

The Asia-Pacific retail banking market is diverse, reflecting the different levels of social, economic and financial institutional development. It ranges from the near universal coverage found in the more developed markets of Australia, New Zealand, Singapore and Hong Kong to the emerging market of Cambodia, where only 21% of people over the age of 15 have a bank account. It also includes India, where government policies have pushed inclusion by shifting state transfers, pensions and benefits directly into accounts or onto biometric smartcards. Accordingly, Indian account ownership has jumped from 35% in 2011 to 80% today.

However, bankers in The Economist Intelligence Unit’s survey see common themes. Within the Asia-Pacific region, changing customer demand will have the biggest impact on retail banking in the next three years.

Regulatory trends are less of a concern in Asia-Pacific (40%), compared to Europe (46%) and North America (56%). Bankers in Hong Kong and Singapore seem to benefit from the more tech-friendly “try it and see” approach of their own regulators. Both the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) have opted to create “regulatory sandboxes” to encourage innovation. These sandboxes allow banks and fintechs to trial their ideas while involving only a limited number of participating customers. However, the situation is very different in Australia, where bankers have come under fire from the regulator due to poor risk management, high fees and widespread mis-selling.

An April 2018 report by the Australian Prudential Regulation Authority into the Commonwealth Bank of Australia (CBA) made clear that “a widespread sense of complacency has run through CBA, from the top down”. The subsequent loss of 20m customer account details only compounded the likelihood of significant reputational damage.

In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.

Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.

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Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.