Branch Busters.

Banks hustle to get Latin Americans online.

WHEN BANCO SANTANDER Central Hispano (BSCH) forked over US$529 million in cash for online financial-services site Patagon.com in March, it became clear that banks serious about competing in Latin America would back up their virtual plans with real dollars.

The reason is simple: Online banking saves money. Lots of money.

"We save 90% on every transaction done on the Internet," says Eugenio Zubiria, head of the Internet division for Mexico's Banamex. "It costs us $1 for every transaction done at a branch and 10 cents for every transaction online."

With such tremendous savings as an incentive, banks in Latin America are scrambling frantically to get clients online at the same time they broaden their roster of digital offerings. In the race for customers, Brazil's Bradesco set an industry standard when it became the first to offer free Internet access to its customers. Competitor Unibanco quickly followed suit. Now, both Brazilian financial houses boast websites that are dynamic, fun and interesting--in short, very un-banklike.

Banamex offers the latest sports scores on its site while Colombia's Conavi promotes its "Club Abejita Conavi" or "Little Conavi Bee Club" for kids between 6 and 12. The children have to memorize a pin number to obtain sticker books featuring the much-loved Conavi bee. Mexico's Bancomer offers everything from the latest winning lottery numbers to breaking headlines from the nation's major newspapers

Tucked into the gimmicks are banking's backbone operations--loans, bill paying, investments, credit card applications, account updates and changes of address. Except now they're unfolding online.

As the calendar flipped to 2000, banks began to roar into cyberspace. The clumsy and sometimes comical mating of the stodgy Old Economy bastions and the hot and sexy Internet scene has raised the mercury in the financial thermometer.

"Things are really overheated right now," says Patagon CEO Wenceslao Casares. "There is so much hype when, in reality, if you turned the Internet off for a week in Latin America it wouldn't hurt anyone."

Fueling the fury is a quest to be No. 1. For Spanish financial houses, that means being top dog in the region. Banco Bilbao Vizcaya Argentaria (BBVA) got out of the gate early, allying with Telefonica de Espana in a multibillion dollar digital deal. The arrangement between Spain's two largest companies, in terms of market capitalization, included giving domineering Telefonica CEO Juan Villalonga a seat on BBVA's board of directors. Since the deal, BBVA has been less than enthusiastic about conceding control to Villalonga, who recently lost two top executives at Telefonica's Terra Networks over a lack of freedom.

Provided control issues are ironed out, the Spanish alliance will unveil a global digital bank with no branches. The new bank, Unofirst, will merge England's First-e and Spain's Uno-e to create a financial megabank in Asia, Europe, Latin America and the United States, with an initial public offering on the horizon.

BSCH jumped into the fray with the surprise purchase of Patagon.com--its weapon to create online banking facilities in Spain and Latin America. BBVA countered by buying a 30% stake, along with operating control, of Grupo Financiero Bancomer for $1.75 billion to form Mexico's largest bank. A week later, the company announced it would dole out $25 million in 2000 on Internet projects designed to reel in 500,000 customers.

Once BBVA and BSCH finish duking it out, they'll have to take on the local favorites in Latin America. And the local banks are getting ready.

Mexico's Banamex is bulking up against foreign invaders by installing personal computers and hiring branch personnel who'll teach the ins and outs of online transactions to anyone who walks through the door.

"Our goal is to maintain our leadership on the Internet," says Zubiria at Banamex, which teamed with California-based Commerce One to launch an e-commerce operation and business procurement site. The site will focus first on Mexico, where it claims to have a relationship with 75% of domestic businesses, before branching into the rest of Latin America.

But there are still challenges, including an attachment to bureaucracy and red tape. "People here always want receipts for everything and you don't always get that online," Zubiria explains. He also says the bank is lobbying the Mexican Congress to facilitate online transactions. Open arms in Brazil. The story is quite different in Brazil, where the banking system has been ready for the online switch for some time.

"Brazil has one of the most sophisticated banking systems in the world today:" says Alkimar Moura, a professor of banking and finance at Getulio Vargas School of Business in Sao Paulo. During the hyperinflation of the 1980s and 1990s, the banks learned to operate swiftly, he says. "Time was money and the longer you waited, the more you would lose."

Brazilians now expect high-speed transactions and check clearing with as little red tape as possible. Moura says the biggest problem is that only a small percentage of the population can afford computers. But Brazil's largest private bank, Bradesco, hopes to change that.

The bank has been an Internet pioneer in Brazil and within its own company, including cutting deals with computer manufacturers to supply its employees with computers. At last count, it had purchased 8,000 computers in a two-month stretch.

Bradesco became the first bank in the country (and only the third in the world) to offer online banking in May of 1996. In 2000, it registered another "first" when it offered free Internet access to its 8.7 million customers.

Today, the bank boasts more than 1 million online users and 5 million transactions per month. The 66 cents saved on each transaction adds up to nearly $40 million a year.

Rivals Itau and Unibanco are still playing catch-up. Unibanco most recently replaced E-commerce Director Carlos Cesar with the new director, Geraldo Travagli, before announcing a $28 million Internet expansion. Itau on the other hand has a reputation for superb management but critics say it lacks a clear Internet plan.

Candido Leonelli, Bradesco's director of special products, says Brazilians have long used banks to pay bills. "We had to invest years ago in automating the process to cut costs:" He sees the Internet as the perfect extension of the process.

He also touts Bradesco's digital creativity. For example, the bank is installing personal computers in its branches so customers can shop online. "We have 2,300 branches and 3.7 million people passing through every day Why not turn the branches into stores?" he asks. "Our branch people are our disciples spreading the Internet'

At the same time it courts customers, Bradesco is embracing e-commerce ventures and business-to-business procurement activities through its sister site www.scopus.com.br.

The bank also plans on installing e-kiosks--stands of free-standing personal computers--in airports, hotels and malls. And the Bradesco tentacles don't stop with computers. The bank has picked up almost a fifth of the voting shares of pay TV company Globo Cabo, which is expanding broadband access in Brazil.

"We want the banking to be more interactive, with videos and images," says Leonelli, adding that the new technologies will merge online banking with cellular phones and WebTV.

Still, maintaining balance between bricks and clicks may be the key to succeeding in most of Latin America.

Angeli del Toro, director of online banking for Colombia's Conavi, says many customers are still spurning Internet banking. Despite a multimillion dollar campaign that included free classes on how to use the Internet, the appearance of public Internet kiosks and web cafes, some customers refuse to go digital.

"Many of our clients like the personal contact they get at the branch and we respect that," says Del Toro.

She predicts that the challenge of getting people online in Latin America will be similar to the push that got people using automatic teller machines (ATMs). "It took a while at first because people were scared and did not trust the technology," she says. "Today (ATMs) are used very commonly."

                       Why bankers Love the Internet
                                BRANCH COST ONLINE COST    ONLINE
                                   US$/        US$/     TRANSACTIONS
                                transaction transaction  PER MONTH
Bradesco              Brazil       0.72        0.09      5,000,000
Itau                  Brazil       0.66        0.17      5,000,000
Banamex               Mexico       1.00        0.10      2,000,000
Bancomer              Mexico       1.00        0.10      1,500,000
Unibanco              Brazil       1.00        0.12        700,000
Banco Galicia         Argentina    1.17        0.15        400,000
Bancolombia           Colombia     1.00        0.08        360,000
Banco Rio de la Plata Argentina    1.00        0.18        230,000
Banorte               Mexico       0.95        0.11        120,000
Conavi                Colombia     0.75         N/A        220,000
                            SAVINGS
                           PER MONTH
                      US$ '000 transaction
Bradesco                     3,150
Itau                         2,450
Banamex                      1,800
Bancomer                     1,350
Unibanco                       616
Banco Galicia                  408
Bancolombia                    331
Banco Rio de la Plata          189
Banorte                        101
Conavi                         N/A
SOURCE: LATIN TRADE