Banking & financial services: the trends, the issues, the solutions.

Latin American banks and financial service providers are looking ahead to 2006 with a positive outlook. Stronger economies throughout the region are creating growth opportunities in trade finance, private banking, corporate card issurance, electronic payments and insurance benefits.

At the same time, the deployment of new technology allows financial companies to deliver their services more quickly and efficiently. "International banks are using technology to serve their customers effectively over longer distances," says Agustin Abalo, immediate past president of the Florida International Bankers Association (FIBA) in Miami. "And we are still only at the beginning of their revolution in technology."

In Brazil alone, more than 18 million clients use the Internet for banking transactions, according to Aldo Luiz Mendes, vice president, Banco do Brasil. "For 2006, we are investing in options like mobile banking to bring us closer to our clients," he says.

Increased responsiveness to customers is becoming even more important as financial service providers respond to the pressures of globalization, as well as regulatory and compliance requirements. "Financial institutions must satisfy requests for information from their customers, as well as from regulators," adds David Konfino, president, International Division, Regions Bank in Coral Gables, Florida.

Other challenges for financial service providers include ensuring the security of data, and building customer awareness of new electronic tools like the corporate card and automated supply chain payment programs. And it's not just technology--employers must provide attractive benefits programs to recruit and retain skilled managers.

Here's a closer look at the key challenges and opportunities for Latin America's banking and financial service sector.

BRAZIL TO ENJOY EXPANSIVE MARKET

Thanks to continuing job growth, stable prices and increased purchases of consumer goods, the Brazilian financial sector is expected to expand in 2006. "We believe there are market opportunities on the credit side, such as lending for micro and small businesses, as well as for foreign trade," says Aldo Luiz Mendes, vice president of finance, capital markets and investor relations, Banco do Brasil. "We also expect to see increased demand for non-banking services, such as credit and corporate cards, as well as insurance products."

Mendes believes online banking volume will grow significantly as well. "Most of the Brazilian financial providers are already online," he says. "This is part of a continuous move toward greater efficiency throughout Latin America's financial system." In 2004, for instance, 83.5 percent of all Brazilian transactions were made through non-traditional delivery channels, he adds.

To build revenue, Brazilian banks will be seeking to increase their client bases by adding consumers who do not currently have accounts. Other growth strategies include cross-selling products and services to existing customers, increasing the volume of credit operations and cutting costs through automated technology and strategic partnerships. Mendes says banks will also invest more in hiring and training of their employees.

"Banco do Brasil invests systematically in new technology to improve its services to customers, its profitability for shareholders and its support for the community," says Mendes. "For 2006, we are investing in the development of options like mobile banking to bring our bank closer to our clients," he adds. For more information, visit: www.bb.com.br.

ELECTRONIC PAYMENT THE MISSING LINK IN SUPPLY CHAIN EFFICIENCY

In today's global economy, improvements in how supply chains are managed allow raw materials for a personal computer to be sourced in Brazil, manufactured in China, assembled in the US, and shipped anywhere in the world. Such a complex flow requires planning to be successful. In the words of Professor Warren H. Hausman from the Department of Management Science & Engineering at Stanford University, "tremendous strides have been made regarding product supply chain efficiencies--resulting in sharply reduced lead times, lower inventories, more responsiveness and variety, collaboration on planning and forecasting, and improved customer service."

However, financial flows have not been addressed with the same sense of urgency as material and product flows. As a result, business-to-business payment has not seen a corresponding increase in efficiency in the last 10 years, despite the availability of automated payment programs such as Visa Commercial Solutions. Most companies have not integrated payment into their supply chain management systems, resulting in inefficient financial processes.

What is it meant by "inefficient financial processes"? Most companies manage their financial flows manually, using paper-based invoicing and payment systems; initiating, tracking and reconciling these paper-based invoices and payments can be a significant part of a company's treasury costs. In a white paper on supply chain efficiencies, Professor Hausman uses the example of a major hotel in Latin America that moved from operating several chains with numerous hotels per chain, to a Shared Services Center across all their hotels chains for procurement, A/P, and A/R. By unifying the business process of all the hotels, they have increased productivity and estimate $2.5 million-$3.5 Million (USD) in annual benefits.

Best practice companies are going the extra mile by integrating financial flows as part of their overall supply chain management systems. In quantitative terms, companies that embrace existing electronic payment solutions could save almost US$10 million annually per US$1 billion in revenue.

Rafael de la Vega, Vice president of Commercial Solutions, Visa International Latin America and Caribbean, emphasizes that "payment solutions can add significant advantages in terms of saving time, reducing cost and increasing visibility, and they have been designed to integrate seamlessly with companies' existing supply chain infrastructure."

The net results are measurable benefits for suppliers, manufacturers, retailers and consumers. But, before implementing any change, management should consider the following questions:

* What is the current status of our company's financial flow processes?

* What are the areas of most importance/potential for our company?

* What is our bottom-line profitability potential from improved financial flow processes?

* What resources are needed to adopt new automation solutions and ensure a smooth transformation?

* How can I lay out a roadmap for change?

About Visa: Visa connects cardholders, merchants and financial institutions through the world's largest electronic payments network. Visa products--which offer unsurpassed global acceptance at more than 24 million acceptance locations including close to one million ATMs--allow buyers and sellers to conduct commerce with ease and confidence in both the physical and virtual worlds. As an association owned by 21,000 member financial institutions, Visa is committed to the sustained growth of electronic payment systems to support the needs of all stakeholders and to drive economic growth. For more information, visit www.corporate.visa.com.

CORPORATE CARD OFFERS MARKET OPPORTUNITIES FOR LATIN BANKS

Corporate cards will offer a significant market opportunity for Latin American banks in the coming year. By building awareness of the corporate card's versatility as an effective purchasing tool and a secure payment option, banks can help meet a growing need in the region's business sector.

"Many Latin American enterprises, as well as midsize and small businesses, are just beginning to understand how the corporate card is a valuable financial tool," says Ramon Martin, senior vice president, Latin America, Caribbean & Canada, American Express Corporate Services. "That is shown by the fact that the percentage of purchases made by corporate card or individual credit card is still very low in Latin America compared with more established markets."

Martin says corporate cards provide significant benefits, beginning with better control of business-related expenses in the travel and entertainment (T&E) sector. "In a global marketplace, Latin companies must travel abroad to be competitive," he adds. "That means that T&E must be considered an investment, just like the purchase of a new manufacturing plant."

From better reporting capabilities to the ability to set limits on purchases, corporate cards can make a major contribution to a company's profitability in many other areas besides T&E. In addition, corporate cards can reduce the internal time and expenses involved with processing individual reimbursement requests, receipts and invoices.

"We expect to see more and more Latin corporations acting to expand on the corporate card concept by purchasing not just airline tickets and hotel accommodations, but also office furniture, computers and phones," Martin says. "Banks can help businesses understand that a corporate card is a tool that can drive tremendous value for the organization through increased usage."

Both the corporate card and the traditional individual credit card also offer the advantages of a highly secure payment system, as well. And the reporting capabilities available with both types of cards provide valuable decision-making information to businesses and consumers.