Latin lessons for aspiring digital banks

BPC - in collaboration with Fincog - recently published a report on the state of digital banking in Latin America. In this series of blogs we explore some of the issues discussed in this whitepaper in more detail.

The objective of the ‘Digital Banking in Latin America’ report is to provide valuable context on this exciting market. Informed by interviews with market experts and drawing on both existing research and analysis performed by BPC and Fincog, it is a valuable resource for any potential market entrant.

This report includes observations on recent market developments as well as insights into the current economic landscape. It summarises the propositions and strategies of selected players across Latin America and provides a list of carefully assessed action points and imperatives when trying to establish a digital bank in the region.

By outlining the economic and social factors behind the growth of these digital-only institutions, discussing the regulatory factors they have to comply with, and explaining how they can best exploit the opportunities on offer, the report provides a valuable insight into the Latin American neo-banking market.

Differentiation, positioning key to success

Before we get into the detail we thought it would be helpful to start by looking at examples of banks in Latin America that are ‘doing digital well’.

Creating a unique selling point and value proposition is vital to creating a loyal customer base with active users who ultimately determine revenue streams. Here are details of some of the Latin American neo-banks that have been successful in establishing their presence through unique propositions and the elements that have made them successful.

Nubank has become Latin America’s largest digital bank by offering a fee-free credit card and quickly branching out from Brazil into other markets - currently Mexico, Argentina and Colombia. It offers a wide range of products including current accounts, personal loans and life insurance and has further extended its each with the introduction of a business account.

Nubank achieved first-mover advantage by launching its no-fee credit card (managed through a mobile app) in 2014. Its strategy of installing fully autonomous local teams in each new market has been a key factor in the bank achieving high customer satisfaction ratings.

Neon services retail and SME clients with a broad range of financial products accessible through a simple and intuitive customer interface. Since its creation in 2016 the bank’s offering has expanded considerably and also covers investments.

Focused exclusively on the Brazilian market, Neon has targeted low income segments and micro-businesses with free daily banking services, a credit card and investment options. It has recorded strong growth through user referrals, establishing itself as a one-stop-shop for financial services.

RappiPay’s proposition is based on a much narrower product offering. As the first and only super-app in Latin America building on a large partner store network enhanced with value added financial services, it is the product of an alliance between multi-vertical delivery service Rappi and Colombia’s Banco Davivienda.

RappiPay currently offers a free e-wallet and recently introduced a credit card on which customers can earn discounts and cashback when used at stores in Rappi’s partner network. It is designed to act as a value-added service to Rappi’s core business model.

Uala offers low-cost financial services coupled with money management features to drive financial inclusion in Argentina and Mexico. It offers a very low cost current account with debit card alongside mutual fund investment, personal loan and money management services.

Uala is focused on the young unbanked population – 70% of its customer base is under the age of 30 – who appreciate the absence of additional subscription costs and value analytics and money management features.  It is backed by leading international investment firm Goldman Sachs and Chinese technology giant Tencent.

Albo was launched in 2016 to bridge the gap between offline and online by partnering with 30,000 retail locations to allow users to deposit and withdraw money easily and cost-efficiently. This Mexican challenger bank is focused on lower and middle income segments although it recently added business banking services.

Customers can make free deposits and withdrawals if they use their card to make a purchase in any of the partner retail locations. Albo is playing a key role in transitioning Mexico from a cash-based economy to one where finances and payments are processed digitally.

Broxel supports Mexicans in the US with a full bank offering centred on a prepaid debit card and international money transfers. This card allows users to send or receive money easily and is designed to appeal to the millions of Hispanic people living in the United States.

Within Mexico, Broxel offers a wide range of services to retail and small business customers including a fully digital bank account, deposits, personal loans and insurance.

Maximo has targeted the youth market with a design-focused offering and 24/7 WhatsApp support chat. It aims to appeal to young Peruvians and Latin Americans by offering a free digital account with debit card, a cashback programme, and credit opportunities.

Maximo has also leveraged artificial intelligence to make quick credit decisions.

Cuenca advertises its brand by offering its own software as open source and highlights Mexican art and culture. As an impact and inclusion-driven neo-bank it is committed to facilitating innovation in financial services.

Cuenca works with communities to tailor its service to local culture and offers fast account opening, with cards delivered within 90 minutes of account opening in Mexico City.