LatinFinance - November/December 2014 - 27

Outlook
The battle for a
growing market

INVESTOR
REPORT
TRANSACTION
BANKING

PAGE 28

Mobile money
The opportunities
and limits of
cellphone
transfers
PAGE 32

Remittances
Technology and
regulation disrupt
the business model
PAGE 34

Tapping growth
Technology and new regulations are shaking up banking operations in Latin America, for
every customer from the smallest farmers in the Andes to the biggest corporations
From managing cash for companies with
new regional operations, to financing
trade with Asia and the US, to developing
and marketing new retail money transfer
products - transaction banking is an
ever-growing and increasingly important
area of business for local and international
banks in Latin America.
Regulation is one aspect of how and
why transaction banking is changing.
On the one hand, increased oversight
is impacting revenues in fixed income,
currency and commodities trading,
which is pushing global banks to rely
more heavily on transaction banking for
profit. On the other, new rules can make
transaction banking itself more difficult to
engage in.
The remittance business, for example,
was until recently an area where Latin
American banks thought they could
gain fee-paying clients. But increased
compliance requirements, as part of
government efforts to counter terrorist

funding and money laundering, has made
the business a far more onerous affair for
banks, and some are getting out.
Regulation is also altering the scope of
phone-based money transfer businesses.
Despite an incipient boom in mobile
transfer services, some believe there
is limited opportunity for that to spill
over into more profitable, and more
sophisticated, retail banking - although
there are hopes.
But opportunities in transaction
banking are growing. One reason is the
still strong economic growth in the region.
The formalization of Latin America's
economies, a trend potentially helped
by new retail transaction technology
such as mobile banking, is also a factor.
The industry is due to increase in Latin
America much more quickly than in
developed economies.
Regionalization is also a driver of new
business. As Latin firms look to their
neighbors for growth and diversification,

that creates new transaction banking
needs, which banks with a cross-border
presence in particular are hoping to serve.
Meanwhile, technology is bringing
change too. In the remittance business, for
example, it means new smaller players are
able to challenge banks and incumbents
such as Western Union. But banks and
remittance firms also hope to benefit from
these advances, and local banks can even
argue it will benefit them more than global
rivals, as they can tailor products to the
local environment.
Mobile banking is one of the main
areas in which banks have high hopes
for technology, in this case to be able to
bring in new clients from the informal
sector, without the expense and hassle of
building branches.
Given the still low penetration of banks
in many Latin American nations, it is often
the simplest transactions for the simplest
phones, and the smallest clients, that
bring most hope. LF

November/December 2014 - L ATINFINA NCE.COM 27
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LatinFinance - November/December 2014

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