Banco do Brasil has launched a digital-only account as part of its digital transformation initiative. The new account will enable Banco do Brasil to reduce its customer service costs and to respond to the advent of the neo-banks. Robin Arnfield reports.
In November 2016, Banco do Brasil announced its Conta Fácil BB (Easy account) totally digital current account, which can only be opened and operated via smartphone and requires no paper documentation. It aims to open 1.8 million Conta Fácil accounts by the end of 2017, targeting consumers who currently don’t have active accounts with the bank. Conta Fácil BB comes with a debit card branded with Elo, Brazil’s domestic card scheme, and consumers have the option of a fee-free account or a fee-charging account with greater functionality.
Banco do Brasil says that over 3.6 million consumers open new accounts each year at its branches, and that its objective is to migrate over 50% of these customers to digital-account opening. As part of its digital and branch transformation programmes, the bank is looking to cut around BRL750m ($221m) in annual costs by increasing its investment in digital channels and by selectively closing branches. It says that branch transactions have been declining sharply, and that, as of November 2016, 9.4 million clients were using its mobile app, carrying out one billion banking transactions a month, 40% of its total transactions. In addition, 27% of its total transactions were carried out via the internet as of November 2016. By December 2017, Banco do Brasil expects to have 15 million mobile app users.
Last year, the Brazilian media reported that leading Brazilian bank Bradesco is developing a digital-only stand-alone bank called Next. However, Bradesco refused to comment on these reports. Bradesco has launched two digital-only accounts for its high-income customers – Bradesco Exclusive Digital and Bradesco Prime Digital.
“It’s no surprise that Banco do Brasil is going in this direction,” says Lindsay Lehr, senior director at US-based consultancy Americas Market Intelligence. “Online-only banks are mushrooming in Brazil, especially NuBank.”
Other Brazilian digital-only start-up neo-banks include Banco Original, BankFacil and Neon.
NuBank has launched a no-fee credit card that can only be managed via a mobile app, which, according to Brazilian press reports, has proved very popular. It recently secured $80m in investment from Russian venture capitalist Yuri Milner, after receiving funds from prestigious investment firms including Peter Thiel’s Founders Fund, QED Investors, Sequoia Capital and Tiger Global Management in 2015 and 2016.
“One of the most successful Latin American FinTech start-ups, NuBank has targeted a market with lots of untapped demand — millennials and first-time bank users who have no interest in ever stepping foot in a bank branch,” says Lehr. “These innovative banks are able to offer rock-bottom fees because they don’t have expensive overheads to maintain, and traditional players will be forced to follow suit to compete for young, new users.”
“Banco do Brasil has the advantage of its massive distribution power, as well as a more complete product portfolio,” says Guilherme Lima, founder of Brazilian consultancy Ponto Futuro Consultoria Estratégica.
“As a comparison, Banco do Brasil started with a broad media campaign for Conta Fácil, while Neon is still in ‘beta’ mode, limited to 5,000 accounts (having launched in July 2016). (Conta Fácil) already allows the sale of small-ticket insurance and saving products. The question is how well will Banco do Brasil manage the customer interface and operational challenges (for Conta Fácil) as compared to a small market entrant. But Banco do Brasil has the financial resources and brand equity to invest in learning to operate in this new format, which in time will be commonplace among Brazil’s large retail banks.”
Brazilian FinTech sector
“Brazil continues to lead the Latin American region in terms of digital,” says Juan Mazzini, senior analyst, financial services at Celent. “It has the largest FinTech ecosystem in the region with at least 219 Brazilian FinTech start-ups across a range of sectors, according to Finnovista’s latest FinTech radar.
In early 2016, Celent led a scenario analysis workshop with representatives of financial institutions operating in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, and Peru. “One of those scenarios presented the possibility of all financial products being digitised end-to-end,” says Mazzini. “The main conclusions were that this scenario is an opportunity to increase the market, and that the customer relationship will be very different. Also, digitisation will have a large impact on banks’ business models and the capabilities and skills required to be successful. Most participants said they believe that the competition will come from new entrants (47% of participants) and incumbent banks (29%). Almost 60% of participants believe that this scenario needs to be addressed immediately and that they are in fact entering into this late; the rest believe it needs to be addressed within the next three years.”
“It’s no surprise to see banks such as Banco do Brasil trying to facilitate account-opening as part of a digital strategy,” says Mazzini. “It’s also an obvious cost-reduction initiative, as Banco do Brasil has the potential to move 3.6 million account-openings to a lower-cost channel. (Conta Fácil) is a first step in that direction by facilitating the opening of accounts with limited functionality. I expect that in the future most types of bank account can be digitally opened and that other banks will follow Banco do Brasil and the branchless banks in enabling digital account-opening.”
The online channel was responsible for 54% of total Brazilian banking transactions in 2015, according to Febraban (Federação Brasileira de Bancos/Brazilian banking association),” says Mazzini. “Mobile alone grew from 4.7 billion transactions in 2014 to 11.2 billion transactions in 2015,” he says. “If people are using online channels already and banks continue to move customers away from their branches with initiatives like the one launched by Banco do Brasil, in the next few years branch transformation will become a reality and an unavoidable topic of discussion for banks in Brazil. But it’s hard to imagine incumbent banks without any physical presence, which is what Banco Original, Neon and BankFacil are proposing. It’s more likely that they will continue to focus on transforming their channel experience, including rethinking the branch so it becomes part of their digital experience and moves away from just being transaction-focused.”
In June 2016, Banco do Brasil opened the Laboratório Avançado Banco do Brasil (Advanced Lab) innovation lab in Silicon Valley. The purpose of the Lab is to enable Banco do Brasil to learn about and disseminate digital culture within its organisation, identify opportunities for the bank, and work with early-stage Fintech start-ups whose technologies could be of use to the bank.
In a news release, Banco do Brasil said that it plans to incubate four FinTech projects in the Lab during 2017, with a further 12 being incubated at its offices in Brazil.