Itaú Unibanco, Brazil and Latin America’s largest bank has made significant investments in digital technology. The bank has also formed a Latin American strategic council to drive its expansion across the region, Robin Arnfield reports
For Itaú, digitalisation means transforming the entire bank’s operational processes and fostering a digital mindset among staff. In the past two years, Itaú has increased the number of staff with digital expertise in fields such as design, user experience, analytics, digital media, and cybersecurity thirteen-fold. It has developed over 1,500 APIs which allow the creation of reusable apps.
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Itaú has created a collaborative working model in its IT Department based on Lean and Agile development principles. In its Q4 2017 management report, Itaú said this had led to a 14% productivity gain last year in technology development, and a 22% reduction in time to market for new projects.
Customer-centricity is a key focus in its development efforts. Itaú is deploying cloud computing, machine-learning and big data to seek operational efficiency, such as applying AI in its credit models, and to understand clients’ behaviour in all points of contact with the bank.
Itaú is a member of an international consortium of banks which have taken an equity stake in financial blockchain developer R3 and are testing the blockchain with R3.
Digital initiatives
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By GlobalDataOver 80% of Itaú’s Brazilian retail banking transactions now take place digitally, up from 25% in 2008. However, Candido Bracher, Itaú’s CEO, told a Q4 2017 analyst call that not all digital transactions performed by the bank’s clients are actually digital end-to-end. He said Itaú’s efforts are now geared towards digitising more and more of its back-office operations.
Over 6m Itaú account-holders were using its mobile app every month in 2017 according to Lívia Martines Chanes, Itaú’s Director of Digital Channels, User Experience and CRM Analytics.
In 2017, Itaú announced a number of key digital initiatives to improve client satisfaction. However, unlike its rival Bradesco with Next, it didn’t launch a stand-alone digital bank in response to challenger banks such as Banco Original.
Itaú’s 2017 initiatives included the launch of Itaú Light, which it developed jointly with its clients and now has over 500,000 users. The app offers intuitive browsing, uses less smartphone data and memory, and is easier to navigate than Itaú’s traditional app.
The Itaú Abreconta (account-opening) app was launched in 2017, offering an entirely digital current account-opening experience. Itaú says that over 190,000 current accounts have been opened with the Abreconta app.
In April 2018, Itaú became the first Brazilian bank to launch Apple Pay for its cardholders. Apple Pay will be exclusively available in Brazil for 90 days to Itaú’s approximately 1.2 million Brazilian cardholders with an iPhone 6 and more recent iPhone models.
In March 2017, Itaú launched the Personnalité Investimento 360 platform for its Personnalité customer segment, who have monthly incomes of above BRL10,000 ($2,996) or assets of over BRL100,000. The platform provides a range of investment products offered by Itaú and other FIs through Itaú Corretora, its retail brokerage arm, plus a specialist advisory service.
Digital branches
In 2017, Itaú opened 25 digital branches, taking the total of digital branches to 160 at the end of 2017. The digital branches are virtual branches offering communications via SMS, email, telephone, and Internet messages, and extended hours of customer service for Itaú Personnalité and Uniclass customers.
The Uniclass segment comprises customers with monthly incomes of BRL4,000 to BRL10,000. In Q4 2017, Itaú had 1.5 million Uniclass customers and 527,000 Personnalité customers.
Itaú has 2 million digital branch customers; its digital branches are 20-30 percentage points more efficient than its bricks-and-mortar branches.
Branch closures
Between December 2016 and December 2017, Itaú reduced its Brazilian bricks-and mortar branches from 3,653 to 3,520 and its Brazilian client service branches (banking kiosks) from 755 to 703.
Itaú still sees branches as very important for opening new accounts but is looking intensively at how to transform its branches for new usages, and this is more of a focus than efforts to close branches.
Cubo incubator
Since 2015, Itaú has been a founding partner in “Cubo coworking Itaú,” a Silicon Valley-style hub for technological entrepreneurs in Sao Paulo. Several digital start-ups based at Cubo are Itaú contractors and suppliers, but Cubo’s digitalisation remit goes beyond financial services.
“At Itaú we’re constantly looking to embrace digital evolution, and Cubo is a key component of this process,” Lineu Andrade, who manages Cubo within Itaú, said in a statement. “Cubo stimulates our employees to think outside the box and develop new solutions to meet our clients’ needs, infusing a culture of innovation in everything we do.”
Cubo’s co-founder is Redpoint eventures, an early-stage venture capital firm. Other partners in Cubo include Accenture, Cisco, Mastercard, Microsoft, Rede, the Brazilian cards acquirer owned by Itaú, Coca-Cola, and Saint-Gobain.
“Itaú is going to take direct investments in the Fintechs housed at Cubo,” Jerry Silva, Global Banking Research Director at IDC Financial Insights says.
Expanding consumer credit business
Despite Brazil’s challenging economic environment, Itaú, the country’s largest credit card issuer, is looking to expand its Brazilian consumer lending business.
Itaú Brazil has around 29.2 million credit card accounts and 26.2 million debit card accounts Its Brazilian credit card transaction volume rise by 10.8% year-on-year to BRL80.3bn in Q4 2017, while its Brazilian credit card lending was up 6.8% to BRL63bn in Q4 2017. Overall Brazilian lending to individuals was up 1% to BRL185.3bn in Q4 2017.
“Itaú expects to increase its loan portfolio in 2018 as (Brazil’s) economic growth accelerates,” Moody’s wrote in a March 2018 report. “We expect Itaú to focus more on higher-margin secured consumer lending, as well as loans to small and medium-sized companies backed by self-liquidating receivables, as corporate borrowers struggle to improve their finances and liquidity levels.”
Brazilian acquisitions
In October 2017, Itaú completed its $220m acquisition of Citigroup’s Brazilian retail banking and insurance business, following approval by Brazil’s Central Bank. The acquisition strengthened Itaú’s share of the high-net-worth banking market in Brazil, adding BRL8.6bn in assets to its operations, including a BRL6.2bn credit portfolio, BRL4.8bn in deposits, 71 branches, and around 300,000 customers.
In March 2018, Brazilian competition regulator CADE approved Itaú’s acquisition of a non-controlling stake in wealth management firm XP Investimentos, without demanding additional asset sales by Itaú. The deal, which is subject to Brazilian Central Bank approval, involves Itaú buying 74.9% of XP and a 49.9% holding in its voting capital by 2022 for BRL5.7bn.
There is speculation that Itaú could take a controlling share in XP’s voting capital by 2024, which would require separate regulatory approval.
The XP deal will help Itaú respond to the advent of new Brazilian retail financial services firms. Brazilian banks typically allow clients to invest only in products managed by themselves, while XP is an open investment platform providing access to several independent managers.
Itaú’s CEO Candido Bracher said last year in an analyst call: “We believe that a distribution of financial products through open platforms will be more relevant for the industry and more important for our clients. So, for us, this transaction is an important step towards this aim of better serving our clients.”
Regional expansion
Ricardo Villela Marino, a member of Itaú’s Board and Executive Vice-President, has been named Chairman of the new LatAm Strategic Council.
Itaú says the Council was created to lead its internationalisation process, one of the bank’s most important strategic fronts for the next few years. It will investigate opportunities for expansion as well as integration of existing businesses.
Itaú has expanded its retail presence in Latin America, particularly in the Southern Cone, due to its aggressive acquisition strategy. It has retail operations in Argentina, Chile, Colombia, Panama, Paraguay, and Uruguay, as well as a private banking business in Miami.
Itaú says internationalisation involves “reaching, in the countries where we are present, the same management quality and results that we have in Brazil.”
In 2016, Itaú completed its 2014 acquisition of Chile’s CorpBanca which has an operation in Colombia. Itaú CorpBanca Chile is currently 36.06% owned by Itaú, 30.65% by CorpGroup, and 33.29% by minority shareholders. Since 2012, Itaú Corpbanca has acquired two banks in Colombia – Banco Santander Colombia and Helm Bank.
Itaú competes with Spain’s Santander which operates retail banks in Brazil, Mexico, Chile, and Argentina, and with BBVA which has subsidiaries in Argentina, Chile, Colombia, Peru, Paraguay, Uruguay, and Venezuela. Bradesco has a credit card and retail banking subsidiary in Mexico, following its acquisition of Mexico’s IBI from C&A.
Analyst comments
Jerry Silva, Global Banking Research Director at IDC Financial Insights
“Having a digital focus plus a focus on branches is a balancing act for many banks in Brazil and Latin American countries such as Argentina, Colombia, and Uruguay. Digitisation must be balanced with customers’ cultural attitudes and preferences. In Brazil, banks are sensitive to cultural attitudes about branches being a focal point.
“Brazilians see branches as a place to socialise because the queues are so long. People even make arrangements to meet each other at a branch, especially older customers. Also, Brazil’s national payments system enables customers to make payments at any bank’s branches even if they aren’t customers of that bank.”
“In the 1970s, Latin America leaped ahead of the rest of the world in terms of electronic banking and payments technology to cope with very high daily inflation. At the time, Latin American banks had the best electronic payments systems in the world. Now it’s come full circle, as Latin American banks are dealing with legacy core IT systems and legacy branch networks. So Itaú is trying to do that leap forward again, and bring digitalisation and mobile banking back to the forefront.
“Digitisation solves problems for Itaú. It’s expensive to run branches, and banks have to justify the cost, especially with the problematic Brazilian economy. It makes sense not necessarily to close branches but to decide how best to use branches that are kept open.
Commenting on Brazil’s challenger banks such as NuBank and Banco Original, Silva says: “These fintechs are a challenge, but they are also not a challenge. Their value proposition consists of one or two products such as a digital wallet or a credit offering in digital form.
“They may steal some business from large Brazilian banks, but won’t take customers away on a wholesale basis. It takes fixed investments to maintain a broad portfolio of products and a broad physical channel infrastructure.”
