Juan Mazzini

About Juan Mazzini

Senior analyst focused on expanding Celent's coverage of IT and business strategy issues to Latin America. I've been working +20 years in the insurance and banking IT industries.

My research and consulting focuses on: Life and P&C insurance IT related issues, core banking, FinTech, digital, innovation, IT and business strategy, and systems selection.

My recent consulting work includes: vendor and system selection advisory for financial institutions in Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, and Peru; assessing market demand for core systems and emerging technologies in Latin America, and providing go-to-market advisory to vendors, systems integrators and consultancy firms.

I am frequent speaker at industry events, contributor to many conferences, and evaluator for technology competitions such as BBVA Open Talent and Finnosummit Challenge.

Get off the bench: free lunch is over for banks?

Get off the bench: free lunch is over for banks?

This is a copy from my guest post for Finnovista that I wanted to share with you here as well.

A few years ago when we started collaborating in creating the Latin American Fintech community there were no Fintech associations, no Fintech conferences and for sure there was no mapping of Fintech start-ups at all. It has been quite a journey for all of us involved. Kuddos to the Finnovista team for being a key element and catalyser for these achievements!

What exciting moment to be in financial services! Many things going on. Banks are being unbundled; and its happening everywhere. Want to take a look? Check what’s going on in the US, Europe and in more near places across Latin America like Mexico, Brazil, Colombia, Argentina and Chile.

It’s making no distinctions, affecting personal and business banking equally. Consequently, the nature of competition is changing; and pressure is not expected to come from other financial institutions. In a recent Celent survey, to SME banking representatives from Latin American banks, most believe that fundamental changes that are expected to occur in the banking industry won’t come from other financial institutions; instead they are looking mainly to new entrants and adjacent industries.

In last year’s survey to retail banks in Latin America, Stanford University found that 47% of the banks see Fintechs as a threat. The same survey indicates that only 28% of the banks meet the needs of their digital customers. Not a position where you want to be.

Customer expectations, pressure on revenue and cost, and increased regulation don’t make the life easier for banks either. Fintech start-ups may advantage banks on responding to customer expectations and being leaner has Fintechs better positioned to pressure on costs; but they have to play under the same regulation and at some point earn revenues in excess of cost (a.k.a. be profitable).

FCA, the U.K. financial regulator, has opened its sandbox for applications from financial firms and tech companies that support financial services. Successful applicants can test new ideas for three to six months with real consumers under loosened regulations. This is something we haven’t see yet in Latin America, though regulators are increasingly open to the benefits of Fintech and innovation, particularly if it is related to financial inclusion: we have seen the support of regulators to mobile wallets across the region in the last couple of years. Mexico appointed this year an officer for Fintech development in what I see as the leading case in the region to facilitate the adoption of services provided by Fintechs under the umbrella – and supervision – of the regulator. Most lately, the Argentinean regulator has introduced changes enabling digital onboarding, and in payments facilitating competition and adoption; though no sandbox yet, but maybe a digital/branchless bank in the way? Will it be a disrupting incumbent or a new player? By themselves or in cooperation with Fintechs?

Indeed, there has been a lot of debate regarding the nature of the (best) relationship between banks and Fintechs; be it competition, cooperation or coopetition, banks need to play a different game. The ecosystem has changed incorporating a myriad of players and increased complexity. Banks must reconstruct their business models around three areas, recognizing that they are part of a broader and new financial ecosystem:

  • Channels: How the bank serves customers
  • Architecture: How the bank organizes to deliver value
  • Innovation: How the bank delivers new ideas, products and services around both channels and architecture

Banks can innovate on their own, or partner with Fintechs or other 3rd parties; at the end of the day banks need to select and execute on the best innovation models. There is no single answer that fits all; each institution will have to discover the best combination of innovation models aligned with risk appetite, organizational culture and the target customers you want to reach.

Digital banking is ready to take off in Latin America

Digital banking is ready to take off in Latin America

Digital is the new reality in Latin America. In a recent Celent survey 100% of the participants recognized that a scenario where all financial products get digitized needs to be addressed sometime in the next 7 years and 59% of them believe it needs to be addressed immediately. There is also a general consensus that most banks are entering into Digital late, despite some are already moving in that direction. Threat of fintechs is also a reality. Over 80 fintechs in Brazil and 60 in Colombia are a good sense that the industry is already being challenged beyond incumbents.

In other geographies Banks have responded to this threat by becoming extremely digital and also neo-banks have been launched to attract those customers seeking for a more friendly and digital relationship with its financial institution. Atom Bank in the UK, Fidor Bank in Germany, and mBank in Poland are only a few to mention. In Latin America the major milestones in Digital development we had seen were Nubank (Brazil – Market Cap $500M) and Bankaool (Mexico – ~$142M in assets), until March of 2016 when Banco Original (~$1,67Bn in assets) launched in Brazil.

While Nubank is focused entirely in offering a credit card with a customer friendly personalized real-time view of expenses and modern contact channels (email, call or chat), Bankaool is mainly focused in a checking account with a debit card, SME loans and investment vehicles.

Banco Original is the 3rd step in this digital only bank strategy in the region, becoming the 1st universal digital only bank in Latin America.  As part of its strategy to position the bank as different and innovative they launched this advertising campaign featuring Usain Bolt. As part of a strategic definition in 2013 the bank started a ~$152M investment over the period of 3 years to become a digital bank. They launched in March of this year . The bank has no branches and the interaction is 100% through digital channels and a call center. This move was central to its strategy of becoming a universal bank moving away of being solely focused in agribusiness.

While most of neo-banks and fintechs looking to change the customer experience in financial services have adopted in-house development to support their digital strategy, this is not the case of Banco Original which relied in a 3rd party Open API solution. Commercially available solutions that can support a digital only bank means that as an industry we are ready to take off. There is no reason now why other banks should not follow, and software vendors will do their part pushing their offering into banks of all sizes.

I believe that we are in a tipping point were banks in Latin America will need to re-think their investments and strategies towards digital: the threat is now real.

Two upcoming reports will be covering Digital and a couple of disruptive scenarios in the banking industry in Latin America, so expect to have more information soon if you are a Celent customer. If you would like to become a Celent customer please contact Fabio Sarrico (fsarrico@celent.com).

 

A good recipe from the Brazilian banking industry in times of need

A good recipe from the Brazilian banking industry in times of need

The world seems convulsed these days. No matter where you live, something significant is developing around you or about to burst.

Brazil has not been the exception. Economic slowdown and corruption allegations involving high officers in government and the private sector, have led to massive social protests. The Panama Papers only to continue to build a lack of trust on things changing easily. But Brazil is a huge economy, with very talented people and industries that can compete at world-class level. Some things need to change for sure; with a trusted leadership is just a matter of time for Brazil to come back to the right path.

On a positive note from the financial sector, early this year FEBRABAN, the Brazilian banking industry’s main federation, and Brazil’s top five banks entered into a memorandum of understanding with LexisNexis®Risk Solutions by which the latter will provide technical services for a new credit intelligence bureau that will modernize the current Brazilian credit risk information ecosystem.

The effort has the objective of financially including more Brazilians in the long run and efficiently assessing consumer credit risk, with the potential to "change lives, generate sustainable economic expansion in a world-class economy, all the while providing financial institutions with the tools to assess and manage risk more effectively" as indicated in LexisNexis®Risk Solutoins press release. It will make possible for the credit intelligence bureau to process and analyze complex, massive data sets in a matter of seconds. It is expected that the ability to process quickly large volumes of transaction data will help the credit intelligence bureau to effectively manage financial payment experiences, resulting in a bureau with a sophisticated infrastructure.

This decision by FEBRABAN, Bradesco, Banco do Brasil, Caixa Econômica Federal, Itaú Unibanco and Santander comes very handy in order to offset the effects of the country's economic moment by expanding the potential market and providing financial solutions to people that are seeing its purchasing power affected. Banks are not alone in coming up with positive initiatives as insurers have also made moves along these lines.

It’s good to see that, from the banking perspective, Brazil does not stay arms crossed waiting to see what happens; instead they are trying a good recipe to be applied in times of need: Seeking efficiency and growth, by financially including more people into the system through a more effective risk assessment.

 

Silicon Valley? No, Chilecon Valley

Silicon Valley? No, Chilecon Valley
In previous blog posts regarding fintech in Latin America my position was, and remains, that one of the reasons for being behind is that it lacks of a “Silicon Valley” equivalent. Efforts to create a fintech ecosystem, as Finnovista is doing, become a good alternative to overcome the absence of a geographical pocket of innovation. Particularly consider the market fragmentation of Latin America comprised by 19 countries, some of which have 3M inhabitants to Brazil having +200M. People in most countries may speak the same language but markets are far from being similar just for that. Under (or against?) these circumstances, Chile is working to become Latin America’s Silicon Valley. One of its most attractive initiatives is “Start-Up Chile”, created four years ago to transform the Chilean entrepreneurial ecosystem. It began with a question: “What would happen if we could bring the best and brightest entrepreneurs from all around the globe and insert them into the local ecosystem?” The initiative offers work visas, financial support, and an extensive network of global contacts to help build and accelerate growth of customer-validated and scalable companies that will leave a lasting impact on the Latin American ecosystem. The idea is to make the country a focal point for innovation and entrepreneurship within the region. Start-up Chile, with only four years, is a start-up itself but it has a good starting point and great potential:
  • Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
  • This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.
While other countries and cities in the region are working in offering support to start-ups, it seems Chile is leading the way. Hopefully this triggers some healthy competition in the region, which in the end will benefit all. In the meantime, let’s meet at Finnosummit in Bogota – Colombia next February 16th. Join financial institutions, consultants, tech vendors, startups and other digital ecosystem innovators, to learn how startup driven disruption and new technologies are reshaping the future of financial services in the region. Remember to use Celent’s discount code C3L3NT20% for a 20% discount on your conference ticket.  

Helping build the fintech ecosystem in Latin America

Helping build the fintech ecosystem in Latin America
A few weeks ago, Dan Latimore and I had the chance to attend Finnosummit in Mexico City. IMG_1341 While Dan was the one really working (he presented on “How Big Data can change Financial Services”) I mingled around the participants of this vibrant ecosystem encompassing entrepreneurs, financial institutions, investors, and regulators among other stakeholders. It is amazing how the ecosystem continues to grow and how fintech start-ups are booming.IMG_1349         Celent has been collaborating to help create the fintech ecosystem in the Latin American region since its inception and I had the honor, for 2nd time, to judge the fintech start-ups participating in the BBVA Open Talent, which brought the Latin American finalists into town as part of Finnosummit. They had their 5 minutes of glory (or suffering) by pitching their venture to the audience and two winners were selected at the end of the day. Discover the finalists of all regions here. In Latin America two chilean start-ups were the winners: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin. In the US & RoW the two winners were: ModernLend enables users with no credit profile to create one in just 6 months by using alternate metrics; and LendingFront which facilitates short term commercial lending through a simple platform. In Europa the winners were Everledger, specialized in anti-fraud technology for financial services and insurance; and Origin an electronic platform that facilitates bond issuing in the capital markets. Many fintech startups that made it to the finals focus on Blockchain technology and payments. These seem to be the areas of major investment for the last two years. If you are interested in these themes I suggest that you follow my colleagues John Dwyer, Zilvinas Bareisis and Gareth Lodge. Coming back to Dan’s presentation, he made a very interesting observation around the need to move from the old paradigm (Customer response optimization) to a new paradigm (Anticipate and shape customer intent) based on the use of big data and analytics, but also warning that disruptors are out there applying the new paradigm today. If you want to get deeper into any of the subjects covered here, please let me know. By the way, is there any fintech start-up you believe has great potential? Share with us please!

P2P lending makes it to main street?

P2P lending makes it to main street?
Can old dogs learn new tricks? What about banks? Banks are trying; not only by making interesting bets around digital but also social. On the social aspect of banking, Banco Colpatria in Colombia offers credit cards to individuals using Lenddo’s social scoring. Lenddo has created and extensively tested an algorithm that analyzes the connections of people in their social networks to determine their character and willingness to pay. Lenddo is leaving behind its start-up origins as a micro-lender and entering into partnerships with financial institutions to take advantage of this scoring which can extend the traditional loan customer base to include new segments with no credit history (college students for example). In this same line, Banco Galicia in Argentina has a very interesting offering – Galicia MOVE – aimed to college students based on a totally digital proposition, underpinned by the use of digital channels and a targeted marketing strategy. Galicia MOVE includes a savings account, a debit card and a credit card. Jumping into social based propositions is just around the corner for them. Clearly, digital and social are terms that go together and could certainly benefit those banks that want to bet on these. Another look at the same issue is that it seems inevitable that banks begin to incorporate business models that otherwise threaten their own business from the periphery. Change or die. Peer to Peer (P2P) lending is one of those situations and banks have started to experiment with it, taking P2P lending to main street. Santander Bank through a lead generation model in partnership with Funding Circle’s and RBS using a 3rd party platform are perhaps the most significant cases right now, but we are aware of more movements in this direction. Banks are certainly not playing hide and seek with P2P lending. In our research, our conversations with key financial industry stakeholders and as collaborators at bringing together banks, fintech start-ups and VCs, P2P lending appeared as an area that banks should explore to attract customers through a different value proposition. P2P lending provides a way for the bank to acquire customers not covered by their traditional offering while making some money in the process and retaining a customer that can eventually move into financial products from traditional banking as their business / financial condition makes them a subject fit for bank credit. Regulation is an important issue for banks to get into P2P lending and depending the country, there may be restrictions. Perhaps the P2P lending company that has best understood and dealt with this issue so far is Afluenta; working with regulators in each country to adapt its model and operate under authorization of the financial regulator. For example in Argentina it was the first P2P lender to operate with the approval of the regulator, under a trust structure where Afluenta administers the trust and the money is out of its estate. Money is owned by lenders (peers), which is in the spirit of the P2P proposition. From my point of view in order for banks not to get trapped between their traditional business model, processes and restrictions imposed by the regulator there are some models that banks can explore before deciding to dive into P2P lending all by themselves: lead generation as Santander, a partnership to use the platform of an existing player or possibly an acquisition of an existing player (as BBVA did with Simple to speed up in the digital race). The end game will have banks incorporating services based on digital and social, leveraged by the use of data. I believe it will have them as main actors, therefor competing directly with the fintech-startups, such as the P2P lending companies. In the meantime, coexistance may be possible. Because I also wanted the view from someone working in the heart of this business I spoke with Alejandro Cosentino, a seasoned financial services executive and founder of Afluenta, who until now remained very skeptical about banks entering into the P2P lending space. Nevertheless he believes in its potential: since launching, Afluenta started to transform personal finances into the greatest and most participating peer-to-peer lending community across Latin America with AR$ 25M, 1300 loans, +90,000 investments transactions and covered +1,000 in social networks, blogs, news and traditional media. Afluenta originates loans at a cost which is 25% of the cost incurred by a bank. In Mexico he believes that loans could have a return of 12% against 3% which is the return for money invested by an individual in a bank. Following some of his impressions, which he gently accepted to share with you and me. P2P lending is first and furthermost a financial business and only then a technological business. Many P2P companies approach it the other way round and that is why they fail. P2P lending has to be played in a (highly) regulated and complex environment where you need to understand what risk management is about. This is why he works on 3 key issues (in order of importance):
  1. Regulation
  2. Credit
  3. Technological
He recognizes having been recently contacted by banks looking to enter the P2P space but in his opinion central banks, regulators and securities commissions will not easily allow banks to enter directly into this market. Authorities are not concerned about the systemic risk; their main concern is banks’ responsibility regarding delinquent or bad credit. In the heart of this issue is who owns the risk? who owns the money? the bank or the peers? Authorities’ view, he says, is that if a bank is in the business it will have to take the risk of delinquency or bad credit because they are trustees of that money. This is the view in Mexico, where P2P lenders have to constitute SOFIPOs (micro-finance institutions), not representing the true spirit of P2P lending because risk is taken by the financial institution and not the peer. With such a framework of legislation it is understandable that banks don’t find P2P lending attractive. The Mexican regulator is expected to review the legislation to provide a better framework to operate P2P lending by August 2015, though he believes it will take some more time than that. The issue of addressing the business without financial expertise, including poor risk management, has some P2P companies working with credit delinquency over 26 % (100 loans over 350 loan portfolio with debt for more than 90 days), making it unbearable . Afluenta instead has less than 3% with a much larger volume of loans. They have analyzed loan portfolios from banks and there have been cases where, based on their P2P lending underwriting, they would have not granted loans (which subsequently became delinquent), showing the level of intelligence and accuracy in risk analysis capable of being used in P2P lending. From his perspective banks are tepid regarding P2P lending. It is not a general trend or something that comes as a strong directive from top management, even though some banks are engaging for the sake of innovation or because they still have doubts about the future of P2P lending but don’t want to just watch the ship sail out of the harbor, in case the journey ends being successful, with them not on board. Alejandro believes that the way to go for banks interested in taking a shot to this market is through a model where they act as an online trading agent, going from lead generation to a more stronger partnership where they can direct their own institutional investments through the P2P platform. An Argentinean insurance company for example has agreed to use his P2P platform as a vehicle to directing investments, having a preferred option to finance the cases submitted by peers. An acquisition by a bank is possible if the P2P entity stays separate from the bank, otherwise it will face the regulation problems he described above. You can believe banks are still tepid about P2P lending as Alejandro does, or that it is already hitting main street, which is what I believe. Whatever you choose to believe, rest assure that banks will not play hide and seek about P2P lending. The time to get this bull from the horns has come.

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race
The digital transformation in financial services is about the move from the physical to the virtual world, from person-to-person interaction toward person-to-machine or machine-to-machine. It is Celent’s view that Integrating and coordinating among disparate and siloed delivery channels will be critical to satisfying ever-increasing customer expectations. This in part encompasses looking at how financial institutions relate with their customers and ecosystem, but also about the underlying infrastructure and processes required to provide a digital experience. It also encompasses re-thinking how a branch should look like and what services it should provide as an integral part of the customer experience. In this context I had the chance to moderate a panel during last week Next Bank Americas. With the participation of Hugo Nájera Alva – Head of Digital Banking at BBVA Bancomer, Miguel Angel Fañanas – Director of Corporate Customers and Multinationals in Telefonica Mexico, Héctor Cárdenas – CEO and cofounder of Conekta (conekta.io), and Martin Naor – partner and CEO of Infocorp, we discussed about the digital transformation in the financial industry. What an excellent moment to do it, along with the BBVA Open Talent that looked into promising fin-tech and digital life start-ups. I wanted to take this opportunity to share with you some of my take aways from this panel:
  1. Banks have a harder time reconciling digital with their legacy platform and infrastructure, and how they have been doing business for many years. Fin-tech start-ups instead are born digital, without any legacy, but they need to be careful not to build one for themselves as they grow.
  2. Technology doesn’t seem to be the constraint for becoming digital, neither is budget. Banks have much more resources and still we are seeing some interesting start-ups in different aspects of banking disrupting with much better digital propositions. Banks instead need to push the digital concept across the organization, and very tied to the concept of innovation, they need to make fundamental changes in the culture of the organization. This is what banks such as BBVA are trying to do though their Innovation Centers, open API’s, Hackatons and fostering an ecosystem of fin-tech startups in Americas and Europe, and why they partner with Next Bank to propel those.
  3. Digital also needs to reach to those customers that are still analog. This requires banks to re-imagine their branches and provide solutions that leverage the digital components but understanding the customer engagement required. Banks are quite better positioned than fin-tech start-ups in terms of physical presence, though it is no longer acceptable for banks to continue to open (or update) branches under the old branch paradigm.
  4. Banks need to better understand what customers really want, and that is not necessarily other financial product, but maybe help with administering their finances, banks helping them to save money, helping SMEs make more business, even expand globally. These are the type of issues fin-tech start-ups are tackling today. Banks have tons of information but they need to become smarter in how they use it and what new services can they offer to their customers. It is also important to look at how customers use technology in their everyday life to find ways of making banking more convenient.
  5. You just don’t claim that you are going to be more digital and then magically wait for that to happen. There is a lot of effort involved. In cases such as BBVA, acquiring Simple is part of such effort. Understanding the bank limitation in terms of its culture is also important to define what is feasible and what not. Reaching out to understand what the ecosystem is doing, actively engaging and participating to come up with a better digital vision has become an imperative today.
Overall and subjacent to the digital transformation race there is still an open debate whether fin-tech start-ups are a partner or a threat to banks. My take is that they are more a threat than a partner in the long run, but they need each other in this initial stage so partnering seems a good starting point. In the long run banks should incorporate those ideas that work; otherwise they will be cornered to a role where they just process transactions for those companies that dominate the relationship with the customer. The implications of this scenario are daunting for banks. What do YOU think?

Creating an ecosystem to drive disruption

Creating an ecosystem to drive disruption

We usually talk about how hard it is for the financial industry to innovate at the right pace, and doing the right bets. In my opinion Latin America lags a little bit behind, in part for not having anything similar to the US’ Silicon Valley. We see though, increasing efforts to generate the environment and providing places for the ecosystem to mingle.

Adding to Dan’s post about Celent attending the several industry conferences around the world as part of our job, and keeping our finger on the pulse of the industry, I wanted to share a relatively new conference that is gaining a lot of traction in Latin America as a result of its effort to bring together traditional players with fintech start-ups: Next Bank.

I will be moderating a panel on Digital transformation in financial services next October 16th, 2014 at Next Bank Americas. The idea is to create an environment where innovators from within and outside financial services institutions come together to explore the digital transformation of the industry.

It is a collaborative conference that covers innovation, transformation and startup-driven disruption in financial services in Latin America. The theme is re-think and connect – addressing the reality that the industry is undergoing momentous change and it’s time for a new collaborative approach.

You will more likely encounter traditional players like banks, consultancies and technology vendors sharing the stage with alternative players like startups, digital ecosystems and players from other industries. All of these players, the old and the new, coming together to create a new community of innovators in financial services exploring the real future of the financial services industry and the big ideas that will forever change the industry in the region

As part of the conference, it will host the final of BBVA Open Talent for the US, Mexico and Canada, a startup competition in search of today’s most disruptive tech startups in these countries in two categories, New Banking and Digital Life. Celent will be writing a report of those more promising start-ups, so expect it coming soon after the conference.

Celent is also a conference partner, so feel free to use our discount code (C3L3NTNB4M3) to get a deal on tickets.

More information @ www.nextbankamericas.com/en

Hope to see you there!