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Chile's banks use ATMs to serve the underserved

Bankers say Chile's ATMs will help them tap unbanked consumers. But will the country's sparse ATM placements fit the bill?

January 1, 2007 by

*About the author: Ulric Rindebro is a new contributor to ATM Marketplace. To submit a comment about this article, pleasee-mailthe editor.

Bankers in Chile are betting on ATMs to help them reach millions of unbanked and underbanked low-income consumers, who dominate the country's workforce. Approximately 66 percent of Chile's workforce earns between $200 and $600 per month.

For bankers, low bank penetration poses a problem.

Today in Chile, only 20 percent of the country's several million individuals who earn between $200 and $600 a month are banked. Compounding the problem is the country's low number of ATMs. According to Washington-based The World Bank Group, Chile in 2005 had only 24 ATMs per every 100,000 people. As points of reference, in 2005 in the United States, the ATM-to-consumer ratio was 121 to 100,000 people; in Spain it was 127 to 100,000.

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But Chile's private-sector banks and BancoEstado, the only remaining state bank, have announced projects expected to launch in 2007 that will reach more consumers. And ATMs play key roles in those projects.

The ATM push is one of several initiatives that aims to double the country's 3 million banked customers between 2007 and 2012. The Chilean Association of Banks and Financial Institutions expects the new ATM installations between 2007 and 2009 to attract 1 million unbanked consumers.

Chile has one ATM network, Redbanc, which is owned by most of the country's private-sector banks. That caveat makes Chile's ATM industry "unique."

And, like most of the ATM world, the Chilean market is dominated by NCR Corp., Diebold Inc. and Wincor Nixdorf International. Brazil's Perto S/A Perifericos Para Automacao entered the Chilean market in 2005, part of the ATM maker's international expansion strategy.

In 2005, Perto sold 30 units; the next year it sold 300, a Perto executive said.

The bankers' plan

The banks' plans call for a U.S. $6 million investment over the next three years to install 108 ATMs. Those ATMs will be placed in the country's municipal districts that don't have ATMs. Chile has 341 municipal districts and about 5,000 ATMs.

After the first three years, Chile's banks are expected to invest an additional U.S. $4 million to install more ATMs in districts with high numbers of low-income consumers.

The plans also call for other measures, like increasing the number of POS terminals at small retailers and lobbying the government for more flexible bank regulations.

Abraham Martínez, a financial analyst for New York-based Fitch Ratings Inc. in Santiago, says the ATM is the best distribution channel for bank penetration in undeserved areas.

"ATMs play a fundamental positioning role in the retail franchise at major banks because, just as the branch, they are bank's visible face for the retail client," he said.

For ATM manufacturers, the banks' plan will have little impact because of the small number of expected installations, said Jorge Belmar, NCR's country manager for Chile and Peru.

But Chile's overall ATM market remains attractive, experts agree, as many of the country's largest FIs plan to boost their ATM networks in coming years.

Santiago, Chile-based Banco Santander Chile, d.b.a. Santander Santiago, holds Chile's largest ATM network at 1,550 machines.Santander Santiago's parent, Spain-based Santander, is expected to spend U.S. $105 million over the next two to three years to deploy 5,158 ATMs throughout Latin America, bringing the bank's total Latin American fleet to just less than 20,000 machines.

The expected investment is almost double the U.S. $55 million the bank in spent on ATMs from 2003 to 2006. And between 2002 and 2006, the Chilean subsidiary, Santander Santiago, invested U.S. $10 million to install 500 ATMs, said Angel Rebolledo, Santander Santiago's central operations manager.

Santiago, Chile-based Banco Del Estado De Chile, d.b.a. BancoEstado - Chile's third-largest ATM player - expects in 2007 to add at least 300 ATMs to its network of 1,112 ATMs, said e-banking manager Hernán Saavedra. In 2006, the bank installed 126 new machines.

The bank also says it plans to continue its new strategy of signing partnerships with large retailers, and those partnerships could prompt more ATM purchases, Saavedra said.

Both bank executives and Belmar say that the majority of new ATM installations will be off-premises placements.

With those off-premises placements has come a renewed interested in advanced functions, such as advertising, Rebolledo said.

"In terms of functionality and service, we want to transform its role from being just a cash dispenser into a remote distribution channel," he said.

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