Article

Diversity challenges deployers

The diverse cultures and economies of Latin America present both a challenge and an opportunity for outside ATM companies looking to enter the region.

October 16, 2001

From its geography to its culture to its sporting tastes, Latin America is a land of diverse opinions and options. Baseball rules in Venezuela, but soccer is king in Brazil. Brazilians love samba music, but Argentineans prefer to tango.

When it comes to ATMs, the landscape mirrors the region's variety. Some markets appear to be maturing (Brazil, Mexico Argentina). In others, ATMs barely register (Bolivia, Guatemala). Interchange is an accepted part of the scene in Argentina. In Brazil, interchange is trickier because rates vary widely between that country's bank-owned networks.

"The biggest mistake about Latin America is to assume anything from the Rio Grande down to Argentina is the same. It's as different as Europe," said Jorge Fernandez, director ofTriton'sLatin American and Caribbean division. "While the language is the same, the cultures are different. People assume that Mexico is similar to Colombia, which is similar to Venezuela, which is similar to Argentina – and that's a mistake."

The region's diversity creates delicate balancing acts for ATM companies seeking to do business in the region. As a result, many have struck deals with local distributors, creating access in markets that would not have been possible without lengthy negotiations.

"Latin America is still a country centric market," said Claudio Muruzabal,NCRvice president for self service in the Caribbean and Latin America. "A strong presence in a country is required to adequately serve the needs of the industry."

 Predicting the future of Latin America's ATM market is also a tricky proposition. The ability of markets to mature and diversify could depend in large part on economic conditions, which have recently mirrored downturns in the global community. The consolidation of banks in some countries could affect the speed of ATM development.

Yet for all the insularity that exists in the Latin American community, thinking globally will impact what happens in at least part of the region, said Fernando Limon, president of Microformas, a Mexican distributor ofFujitsuATMs.

"We depend on the American economy," Limon said. "Once it starts to grow, we'll grow again."

Mature markets?

Mexico and Brazil are the two countries most people think of as mature ATM markets in Latin America, a region that encompasses South America, Central America and the Caribbean region.

With about 63,000 machines, Brazil has one of the world's largest installed bases of ATMs, trailing the U.S. and Japan. Slightly under 20 percent, or 12,620, of its ATMs are at off-site locations, according to theRetail Banking Researchreport Off-Site ATMs 2001.

Yet Brazil is the fifth-largest country in the world, exceeded in size only by Russia, Canada, China and the U.S. Even though a significant portion of the country is sparsely populated rain forests and savannas, there is plenty of room for growth.

"Latin America is different from North America and Western Europe in that there is still potential for new bank installations, and especially off-premise ATMs," said Retail Banking Research Managing Director Dominic Hirsch.

 "There are no markets that are mature in any way, shape, or form," agreed Triton's Fernandez.

One factor inhibiting ATM growth in some Latin American countries is depressed economies. "This country needs many more ATMs," Microformas' Limon said of Mexico, "but there is no money to buy ATMs right now. The banks have no budgets to buy ATMs right now and they are the only buyers. There are no big ISOs."

Small card base

Another challenge is the small percentage of consumers with bank accounts.

"The percentage of people who have bank relations in any one country could be no more than 40 percent to 45 percent," Fernandez estimated. "Brazil has 160 million people, and it's probably safe to say only 35 to 40 percent of the population have bank relationships."

At a Citibank branch in downtown Buenos Aires, consumers can pay bills at these 28 terminals manufactured by Diebold-DPB.

Ernesto Unanue,Diebold'smanaging director of Latin America and the Caribbean, said, "On average, maybe 65 percent to 70 percent of the population in Latin America don't have banking relationships. It's a challenge for the financial institutions, the economies and the countries themselves."

Yet it's also an opportunity, Unanue said, noting that banks may invest in machines with barcode or optical readers and cash acceptors, for instance, to offer the unbanked a more convenient means of paying their utility bills.

"You cannot overlook the 70 percent of the population that is not in the banking mainstream," he said. "If you want to make the countries grow and mature, you need to have solutions for everybody."

Bank control

Another factor restricting ATM growth in the region – particularly at off-site locations – is the structure and authority of each country's banks, which typically control the ATM networks.

"In Latin America the banks have unbelievable power," Triton's Fernandez said. "You have two or three very powerful banks and a bunch of little ones; that's pretty consistent. They're used to having power, they like to have power, and they like to wield power."

Further complicating the issue is the entry of international interests. Several banks, in particular Spanish-based Banco Santander and BBV, have bought leading Latin American banks in the past several years. Earlier this year, Citigroup announced it would acquire one of Mexico's largest financial institutions, Banamex-Accival (Banacci).

Microformas' Limon said that consolidations and takeovers have reduced the number of major banks in Mexico from 30 a decade ago to about 10 today. "The banks, they have their mergers and they absorb the machines of the other banks," he said. "They close their branches and move the ATMs."

Even in smaller countries, the trend is toward contraction. Costa Rican financial group Grupo Financiero San Jose announced on Sept. 10 that it was purchasing Group Financiero Finadesta, the sixth bank merger or alliance in the Central American country since 1999.

"The banking industry in the region is now in the hands of foreigners," Fernandez said. "Banking as an industry is changing dramatically, but that doesn't change the fact that they are powerful and they want to do things their way."

Ultimately, said Diebold's Unanue, the entry of foreign powers like Banco Santander and Citigroup should be good for the Latin American ATM industry.

"These are mature banks with successful models. It's going to put a lot of pressure on the local banking communities," he said. "They'll have to shape up or become part of those guys. They're going to have to take a serious look at their technology and infrastructure."

Competitive threat

Banks have been largely reluctant to allow off-premise ATMs into the market, said Triton's Fernandez. Network membership is generally only open to independents through sponsorship by a financial institution.

"The challenge has been the fact that banks view it as competition. An off-premise needs a local bank to sponsor it. Finding a local bank system is the greatest difficulty," he said. "We have to make the banks understand how we can take something they view as a competitor and introduce it into markets where they'll compete. It's a delicate balance and you have to tell them 'Yes we'll compete, but they'll be some things here that will be of benefit for you.' "

Microformas' Limon said off-premise ATMs are gaining more acceptance in Mexico as the banking industry continues to consolidate. In Mexico, he said, many companies use ATMs for payroll functions, giving employees debit cards that can be used at ATMs to draw their salary. Such a function has necessitated improving ATM accessibility.

"Imagine if it's a payroll day and everybody is trying to get their money," he said. "More ATMs are being put in pharmacies and other establishments. That's a trend."

Indeed, said Diebold's Unanue, the Argentinean government has mandated direct deposit for companies that employ 100 workers or more. Much like Electronic Benefits Transfer (EBT) accounts in the U.S., Unanue said those companies must create accounts for their employees without banking relationships.

Security concerns

Security problems, strangely enough, also could open the door for more off-premise deployment. Brazil and Mexico have experienced an increasing number of ATM-related robberies in recent months. Sao Paulo officials instituted electricity rationing and shut down ATMs at night in June, leading to a 46 percent decrease in ATM robberies.

NCR's Muruzabal said that the Brazilian power shutdown had more to do with a countrywide energy shortage precipitated by drought conditions. But he agreed that deployers are taking steps to ensure greater ATM safety in the region.

"Security is a concern in Brazil that has led us to equip ATMs with stronger security ranging from alarms to strong boxes," he said. "ATMs installed inside supermarkets, metro stations, hotels and airports are more popular in Brazil."

 "In Mexico we have found that many people prefer to come use our machines, even if a bank is close by, because they feel more secure walking into a store than walking into the small street kiosk where bank ATMs are located," said Triton's Fernandez. "As one cardholder put it, 'When I walk out of the street kiosk, the potential criminal knows exactly what I went in there to do. However, when I walk out of the store, he has no idea if I went in there to get cash or to buy milk.' "

Retail Banking Research's Hirsch said that, for now, banks continue to drive off-premise ATM deployment. "They're interested in extending their reach beyond the branch and in reducing costs. If it's a choice of a branch versus an ATM in a shopping mall, it's obviously much less expensive to go with the ATM."

And he doesn't expect the situation to change soon, largely because of local political climates. "Non-bank deployment is a regulatory issue," Hirsch said. "As you can imagine, competition laws just aren't there in many of the smaller countries."

Network news

Network infrastructure and fee structures vary wildly from country to country.

"Interchange is more country centric with different regulations and flavors depending on the country," NCR's Muruzabal said. "Efforts are in place to expand network coverage."

 "The two largest networks in Argentina, Link and Banelco, have recently agreed to make their networks available to card holders of the competing network," he continued. "By doing that bank customers in Argentina have access to all ATMs in the country. By contrast, the scenario in Brazil is primarily dominated by standalone bank-owned networks. Smaller banks are integrated into a single shared network."

 The issue of surcharging in Latin America is a delicate one. The trend has been to avoid surcharging, but that may change soon. Triton's Fernandez predicted that within 18 months, several markets will implement surcharges – including Mexico, Venezuela, and Brazil – with a rollout similar to that of the U.S.

Can I help you?

Along with surcharging, functionality is something that has been missing for the most part with Latin American ATMs. Some of this is customer-driven, with consumers seeking nothing more than a way to access their money. But in larger countries with more sophisticated ATM systems, some believe customers crave more functionality.

"With the race for market coverage almost over in most of the largest countries, the challenge now is how to improve the value that ATMs bring to customers," said NCR's Muruzabal. "Institutions are considering significant investments to enable new transactions in the ATM. On the other hand, there is also a drive to install low-end ATMs in convenience stores and low-traffic locations."

 Again, there is no consensus in the region.

"It's very hard to discern what people want, you get different answers from everyone," Triton's Fernandez said. "Brazil is probably the most advanced country when it comes to bank automation. Before you see the teller, you walk past 10 different kinds of machines. There's a reason for that; the last thing they want is for you to see a teller, so they give you a lot of different opportunities."

But what is good for a Mexico or a Brazil may not be a short-term possibility for a developing ATM country.

"You can't do (multiple functionality) in Guatemala or Panama; it's too cost-prohibitive," Fernandez said. "Some think the answer is to combine all those elements in one machine, but the reality is that will cost $30,000 to $40,000. The reality also is that 99 percent of the time, people are going there for information on transactions and withdrawals."

Breaking into the market

Latin America is viewed as prime territory for outside ATM manufacturers. But for the most part, banking officials prefer to do business with local businesses, meaning non-native manufacturers have had to adopt different strategies for the region.

"You can't assume that whatever works in the U.S. automatically works there," Fernandez said. "You always have to take what works here and adapt it, not to the region but to the market. If you take something to Mexico, you have to adapt it; once you adapt it, you can't take it to Venezuela and Brazil without adapting it again. It makes it more expensive and time-consuming, so it takes longer."

NCR has opened offices in Argentina, Brazil, Chile, and Mexico, and developed self-service partnerships with companies in other parts of the region. Muruzabal said that developing a strong brand name in each country was the most effective way of doing business.

 "A strong presence in each country is required to adequately serve the needs of the industry," he said.

 Unanue said a distribution agreement with IBM from 1990-98 and an earlier partnership with Philips Electronics helped lay the groundwork for Diebold. "The name Diebold goes way back with financial institutions in Latin America," he said. "The Diebold brand is our biggest asset."

 Diebold further solidified its presence in the region with the October 1999 purchase of Procomp Amazonia Industria Electronica, a Brazilian manufacturer.

 Triton's Fernandez said there are four keys to making any deals work in Latin America: understanding the culture, understanding the way Latin Americans think, being tenacious, and having a vision that your proposed endeavor is profitable.

"This is still a region where contacts and knowing the right people and being in the right circles are absolutely essential," he said. "We can spend a long time spinning our wheels and going nowhere, or we can go in with the right partners and get things down relatively quickly."

Included In This Story

---

Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

Request Info

Learn More