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Chile is this year's hot spot for ATM activity in Latin America, as the country's two ATM systems, Redbanc and Globalnet, angle to make a connection.
January 8, 2002
Chile is this year's hot spot for ATM activity in Latin America, as the country's two ATM systems, Redbanc and Globalnet, angle to make a connection.
An agreement is expected before year-end, although negotiations have hit a snag – according to local market rumors – over the issue over how much Globalnet banks will have to pay to link to the larger Redbanc system.
"It's a long process, that implies reaching agreements in many areas: the commercial, the technical and the operational," said Carlos Olivares, deputy e-banking manager at BancoEstado. "This is what has postponed the interconnection between the two systems."
Whatever the final result, a connection between the two rival systems, which are run by member banks, is sure to change the face of the Chilean ATM landscape.
Chile's ATM networks: |
BancoEstado, Chile's only remaining state bank, is the only large retail institution that is connected to Globalnet. All of the other retail players are members of Redbanc, which includes some 80 percent of all ATMs in Chile.
Bank of America and the seven other private banks that are Globalnet members are all small niche players in Chile - focusing mainly on corporate banking - which explains why BancoEstado's 728 ATMs make up 99 percent of Globalnet.
Spanish banking group Santander Central Hispano (NYSE: STD) dominates the Redbanc system through its two Chilean subsidiaries, Banco Santiago (NYSE: SAN) and Banco Santander Chile (NYSE: BSB). Those two financial institutions own some 60 percent of Redbanc's 2,549 ATMs, according to local brokerage house Larrain Vial, which tracks the stocks of both banks.
"That figure will come down to 50 percent in the next couple of years as the financial system continues to consolidate," predicted Larrain Vial banking analyst Carlos Vallon.
All 15 Redbanc members, including U.S. financial institutions such as Citibank and BankBoston, are strong retail players with a high dependency on the ATM as an alternative distribution channel to the bank branch.
And the winner is...
"BancoEstado will benefit most from the link-up between the two systems because it will be able to offer its clients a much better ATM coverage," Larrain Vial's Vallon said.
Rodrigo Salas, an analyst with the Fitch agency in Chile, agreed: "Not being connected to the Redbanc system is a disadvantage for BancoEstado; makes it lose competitiveness," he said.
Almost every Chilean – by tradition – has a savings account with BancoEstado, the country's third-largest bank. However, under new chairman Jaime Estevez, the bank has set out ambitious objectives to become a leaner bank that can compete with the private banks head to head.
This change of direction of the only remaining state bank has drawn criticism from both politicians and small business representatives, who believe that BancoEstado should stick to its traditional core constituency of low-income individuals and small-sized enterprises – and not spend money and time venturing into the territory of the private banks.
"We can walk and chew gum at the same time," Estevez rallied at a press conference earlier this year, after having received fire for granting a U.S. $100 million loan to one of Chile's most powerful economic groups – the Luksic family – in its takeover of the country's second largest bank Banco de Chile. "We're not running a charity, and the bank will go after every attractive business deal that it comes across on the market."
Estevez's tough talk has earned attention from private banks and analysts alike. His challenge is to make BancoEstado a more modern institution that can be efficient and profitable while continuing to serve the country's low-income individuals and small business owners; who are generally not welcome at private banks.
Clearing the branch
BancoEstado's great mass of clients has made electronic distribution channels one of the most important pieces of its aggressive modernization plans, with clearing the bank's over-crowded branches a top priority.
The problem of long lines at the branches is not unique to BancoEstado; all Chilean banks are trying to convince customers to stay away from branches and use alternative distribution channels such as ATMs.
BancoEstado has invested heavily in increasing its ATM network in order to convince its clients to perform more basic transactions at the self –service machines.
"We have more or less duplicated the number of ATM machines in the last three years," BancoEstado's Olivares said, adding that the bank works with Diebold (NYSE: DBD) as its primary vendor.
BancoEstado has also undertaken an ambitious drive to promote usage of online banking. However, due to the bank's high percentage of low-income customers without PC access and Chile's overall low Internet penetration, Olivares believes it will take many years before online banking will be used on a large scale by the bank's clients.
Raimundo Monge, Santander Chile's head of corporate strategy, said that even the private banks, which usually cater to high-income individuals, will have to wait more than just a couple of years before the Internet can be seen as a real alternative to the bank branch.
"It will take generations before Chileans will use online banking in a massive way due to their deep-rooted habit of going to the local branch to do their banking," he said.
Eduardo Unanue, Diebold's managing director for Latin America and the Caribbean, pointed out that it was the same way when plastic cards were introduced and pundits predicted that the days of money and checks were numbered. "I don't see the Internet as a threat to ATMs in Latin America, instead I see it as a complement," he said.
On solid ground
Market watchers agree that Chile is Latin America's most solid financial system, where terms such as "interventions" and "liquidations" are now found only in history books. Chile's system is often hailed as a model for the rest of the region to follow.
Chile is also already one of the most advanced countries in Latin America in terms of ATMs. While a bigger country like Argentina has some 7,000 ATMs, Chile has 3,278 – one for every 400 current account holders, according to information provided by Redbanc.
In the Redbanc system, the average client uses the ATM between six and seven times per month, for an overall total of approximately 5,000 Redbanc transactions per month.
More room to boom
Yet while Chile's 60 percent bank penetration is high in comparison to the Latin American average of 30-40 percent, there is still plenty of room for further bank and ATM penetration in a country with around 16 million habitants and a growing middle class, according to both Larrain Vial's Vallon and Fitch's Rodrigo Salas.
A combination of Chileans' hard-to-change habits, distrust in the Internet and the banks' need to clear their branches is expected to pave the way for solid ATM growth in coming years. The Redbanc system has increased from 1,000 ATMs in 1996 to 2,549 machines today.
"Even if the Chilean financial system is highly advanced in a Latin American comparison, in terms of ATM coverage the system is still behind the U.S. and Europe," said Larrain Vial's Vallon, noting that he expects the Redbanc system to grow by 10 percent a year during the next five years.
"That estimate could be conservative in the case of Chile," added Diebold's Unanue, who believes that Chile – together with Brazil and Mexico – are the ATM markets that will grow most in the region over the next few years, due to their relative economic stability compared to other countries in the region.
"The ATM machines are still the best alternative to the branches because they are easy to use and they provide ready cash - and the clients avoid the long lines at the branches," Vallon said, adding, "To increase the number of ATMs is in the banks' best interest because the ATM transactions are much cheaper than the transactions at the branches. By increasing the ATMs, they can also eliminate staff at the branches and thus cut costs further."
Fitch's Rodrigo Salas said, "The ATM machines in Chile needs some 3,000 transactions per month to pay for the operational cost and then the rest goes into the banks' pockets."
What's ahead?
While there is no doubt that there will be future ATM growth in Chile, it's not quite as certain what the new market will look like.
Diebold and the local banking analysts believe that ATM deployment at off-premise locations, such as supermarkets, gas stations and airports, will drive future growth. "The old concept was to provide your clients with self-service at your bank branch, but now the banks are bringing the ATMs to the clients," Diebold's Unanue said.
Technology will also help shape the future growth of ATMs in Chile and Latin America, as new technology enables ATMs machines to accept bill payments and pay for movie and concert tickets, Unanue added.
"The growth of ATMs will depend on the creativity of the ATM providers and the banks themselves, in terms of where the machines should be located and with what technology they should be equipped," Fitch's Rodrigo Salas concluded.
