BTG aims downmarket as technology reshapes Brazilian banking

Brazilian investment bank BTG Pactual has launched an internet-only bank that aims to win a 10% share of the R$650 billion ($190 billion) market for managing the money of the affluent retail sector in the country.

The brand, BTG Pactual Digital, will offer 14 investment and three pension funds that are currently open to its wealth management business, which it classes as people with over R$5 million to invest. The bank says the fees applied to the management of the funds will be exactly the same as for its private banking clients – starting from as low as 0.2% for basic CDI-based funds.

Roberto Sallouti, CEO of BTG Pactual, says that he sees the growing number of Brazilian start-up fintech companies as the principal competition for BTG Pactual Digital rather than the country’s established retail banks.

“We established this online venture as a start-up within our bank,” he says.

Sallouti argues the new venture won’t compete with leading retail banks as BTG Pactual Digital is not proposing to expand beyond investment funds into credit cards, bank accounts or insurance. Rather, the nascent fintech start-up industry is closer to BTG Pactual Digital’s business model. The bank is targeting people with around R$50,000 to invest, but it will allow individuals to open accounts with R$3,000 – the lowest minimum deposit of the funds offered through BTG Pactual.

Sallouti declines to provide the costs associated with the launch of the digital bank but says that the firm has technology expenses of R$200 million, including the development costs of the platform. The total associated headcount is currently 35. He says that the bank had been monitoring the potential of digital banking closely and began working on the project in January 2014 as the country’s digital infrastructure and adoption rates confirmed the viability of an internet-only bank. Then, following a regulatory change at the central bank in April 2014 on the  opening and closing of accounts, the project was able to target the mass affluent segment – a part of the market not previously targeted by the bank. In June this year the developed platform was offered to family and friends of employees of the bank.

Marcelo Flora, head of BTG Pactual Digital, says accounts can be opened on smart phones in around 30 minutes. The bank will provide email and telephone support.

“The wealth of Brazilian families will gradually move from being managed by traditional retail banks and migrate to new digital investment channels – as we have seen happen in the US,” says Sallouti.

The banking market in Brazil is beginning to reflect the impact of new digital companies. Also, some argue that the impact of a recent industrial action by employees of the retail banks, which was one of the longest continuous strikes in the country at more than 30 days, accelerated the shift to online banking.

A report by Fitch notes: “The strike forced people to use new technologies due to a lack of alternatives. The experience was positive, and the advantages of these technologies are becoming evident in clients’ daily lives and are likely to reduce the operational costs of banks in the long run.”

Brazil’s large banks are beginning to embrace the technological opportunity that automation can have for improving efficiency and profitability.

For the full article visit Euromoney Magazine

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