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2018 FEBRABAN BankingTechnology Survey

C O N D U C T E D B Y

FEBRABAN

FEBRABAN, the Brazilian Federation of Banks, is the main entity representing the Brazilian banking industry. It

was founded in 1967 in the city of São Paulo for the purpose of improving the financial system and its relations

with society and contributing to the economic, social and sustainable development of Brazil. The Federation’s

goal is to represent its members at all levels – the Executive, Legislative and Judicial branches, and entities repre-

senting society – enhance the regulatory framework, aimed at continual improvement of production and reduce

risk levels. It also focuses its efforts on increasing the public’s access to financial products and services.

Deloitte

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is one of the market leaders, with its 5,500 professionals and with operations throughout the national territory,

from 12 offices.

2018 FEBRABAN BankingTechnology Survey

C O N D U C T E D B Y

4

Introduction

Introduction

By devoting efforts and resources to new technologies, banks maintain the commitment to anticipating consumers’ new demands, as shown in the 26th edition of the FEBRABAN Banking Technology Survey.

Technology has been transforming entire markets, especially in the last decade. The-

se are changes that promote a new logic in business, with the intensive use of new

technologies that require to follow the new habits of the consumers and the ways

of interaction with them. The banking industry has always been in the lead in the evolu-

tion of consumer habits – even due to being a segment of the economy that relates to

the consumer in one of the most inherent areas of their day-to-day: dealing with their

financial resources.

Banks have also always been at the forefront of technology. This is what the 26 editions

of the FEBRABAN Banking Technology Survey – including this publication – have been

showing year after year. It is clear how Brazilian banks, and those operating in Brazil,

spend to explore, develop, apply and improve technologies aimed at bringing convenien-

ce, practicality and safety to consumers. In 2017, investments and spending on technolo-

gy grew 5%, to R$ 19.5 billion, with a special highlight to resources allocated to software.

Separately, investments alone were 13% higher, reaching R$ 6 billion, the highest level

since 2014.

By dedicating efforts and resources to new technologies, banks do nothing more than

this industry’s essence: anticipating the consumers’ new demands. And it was so when

digital channels evolved over the last two decades. First, there was the growth of inter-

net banking and, in 2017, mobile banking consolidated as a major channel. There are 59

million active accounts in this channel – the same number of internet banking accounts.

Last year alone, 1.6 million accounts were opened via mobile in Brazil, almost three times

more than in 2016.

This advance brings many certainties, such as the banks’ bet on building their presence

in the closest device to the day to day of consumers, the smartphones. Convenience is

today one of the key words of behavior of consumers, who wish to make their daily finan-

cial experience a practical and quick one. The FEBRABAN Survey shows that consumers

recognize the investments that banks make in security and rely on applications to execute

transactions and manage their financial resources, among other features and services.

“Consumers show

that they recognize

the investments

that banks make

in security and rely

on applications

to execute

transactions and

manage their

financial resources,

among other

features and

services.”

2018 FEBRABAN Banking Technology Survey

5

The advancement of mobile banking also confirms the logic that, the more banks move

forward to enrich the user experience, the more these consumers will be willing to expe-

riment with the innovations. That is why most institutions are investing heavily in tech-

nologies such as artificial intelligence, cognitive computing and analytics, which are at

the top of the investment list of 80% of banks. Moreover, 75% invest in blockchain, 55%

in NFC (near field communication) and 45% in Internet of Things (IoT). Each of these

technologies is at a different level of adoption and will allow for the improvement of the

service offerings at some level.

The Survey shows that in 2017 there were 373 digital branches – three times more than

in the previous year. The branch figure is one of the most traditional aspects of banking

networks. When the branch also evolves and follows the transformations of habits, what

is seen is a whole chain, in all its business logic, transforming itself according to the mar-

ket. Longevity and sustainability, in business, are battles that are won with constant evo-

lution. This is exactly the path that banks continue to pursue with great efforts.

Gustavo Fosse

FEBRABAN’s Sectorial Director of Technology and Banking Automation

Paschoal Pipolo Baptista

Deloitte Brazil’s Partner of Banking & Capital Markets

ContentsExecutive summary 6

Investments focused on consumer experience 8

Mobile banking gains consumer preference 15

Transactions in the palm of the hand: the transformation of habits 22

Physical channels: stability and advancement of digital branches 32

Investments for the next transformation cycles 37

Trends to observe for the new cycles 42

6

1

3 Transactions Transactions previously performed on physical channels enter the digital environment

The volume of transactions with financial activity made via mobile banking grew 70% in

2017, reaching 1.7 billion transactions. In all, digital channels recorded an increase in these

transactions from 4.4 billion in 2016 to 5.3 billion in 2017. More complex transactions have

been gaining ground in mobile banking, attracting consumers’ attention: credit acquisition via

smartphone grew 141% over the previous year. Investment or equity transactions increased

by 42% in this channel. Another highlight is the 53% increase in the number of credit card

applications via smartphones.

2 Consumer The client is even more engaged with mobile banking

The number of accounts with transactions via mobile banking channel was the same as the

number of accounts with transactions via internet banking for the first time, in 2017, totaling

59 million in each channel. There was a large increase in the number of new users: 1.6 million

accounts were opened via mobile in Brazil, almost three times more than in 2016. Consumer

preference among channels began to reverse: between 2012 and 2017, the average volume

of transactions per account fell by 53.7% in internet banking, while mobile banking grew

by 436%. The share of mobile banking heavy users (those who perform more than 80% of

transactions on the same channel) was 36% of total accounts in 2017. In the previous year,

this share was 29%.

Executive summaryInvestments and expenses Expenses with banking technology grow again

In 2017, the amount allocated by banks to investments and technology expenses in Brazil

grew 5% in relation to the previous year – totaling R$ 19.5 billion. The increase is recorded

after a slight reduction in 2016. When considering only investments, growth was 13% in

2017, reaching R$ 6 billion, the highest level since 2014. The total volume of investments

and expenses grew primarily with a focus on software as a way to sustain the development

of solutions and services and to bring better experiences and more quality to consumers.

Software expenses in 2017 were up 17%, totaling R$ 9.8 billion.


7

4

5 New technologies Banks are attentive to the development of more innovations

Focusing on offering new services and experiences, and also on improving the consumer

journey, 80% of banks invest in artificial intelligence and cognitive computing. The same

portion is investing in analytics, technology that has been gaining maturity for its application.

Also looking at the evolution of the financial market, 75% of banks invest in blockchain, while

the Internet of Things has caught the attention of 45%. NFC, a technology present in mobile

payments, for example, is on the agenda of 55% of the institutions.

Branches Changes in habits and new concepts change the scenario

The creation of new branch models adapted to consumer preferences begins to replace

traditional models. In 2017, there were 373 digital branches – a volume three times greater

than the previous year. However, traditional branches are also evolving, adapting to the

new way the consumer prefers to deal with money (opting for electronic transactions to

handle cash, for example) and focusing on business and consumer relationship. In volume of

transactions, the reduction in withdrawals in branches and BSPs (Banking Service Points) was

of almost 40 billion in 2017.

Sample and methodology

24 banks from Brazil or operating in Brazil, which represent 91% of the banking industry’s assets

in the country, participated in the survey. The survey was conducted through the application of an

online form to these financial institutions, in addition to interviews with specialists, consolidation of

public data and Deloitte’s surveys.

Investimentos com foco na experiência do consumidor

8

Investments focused on consumerexperience


9

Technology has been forcing the most varied sectors of the economy to review their

investment strategies in the area. At the same time a certain technology already

in use is being consolidated and improved, it is necessary to bet on those that are

emerging, but that, very soon, will be essential for business. The need for evolution on

different fronts, each at different stages of maturity, is one of the highest priorities of in-

novation in the corporate world.

The change is especially noticeable in highly competitive industries that need to quickly

meet demands for security, convenience and practicality. It is within this scenario that the

banking industry continues to position itself at the forefront of investments, especially in

Brazil. From the recent popularization of mobile banking to the myriad possibilities of the

Internet of Things, banks now strengthen their approach to the technologies that already

dominate and work the future applications of those that are still gaing maturity – and

soon will be demanded by consumers, already familiar with receiving innovation every day.

This issue of the FEBRABAN Banking Technology Survey clearly shows where the ban-

king sector is looking. In 2017, the amount intended for investments and expenses by

the banks that operate in Brazil grew 5% in relation to the previous year, totaling R$ 19.5

billion – this in a moment where the economy is beginning to recover. This is a reaction

to the slight reduction registered in 2016, when the total reached R$ 18.6 billion, and a

recovery already higher than the amounts of 2015, which reached R$ 19.1 billion. When

the amounts intended for investments are separated from those intended for expenses,

the numbers tell an even more positive story: the increase was 13% in 2017, reaching R$

6 billion, the highest level since 2014, when it recorded R$ 7.9 billion.

TOTAL TECHNOLOGY EXPENDITURES (IN R$ BILLION)

SOUrCE: 2018 FEBrABAN BANkiNg TEChNOlOgY SUrvEY

2011 2012 2013 2014 2015 2016 2017

Investments

Expenses

11.8

5.8

12.1

7.2

13.8

7.0

13.5

7.9

13.7

5.4

0.4

5.3

19.1 18.6

13.513.3

6.0

19.517.6

19.320.8 21.4

10

Investments focused on consumer experience

Where the resources goNominally lower than between 2013 and 2014, when there were large investments by

some banks in the construction of datacenters in Brazil, the volume of investments and

expenses in 2017 basically grew based on the acquisition and maintenance of software.

There was a slight increase in investments in infrastructure, but the focus was on acqui-

ring and developing new solutions and services, capable of bringing better experiences

and also more quality to consumers. Thus, resources allocated to software increased 17%

in 2017 compared to the previous year, totaling R$ 9.8 billion, and already account for

half of the total investments and expenses made by banks in technology.

Separately, software investments reached R$ 3.5 billion, an amount only comparable, wi-

thin the period covered by the Survey, to that of 2013, when the same volume was re-

corded (and lower only than that of 2012, when the amount reached R$ 4 billion). In the

case of expenses, the amount of R$ 6.3 billion is the highest recorded in the survey’s ho-

rizon – occupying the tip of growing trend of increase, which demonstrates how the new

solutions and innovative offers are being absorbed, maintained and improved in the midst

of the banks’ technological arsenal. It is worth mentioning, within this trend, the software

as a service model, whereby banks pay for the use of software in a model similar to that

of a subscription. Cloud services are common in this model.

The growth trend in software expenditures coexists, with slight variations, with that of

hardware and telecom maintenance. In addition to expenses and investments, both hard-

ware and telecom have been showing slight drops year on year – more indicative of con-

tinuity than of change. The total hardware investment and expenses in 2017 was R$ 6.3

billion, 4.5% less than the previous year. Telecom-intended resources were R$ 3.4 billion,

down 5.6% in the period.

Regarding the share in the total amount of investments in technology, software represents

59%. Of the total expenses, 47% of the resources were directed to software. Both shares

grow year on year, especially since 2014. In 2017, 36% of the investments were directed to

hardware and 5% to telecom. Of the expenses, in this period 30% went to hardware and

23% to telecom. The investments in software encourage the technological development of

the banking industry in Brazil, greatly boosted by the software as a service model.

The last year software was behind hardware in investments was in 2014, when the last

cycle of banks investing in datacenters was seen in Brazil – and the hardware accounted

for 41% of the total. Since then, the share of software has only been increasing, initially in

a lighter way, to a jump of five percentage points over the previous year in 2017, confir-

ming the concrete search of the institutions to present new features to their consumers.

Hardware (32% in 2017) and telecom (18%) also maintain the light and rhythmic pace

of decline that the other results of the Survey have been pointing.


11

2011 2012 2013 2014 2015 2016 2017

2011 2012 2013 2014 2015 2016 2017Software

Hardware

Telecom

0.4

2.6

2.8

0.3

2.9

4

0.4

3.1

3.5

0.7

3.9

3.3

0.3

2.2

2.9

0.4

2

2.9

5.4 5.3

0.3

2.2

3.5

6.05.87.2 7

7.9

3.7

5

3.1

3.8

5.1

3.2

3.4

5.5

4.9

3.7

4.7

5.1

3.5

4.6

5.6

3.2

4.6

5.5

3.1

4.1

6.3

13.7 13.3 13.5

11.8 12.1

13.8 13.5

TECHNOLOGY EXPENDITURES BY CATEGORY (IN R$ BILLIONS)*

* The investments and expenses of mainframe software are included in hardwareSource: 2018 FEBRABAN Banking Technology Survey

Investments

Expenses

Software investments reached

R$ 3.5 billion, an amount comparable

to that of 2013

12


COMPOSITION OF TECHNOLOGY EXPENDITURES BY CATEGORY*


Investments

Expenses

6%

46%

48%

5%

40%

55%

6%

44%

50%

9%

49%

42%

6%

40%

54%

7%

38%

55%

5%

36%

59%

32%

42%

26%

32%

42%

26%

25%

40%

35%

27%

35%

38%

26%

33%

41%

24%

35%

41%

23%

30%

47%

Software

Hardware

Telecom

2011 2012 2013 2014 2015 2016 2017

2011 2012 2013 2014 2015 2016 2017

The amount intended for investments and

expenses by the banks that operate in Brazil grew

5% in relation to the previous year, totaling

R$ 19.5 billion


13

Consolidation of the vanguardBy 2015, the banking industry in Brazil and the world ranked second in the rankings of

industries that most direct resources to technology, according to Gartner data. In the fo-

refront, it was the government sector – with share of 14% in Brazil, and 16% in the world

average. Banks were just behind – both the domestic and international markets accoun-

ted for 13 percent of the technology expenditures. Then there were the sectors of tele-

communications, water, electricity and gas and commerce.

It took only a year for this story to change – at least on the national scene. In 2016, in

Brazil, banks and government began to share the first position of this ranking – each with

a 14% share. In 2017, when the total volume of technology expenditures rose 19% to R$

51 billion in Brazil, banks continued to share the top ranking with the government. Now,

each accounts for 15% of the total resources.

40%

44%

23%

37%

45%42% 42%

36%

45%50%

21%

32%

18%

36% 32%

20% 19% 18%

39%

41%

20%

Total hardware expenses and investments

Total software expenses and investments

Total telecom expenses and investments

2011 2012 2013 2014 2015 2016 2017

17.6 B 19.3 B 20.8 B 21.4 B 19.1 B 18.6 B 19.5 BTotal investments and expenses

COMPOSITION OF TECHNOLOGY EXPENDITURES*


14


It is a movement that has emerged ahead of the global trend – in the world, the banking

sector has not yet recorded the same result of the Brazilian banking industry. In the three

years until 2017, the global average was 16% for the government sector and 13% for

banks, with no signs of change. It is in this comparison that the banks that operate in

Brazil, already known for their high capacity to manage and process data, show vigor also

at the time of investing in technologies aimed at improving the consumer experience –

which is also a concrete response to the transforming habits of the Brazilians themselves,

who are quite willing to employ the convenience that the technological revolution provi-

des on their day-to-day.

15%

10%

9%7%5%

5%5%

4%

5%

5%

5%

4%3%

3% 15%

Brazil

Transportation

Information Technology

Natural resources

Securities

Non-durable products

Heavy industry

Automotive

Government

Banking industry

Commerce

Utilities

Other segments*

Telecommunications

Insurance

Health services

US$ 47 billion

World

13%

9%

6%

7%8%7%

5%

5%

5%

5%

5%

3%4%

2% 16%

US$ 2.8 trillion

* Other segments: education; tourism, hospitality and leisure; advertising and other servicesSOUrCE: gArTNEr

COMPOSITION OF TECHNOLOGY EXPENDITURES BY SECTORS IN BRAZIL AND IN THE WORLD IN 2017 (IN %)

Banks that operate in Brazil, already known for their

high capacity to process data, show vigor also at the

time of investing in technologies aimed at improving

the consumer experience

Pesquisa FEBRABAN de Tecnologia Bancária 2018

15

Mobile banking gains consumer preference

16


New technologies, when in fact, become part of people’s daily lives, escalate ra-

pidly. This is the case with the accounts enabled for access via mobile banking

in Brazil. By comparing the growth of these accounts with the advancement of

internet banking between 2012 and 2017, the use of smartphone applications is impres-

sive because of the speed with which it has become part of people’s daily lives, both in

financial and non-financial transactions. In 2017, the number of accounts for these two

fronts were equal at 59 million. A year earlier, there were 15% more internet banking ac-

counts than mobile banking. In the previous year, this difference was 27% and, in 2014,

24%. When the series began in 2012, there were six times more internet banking accou-

nts than mobile banking ones in Brazil. To provide a picture, in 2017, 161 million checking

accounts were recorded in Brazil – 1.9% higher than in the previous year.

The accelerated growth of accounts that use mobile banking in Brazil is one of the main

highlights of the 2018 FEBRABAN Banking Technology Survey. This milestone – the nu-

merical match between the two channels – represents the beginning of a transition that

tends to consolidate in the coming years, as mobile banking offers new features and ser-

vices to consumers. In a way, dealing with the bank and making complex transactions via

the smartphone are tasks that, little by little, fit into the logic of use that people used

to do for everyday activities – which is a great advance of banks in the way to deal with

consumers.

The smartphone already is, for many Brazilians, the most practical channel for various

tasks: requesting taxis and other transportation vehicles, ordering food delivery, e-com-

merce shopping, perform check-ins and check flights, traffic monitoring and mapping the

route on the way home or work – or even check, in real time, the situation of public

transport are examples. These are everyday activities that, when compared to a financial

errand, seem to involve fewer risks to consumer perception. Even so, the icon of the bank

applications gains space beside the applications directed to other tasks – and the trend is

to gain even more prominence.

1.6 million is the number of accounts opened

by mobile banking in 2017 in Brazil – three times

more than in the previous year


17

Mobile Banking*Internet Banking*

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

2427

31

4246

59

612

25

33

40

59

NUMBER OF DIGITAL ACCOUNTS (IN MILLIONS)

*Total active accounts with some activity in the last 6 monthsSample: 21 banksSOURCE: 2018 FEBRABAN BANKING TECHNOLOGY SURVEY

Checking accountsSavings accounts

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

162 168182 185

200

168

147155 156 155 158 161

TOTAL SAVINGS AND CHECKING ACCOUNTS (IN MILLIONS)

Sample: 21 banksSOURCE: 2018 FEBRABAN BANKING TECHNOLOGY SURVEY

18


Mobile banking gains loyal usersA thermometer of this movement is the existence of the so-called heavy users – those

consumers so accustomed to using a particular product or service that they use it with

great frequency in their daily lives. In the case of mobile banking, they are consumers

who perform more than 80% of their transactions through this channel. In 2017, heavy

users accounted for 36% of total mobile banking accounts, totaling 15.6 million accou-

nts. In the previous year, this share was 29%, reaching 9.7 million accounts (data referring

to a sample of 15 banks).

The share of internet banking heavy users does not reach similar figures, recording a de-

crease in relation to the previous year. In 2017, these users accounted for 4 million accou-

nts, or 13 percent of the total. In the previous year, they accounted for 18% of the ac-

counts, totaling 5.3 million. In addition to other factors, this indicator shows a migration

– the heavy user that used internet banking ended up finding a much more comfortable

and present channel in mobile banking (after all, this is available anywhere) to focus their

banking activities.

MOBILE BANKING AND HEAVY USERS

*Total active accounts with some activity in the last 6 months

** Heavy users: use more than 80% of transactions on a single channel


2016

33 million*

2017

43.8 million*

9.7 million** 15.6 million**

In 2017, heavy users, who perform more than

80% of their transactions through a given channel,

accounted for 36% of the total accounts that use

mobile banking


19

A high-expansion channelAfter attaining the total number of accounts with internet banking – while collecting more

heavy users -, mobile banking recorded other numbers in 2017 that only strengthen the

trend that, from now on, the channel has a huge space to grow compared to other ones. In

2017, 1.6 million accounts were opened through the mobile channel in Brazil. It is almost

three times more than the one registered in the previous year, when 591 thousand accounts

were opened via mobile. The numbers pass easily ahead of those registered in the Internet

banking: there were 26,000 accounts opened in 2017 in this channel, almost 30 times less

than the 776 thousand Internet banking accounts opened the previous year.

It is another confirmation that mobile banking is bursting with huge room to grow in a

scenario where internet banking seems to have reached its apex. The volume of transactions

registered by the Survey tells a similar and complementary story. In the last six months

of 2012, the average number of transactions per account made through internet banking

was 579 and, in mobile banking, 81. The positions, now, have reversed. In 2017, an average

of 268 internet banking transactions and 434 mobile banking transactions were registered.

This means that, within five years, the average volume of transactions per account dropped

53.7% in the internet banking, while it grew 436% in the mobile banking.

Many factors, even the most trivial ones, can help explain this reversal. Checking balances

and statements, for example, is a task that can be done more often when just having a cell

phone connected to the internet is enough. It’s quite different from having to be in front of

a computer – or going to a bank branch. Similarly, many consumers now can adopt online

transfer as a quick and convenient method of payment, be it services or products, or bet-

ween friends and family.

INTERNET BANKING AND HEAVY USERS

2016

29.4 million*

2017

29.5 million*

5.3 million** 4 million**

* Total active accounts with some activity in the last 6 months

** Heavy users: use more than 80% of transactions on a single channel


Mobile banking not

only brings greater

convenience, but

also provides a new

type of contact

of the consumer

with his bank: more

frequent, more

practical and more

comfortable

20


Mobile banking not only brings greater convenience, but also provides a new type of con-

tact of the consumer with his bank: more frequent, more practical and, above all, more

comfortable. It is in this type of relation that one of the main transformations of this rela-

tionship rests, as well as one of the biggest opportunities of the banks to satisfy and also

to stimulate the new habits of the consumers.

* Resolution No. 3,919 of the Central Bank of Brazil affirms the gratuity of bank accounts with only electronic transactions. The so-called digital or electronic accounts are now available from the main banks in Brazil


DIGITAL ACCOUNTS OPENED

Accounts opened via mobile banking

Accounts opened via internet banking

776 thousand

26 thousand

591 thousand

1.6 million2016

2017

2017

2016

AVERAGE TRANSACTIONS PER ACCOUNT (IN NUMBER OF TRANSACTIONS)

Mobile banking accountsInternet banking accounts

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

579 600575

426

337

268

81131

189

339

442 434

* Total active accounts with some activity in the last 6 months



21

Transactions in the palm of the hand:the transformation of habits

22

Transactions in the palm of the hand: the transformation of habits

There is no doubt that smartphones occupy an important space in the habits of

Brazilians. More accustomed to technology, users demand new features and, on the

other hand, companies respond with greater usability and innovations, positively

surprising consumers. Completing the cycle, consumers, encouraged by the new advances,

are beginning to ask for more. And so the whole market evolves.mados com os novos

avanços, passam a pedir ainda mais. E assim o mercado todo evolui.

In 2016, 95% of Brazilians used smartphones to access the Internet – compared to 64%

who did it via the computer, according to data from the Brazilian Institute of Geography

and Statistics (IBGE). Global numbers from Deloitte’s survey “How to flourish in an uncer-

tain future: open banking – 2017” show that consumer acceptance of banking solutions

via mobile applications is especially high among the so-called millennials, generation who

today is between 18 and 34 years old – almost two-thirds of these users have an appli-

cation; among users from 35 to 44 years old, the share is 52%. The share drops as the

age pyramid progresses – but it already shows the increased adherence level that should

dominate the scenario in the long run.

Facing these trends, 2018 FEBRABAN Banking Technology Survey shows that the main

driver of the increase in banking transactions in 2017 – which grew 10%, to 71.8 billion

transactions – was precisely mobile banking. Transactions through this channel increased

37% in the same year. Internet banking registered a slight increase in the volume of tran-

sactions, as well as the contact center. However, in other channels – branches, ATMs (Au-

tomatic Teller Machines), POS (Points of Sale) and correspondents, there was a decrease.

Nothing too abrupt – in all these cases, what is seen is the maintenance trend.

Similarly, in assessing the share of channels in total transactions, mobile banking accounts

for more than a third of the volume, with 35%. It is the second consecutive year that this

channel occupies the lead – after concentrating 27% of transactions in 2016. In terms of

growth, it was an 8% increase, resulting in a share 3.5 times greater than that of 2014.

This is a fast-paced growth that was already expected by the industry. The share of inter-

net banking in these periods was 22% in 2017 and 24% in 2016.


23

Added, digital channels (internet banking and mobile banking) were the preferred method

for performing more than half of transactions in 2017: 57%, five percentage points more

than in the previous year. The group of channels formed by branches, ATMs, correspon-

dents and contact center (30% in 2017) has a trajectory of decline since 2011. Transac-

tions through POS remain in the same range.

11%13%

21%

14%

10%

1.3 1.43.95.1

8.3

12.1

0.132.2

1.4

2011 2012 2013 2014 2015 2016 2017

1.3 1.53.8

6.4

9.2

16.5

1.6

2.3 1.5

4.9

7.2

10.2

18.0

4.7

35.640.3

48.8

55.7

65.4

71.8

1.54.0

5.7

8.8

13.7

0.5

1.44.4

7.8

10.0

17.7

11.2

1.4

5.6

9.7

10.2

15.5

18.6

1.5

5.5

9.4

9.9

15.8

25.6

3.2 4.4 4.1

Mobile Banking

Internet Banking

ATM

POS - Points of sale

Bank branches

Correspondents

Contact Center

18%

EVOLUTION OF BANKING TRANSACTIONS (IN BILLIONS OF TRANSACTIONS)


35% is the share of mobile banking in the total

volume of transactions performed in 2017

24


2014 2015 2016 2017

53

10

15

21

37

10

3

8

14

18

32

20

2

9

15

16

24

27

6 72

8

13

14

22

35

6

Mobile Banking

Internet Banking

ATM

POS - Points of sale

Bank branches

Correspondents

Contact Center


BANKING TRANSACTIONS: SHARE BY CHANNEL (IN %)

16%

38%

46%

16%

40%

44%

16%

45%

39%

15%

46%

39%

14% 13%

52%57%

34%30%

15%

52%

33%

2011 2012 2013 2014 2015 2016 2017

32 billion 36 billion 40 billion 49 billion 56 billion 65 billion 72 billion

Other channels (branches, ATMs, correspondents and contact center)

Internet Banking and mobile Banking

POS

Total transactions per channel

BANKING TRANSACTIONS: SHARE BY GROUP OF CHANNELS (IN %)



25

Mobile BankingInternet Banking

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

13.7

16.518.0 17.7

15.5 15.8

10.5

3.2

13.1

3.4

14.2

3.8

14.0

3.7

12.1

3.4

12.2

3.6

0.51.6

4.7

11.2

18.6

25.6

0.51.50.1

4.50.2

10.7

0.5

17.6

1.0

23.9

1.7

Without financial activity

With financial activity



More features present on the day-to-dayOne of the reasons for the increase in mobile banking is that banks have made available

more types of services and transactions through these channels, including transactions

with financial activity. Investments in technologies such as analytics and big data have

helped improve the consumer experience of using the banks’ applications, which of cou-

rse has also led them to access the channel more frequently and to expand the types of

transactions they have performed. As a result, the volume of financial transactions made

via smartphones grew 70% in 2017, reaching 1.7 billion transactions. The volume of non-

financial transactions in this channel grew 36% in the period, to 23.9 billion.

In the case of transactions without financial activity, one of the reasons for growth is

that, with the convenience of consulting anywhere, at any time, transactions such as

balance and statements, for example, become more frequent. In the meantime, tran-

sactions with or without financial activity made via Internet banking remained stable or

with slight retreat.

EVOLUTION OF BANKING TRANSACTIONS IN DIGITAL CHANNELS (IN BILLIONS OF TRANSACTIONS)


26


EVOLUTION OF TRANSACTIONS WITH FINANCIAL ACTIVITY BY GROUP OF CHANNELS (IN BILLIONS OF TRANSACTIONS)


11.4

2011 2012 2013 2014 2015 2016 2017

2.63.2

5.75.1

8.5

3.54.2

6.4

7.88.8

4

7.2

8.8

4.4

9.710.6 10.9

5.3

9.4

10.8Other channels (branches, ATMs, correspondents and contact center)

Internet and mobile banking

POS

Advance of digital channelsWith a greater number of transactions with financial activity – those more subject to risk

perception – digital channels recorded an increase in these transactions, from 4.4 billion

in 2016 to 5.3 billion in 2017. Compared to channels such as POS (which operates exclu-

sively with financial transactions) and the group formed by branches, ATMs, contact cen-

ters and correspondents, digital channels still hold the smallest share of financial transac-

tions – 21% in 2017, compared to 37% and 42% of other channels. The pace of increase,

however, signals how much consumers turn to digital to operate financial resources, rea-

lizing the results of the high investments that banks also make in information security.

In transactions without financial activity, the digital channels lead. In 2017, they accoun-

ted for 78% of the total, totaling 36.1 billion transactions. Here, we also see the effect of

convenience: while performing financial transactions is encouraged by the commitment,

the non-financial transactions is driven by the will, ease or convenience of using the chan-

nels. It is also this trend that ends up increasing the total volume of transactions without

financial activity – which grew 22% in 2017, to 36.1 billion transactions.

In 2017, there was little change compared to the previous year in the composition, in

each channel, of transactions with and without financial activity. Among the channels

that proportionally had the most financial activities are POS (due to its nature to only

operate transactions of this type), with 100%, followed by correspondents (90%) and

branches (51%). The channels with the largest proportional share of transactions without

financial activity in 2017 were contact center (97%), mobile banking (93%), internet ban-

king (77%) and ATMs (56%).

Consumers turn to

digital to operate

financial resources,

reflecting the high

investments that

banks also make

in information

security


27

TRANSACTIONS WITHOUT FINANCIAL ACTIVITY: SHARE BY GROUP OF CHANNELS (IN %)

60

40

62

38

68 75

32

69

31

78

25 22

74

26

2011 2012 2013 2014 2015 2016 2017




29.7

2011 2012 2013 2014 2015 2016 2017

6.4 6.9

9.57.0 8.0

11.08.2

14.6

10.2

18.7

24.6

10.1

36.1Other channels (branches, ATMs, correspondents and contact center)


EVOLUTION OF TRANSACTIONS WITH FINANCIAL ACTIVITY BY GROUP OF CHANNELS (IN BILLIONS OF TRANSACTIONS)


TRANSACTIONS WITHOUT FINANCIAL ACTIVITY: SHARE BY GROUP OF CHANNELS (IN %)


16

31

53

18

32

50

19 19

34 34

47

18

33

49

21

37

47 42

17

38

45

2011 2012 2013 2014 2015 2016 2017



POS

28




100

100

2016

2017

9.7 billion

9.4 billion

92

90

8

10

2016

2017

4.4 billion

4.1 billion

50

49

50

51

2016

2017

5.6 billion

5.5 billion

56

56

44

44

2016

2017

10.2 billion

9.9 billion

78

77

22

23

2016

2017

15.5 billion

15.8 billion

95

93

5

7

2016

2017

18.6 billion

25.6 billion

98

97

2

3

2016

2017

1.4 billion

1.5 billion

Transformation of habits: the highlight of convenienceAn important effect of the increased safety perception from consumers – and of the pre-

ference for the mobile banking convenience – is the increase in the number of bill pay-

ments and transfers, including interbank transactions, through smartphones. In 2017, bill

payments through this channel grew 85%, totaling 889 million transactions. Transfers in-

creased 45%, reaching 401 million. As a basis for comparison, internet banking, despite

recording larger volumes, showed much lower growth rates in the case of payments (gro-

wth of 25% to 1.5 billion) and almost negative in the case of transfers (down 3%, to 509

million).

TRANSACTIONS WITH AND WITHOUT FINANCIAL ACTIVITY: COMPOSITION PER CHANNEL

POS CORRESPONDENTS

ATMsBANK BRANCHES

INTERNET BANKING

CONTACT CENTER

MOBILE BANKING



29



100

100

2016

2017

9.7 billion

9.4 billion

92

90

8

10

2016

2017

4.4 billion

4.1 billion

50

49

50

51

2016

2017

5.6 billion

5.5 billion

56

56

44

44

2016

2017

10.2 billion

9.9 billion

78

77

22

23

2016

2017

15.5 billion

15.8 billion

95

93

5

7

2016

2017

18.6 billion

25.6 billion

98

97

2

3

2016

2017

1.4 billion

1.5 billion

The expansion of the types of services offered by digital channels, especially in mobile

banking, also brought good results in 2017. Credit acquisition, for example, was perfor-

med 141% more via smartphones than the previous year – reaching 225 million transac-

tions. Via internet banking, this volume fell 17% to 87 million. Only investment or equity

transactions (funds, investments and savings, among others) continue to grow more via

internet banking than via mobile banking – increased 71% via the former (58 million),

compared to 42% via the latter (10 million). Even so, there was notable expansion in mo-

bile banking.

As already expected, mobile banking also leads the way in growth of transactions without

financial activity: balance checks grew 34% to 18.8 billion in that channel, while credit

card applications rose 53% to 356 million. Internet banking continued to maintain its

pace, growing 3.3% in balance checks, to 6.3 billion, and dropping 0.5% in credit card

applications, to 929 million.

What these figures show is also a migration, especially in relation to the ways consumers

contact their banks. One of the major revolutions that the digital channels brought, after

all, was to become a means of relationship, first with emails and then with social networ-

ks and instant messaging applications. It is through them that people get used to making

and establishing contact. For its convenience and practicality, smartphones took the place

of computers as the main virtual means of people-to-people relationships. So, it is not

surprising that consumers turn to their smartphones when they need to contact their

banks, whether checking their balance or financial activities, or requesting new services,

such as credit cards.

MoBIlE BANkING INTERNET BANkING

2016 2017 Variation (%) 2016 2017 Variation (%)

Bill payments 479 million 889 million +85 1.3 billion 1.5 billion +11

Transfers/DOCs/TEDs 277 million 401 million +45 526 million 509 million -3

Credit acquisition 93 million 225 million +141 105 million 87 million -17

Investments / Equity 7 million 10 million +42 34 million 58 million +74

TRANSACTIONS WITH FINANCIAL ACTIVITY IN DIGITAL CHANNELS


30


New approaches to moneyThe results of the FEBRABAN Survey show a fact that helps to understand the advance

of digital channels, especially mobile banking, from the perspective of another transfor-

mation in habits. In the branches and BSPs as well as the ATMs, there was a decrease of

4% in the volume of withdrawals. Deposits dropped 14% in branches and BSPs and 4%

in ATMs. It is a reflection of the mobile banking convenience – making transactions with

cash requires the effort of withdrawing it (or, in some cases, depositing it). With smart-

phone in hand, a bank transfer via the application can pay for everyday services, such as

going to the hair salon or dentist. It is as if the consumers were eliminating a step in com-

pleting their daily tasks – thus gaining more time.

In relation to branches and BSPs, the volume of withdrawal reduction was almost 40 mil-

lion transactions. Even the behavior within the branches begins to change: the number of

transfers in branches has grown by 13%. The message these numbers give is that the con-

sumer wonders: why pay with cash if there are several ways to carry out this transaction

without the use of physical currency? Going to the branches also becomes a less sought

-after activity for certain services – such as issuance of credit cards, which, as is clear in

this chapter, has grown significantly through mobile banking. In branches, the volume of

this type of transaction dropped 45% in 2017.


TRANSACTIONS WITHOUT FINANCIAL ACTIVITY IN DIGITAL CHANNELS

MoBIlE BANkING INTERNET BANkING


Balance checks 14 billion 18.8 billion 34 6.1 billion 6.3 billion 3

Credit card applications 232 thousand 356 thousand 53 934 thousand 929 thousand -1

BRANChEs AND BsPs ATMs


Withdrawals 908 million 869 million -4% 2.5 billion 2.4 billion -4

Investments/Equity 25 million 26 million 4% 52 million 43 million -17

Transfers/Interbank transactions 47 million 53 million 13% 224 million 222 million -1

Deposits 489 million 422 million -14% 785 million 757 million -4

Credit card applications 9 million 5 million -45% 847 mil 911 thousand 8

Balance checks 1.8 billion 1.7 billion -4% 3.6 billion 3.5 bilhões -2

TRANSACTIONS WITH FINANCIAL ACTIVITY IN DIGITAL CHANNELS


The consumer

wonders: why pay

with cash if there

are several ways

to carry out this

transaction without

the use of physical

currency?


31

Physical channels: stability and advancement of digital branches

32


Bank branches, until recently the main symbol of the financial industry in the con-

sumer imagination, are gradually migrating some features to new channels – espe-

cially the digital ones. With more convenience to carry out transactions (with and

without financial activity) through the digital channels, the branches are turning into spe-

cialized locations and focused on relationship and more complex transactions. This move-

ment adds to a trend of acquisitions in the financial industry, which leads to a quest for

more efficiency in physical transactions, and the opening of digital branches. In this multi-

faceted scenario, there was a decrease in the number of branches, from 23.4 thousand in

2016 to 21.8 thousand in 2017.

The banking network continues unchanged in its distribution throughout Brazil. Even

with the numeric reduction, there was no change in the proportion of branches distribu-

ted in all regions of the country, with the Southeast hosting 52% of the branches, and

the other regions then distributed according to their share in total establishments: South

(19%), Northeast (16%), Midwest (8%) and North (5%).

One new thing to note is digital branches. Their professionals, for example, interact with

consumers through communication tools such as chat, video calls, telephone and other

SOUrCE: BrAZiliAN CENTrAl BANk

NoRTh 1.1 thousand2016 5%2017 5%

MIDWEsT 1.8 thousand2016 8%2017 8%

souTh 4.0 thousand2016 19%2017 19%

souThEAsT 11.4 thousand2016 52%2017 52%

NoRThEAsT 3.5 thousand2016 16%2017 16%

VOLUME AND DISTRIBUTION OF TRADITIONAL BRANCHES NUMBER OF DIGITAL BRANCHES

21.822.2 22.9 22.9 23.423.1

2012 2013 2014 2015 2016 2017

VOLUME (in thousands)

101

373

2016 2017



33

technologies. The presence of these branches is also an indicator of how much the mar-

ket has been changing: in 2017, the number of digital branches in Brazil has more than

tripled, compared to the previous year.

BsPs and EsPs: increased share of self-service terminalsIn 2017, the number of BSPs (Banking Service Points) and ESPs (Electronic Service

Points) again presented a slight reduction, from 3% to 47.1 thousand stations, after re-

cording an increase in 2016 – even so, it remained above the 2015 level, which was 45.5

thousand. When dividing them by categories, it can be seen that, within the overall vo-

lume, the ESPs’ share increased from 32% to 34%, while that of BSPs decreased slightly,

from 68% to 66%.

What is probably noticed is the increase in the share of self-service terminals, including

ESPs, affecting, for efficiency reasons, the number of ESPs available. As in the case of the

branches, however, the reduction did not affect the regional distribution of these service

points, which remained unchanged throughout Brazil. Southeast continues to concentrate

the largest number, with 44% of the total, followed by South (21%), Northeast (18%),

Midwest (9%) and North (7%).

NoRTh 3.4 thousand2016 7%2017 7%

Note: as of July 2016, the Cooperative Service Point, the Gold Purchasing Office and Transitional Exchange Office were included in the list of Service Points

SOURCE: BRAZILIAN CENTRAL BANK

MIDWEsT– 4.3 thousand2016 9%2017 9%

sul 9.9 thousand2016 21%2017 21%



VOLUME AND DISTRIBUTION OF BSPS AND ESPS

48.2 49.445.5 48.5 47.1

51

2012 2013 2014 2015 2016 2017

2016

2017

68% 32%

66% 34%

Electronic Service Point (ESP)

Banking Service Point (BSP)


With more

convenience

to carry out

transactions (with

and without

financial activity)

through the

digital channels,

the branches

are turning

into specialized

locations and

focused on

relationship and

more complex

transactions

34


ATMs follow the trajectory of slight reductionSince 2014, the number of ATMs in Brazil has been decreasing slightly – in 2017, it rea-

ched 170 thousand, a reduction of 3.4% over the previous year and of 7.6% over the vo-

lume of three years before. Of the total in 2017, 31% were located at ESPs and 41% were

defined as open access ATMs. This second category brings one of the reasons that helps

to understand the reduction in the number of machines that is occurring in Brazil: by al-

lowing open access, ATMs allow people with cards from different banking institutions to

use the same machine; with this, a process of consolidation begins that does not change

its availability to consumers. For example, an airport or a bus station that had 12 ATMs –

two for each bank – could have only six or even fewer open access machines. The volume

of equipment is reduced, but not the availability to the public, eliminating overlaps and

bringing efficiency to the use of space.

This is the case in Europe, where there are unique open access ATM systems scattered

throughout cities and available to consumers from various institutions. In a certain way,

even with a smaller number, Brazil follows within the world reality regarding the number

of ATMs available per share of the population. With 109 ATMs per 100,000 adults, the

Country is, according to a World Bank survey, fourth on a list that brings Canada first, with

223 ATMs for every 100,000 adults, the UK second (129) and Japan in third (128). After

Brazil, in this ranking, are the following countries and economic regions, in order: Euro-

pean Union (68), Argentina (60), Chile (54), Mexico (53) and India (21).

176 170182184182

175

2012 2013 2014 2015 2016 20171

NUMBER OF ATM EQUIPMENT IN BRAZIL (IN THOUSANDS)

* EstimateSOURCE: BRAZILIAN CENTRAL BANK


35

Banking correspondents increase againAfter three consecutive years of decline, the volume of correspondents in Brazil rose again

in 2017 – a 12% increase to 341.3 thousand, almost returning to the level recorded in

2014. Thus, in 2017, of the physical service channels, the correspondents, due to the in-

crease in volume, were the only ones that showed a change in the regional distribution –

albeit moderate. The share of the Midwest and Northeast regions in the total correspon-

dents increased one percentage point in each one, reaching 9% (29.5 thousand) in the

Midwest and 19% (63.4 thousand) in the Northeast. In the South and Southeast regions,

there was a decrease of 1 percentage point each – down to 46% in the Southeast (161.4

thousand) and 21% in the South (71.4 thousand). The North region remained unchanged,

with 5% (15.6 thousand).

68 60 54 53

21

109128129

223

Canada United Japan Brazil European Argentina Chile Mexico ÍIndia Kingdom Union

NUMBER OF ATMS PER 100 THOUSAND INHABITANTS

SOUrCE: BrAZiliAN CENTrAl BANk

VOLUME AND DISTRIBUTION OF BANKING CORRESPONDENTS IN BRAZIL

NoRTh 15.6 thousand2016 5%2017 5%

MIDWEsT 29.5 thousand2016 8%2017 9%

south 71.4 thousand2016 22%2017 21%



354.9375.3

321.9304.3

341.3346.5

2012 2013 2014 2015 2016 2017


SOUrCE: “g20 FiNANCiAl iNClUSiON iNDiCATOrS” (WOrlD BANk, 2017)

36

Investimentos para os próximos ciclos de transformação

Investments for the next transformation cycles


37

Mindful of the future and maintaining the leading position in technology invest-

ments, banks are prioritizing ways to continue to provide the best possible jour-

ney for consumers. After all, much of the technological revolution is about this

effort. Before, technological tools were considered as internal solutions that would bring

more efficiency to the processes, more security to the data, more force to the strategy

and more robustness to the service capacity. This was the first step. Now, not only banks,

but the entire market, focus research and development efforts to the outside: on solu-

tions that strengthen consumer loyalty and satisfaction.

Within this logic, 80% of the banks consulted by the Survey affirm investing in artificial

intelligence and in cognitive computing – technologies that complement each other. Both

are directly linked to the delivery of greater convenience and assertiveness to consumers

as they use the available services. The same portion, 80%, affirm to be investing in analy-

tics, technology that has been gaining maturity for its application. The goal of banks, now,

is to expand the range of ways in which analytics can be used on a day-to-day basis. This

is an evolution of the efforts made in the past with big data, a technology that is already

quite mature among the banks and, therefore, does not appear significantly among the

focus of new investments.

Also with an eye on the financial market evolution, 75% of banks invest in blockchain. It

is not only about observing new transaction methods and logics, but also looking for the

lead in a technology recognized today for providing security to any electronic transaction.

Moreover, blockchain is proving to be a systemic technology, which is not dependent on

the use attributed by each company – but, rather, of the way it permeates an entire mar-

ket, which also helps to explain the large number of institutions that decided to better

explore this resource.

Internet of things, for the time being, has attracted the attention of 45% of the con-

sulted institutions – which reflects the potential of taking the digital behavior to more

objects and items present in the consumer’s daily life. It may even be that these invest-

ments will bring future transformations in consumer habits when they relate to their

financial institutions.

Finally, a slightly larger share, of 55%, claims to be directing resources to NFC, or near

field communication, a technology more spread in other countries and still little present

in Brazil – despite the market’s belief that is important to develop it. Through NFC, devi-

ces exchange information between them without the need for cables or wires. To use a

more common example, this technology is strongly present in mobile payment initiatives

– a type of service that can further leverage the use of mobile banking.

80% of the banks

consulted by the

Survey affirm

investing in

artificial intelligence

and in cognitive

computing –

technologies that

complement

each other

38


When one looks at the composition of expenditures on new technologies, the numbers

confirm some of the trends mentioned above. In 2016, 36% of the investments were

directed to big data – a share that reduced to 27% in 2017, and should follow this path,

considering the maturity that the use of this technology has already reached. Resources

directed to analytics in this period rose from 28% to 32%, as well as those intended for

cloud computing, whose share has grown from 18% to 20%. Mobile payment gained

a bit more attention – the share of this technology in the resources rose from 10%

to 13%. Finally, cognitive computing maintained the same share of investments: 8% in

2016 and 2017.

EXPENDITURES ON NEW TECHNOLOGIESS

2016 201710%

8%

28%

13%

8%

32%20%

27%

18%

36%Mobile payment

Cognitive computing

Analytics

Cloud

Big data

Note: composition over total expenditures only on “new technologies”

Sample: 12 banks

SOURCE: 2018 FEBRABAN BANKING TECHNOLOGY SURVEY

SAmplE: 20 BANkSSOUrCE: 2018 FEBrABAN BANkiNg TEChNOlOgY SUrvEY

FOCUS OF THE BANKS’ INVESTMENTS IN TECHNOLOGY

80% invest in artificial intelligence and

cognitive computing

80% invest in analytics

75% invest in

blockchain

55% invest in

NFC

45% invest in

IoT


39

Investments translated into servicesA feature of new technologies, such as those in which banks have invested, is that they

are multiple and complementary. Until recently, the tools were looked at separately –

each could strengthen or transform a different business, service or offering front. Now

they intersect, and from this crossing, various aspects of the business benefit simulta-

neously. The boundaries between technologies are increasingly invisible. From this logic,

banks have been increasing the amount and the range of investments focused on impro-

ving and raising various aspects.

Improving digital channels for transactions with financial activity is a priority for 82% of

institutions in internet banking and 77% in mobile banking. As these channels already

lead the transactions without financial activity, numbers show how much banks are inte-

rested in offering more sophisticated services through a digital relationship. Next, streng-

then the offering of transactions without financial activities itself (59% of them do it for

internet banking and 55% for mobile banking) is a priority.

Moreover, banks have focused on marketing and sales tools (45% of them in internet

banking and 50% of them in mobile banking), consumer customization possibilities (36%

of them in both channels), accessibility (41% in internet banking and 32% in mobile ban-

king) and multichannel integration (18% in internet banking and 32% in mobile banking).

Two of these items are very forward-looking: (1) with customization, banks now offer

consumers the same as other sectors, such as transportation, hosting and entertain-

ment, have done to gain consumer preference for their applications. By having their vir-

tual environments appropriate to users’ habits and routines, the applications offer more

convenience and practicality, as well as an even more satisfying experience; and (2) with

multichannel integration, the greater attention to mobile banking is also highlighted.

As mobile banking emerges as one of the most important channels for day-to-day re-

lations with banks, integrating it with other channels is an important front for gaining

efficiency from the banks’ operational point of view and improving the experience from

the point of view of the consumers’ daily routine. It is a front quite aligned with reality,

considering that consumers are more comfortable to use digital channels when it comes

to relating with their banks. For example, the number of interactions through tools such

as web and video chat grew 2.5 times in 2017 over the previous year’s figure, reaching

33 million interactions.

The goal of banks

is to expand the

range of ways in

which analytics

can be used on a

day-to-day basis

40


To support this trend, banks also increased overall investment in people training and qua-

lification – in 2017, reaching R$ 114.3 million: 1.3% more than in the previous year.

EVOLUTION OF DIGITAL INTERACTIONS PEOPLE AND TRAINING INVESTMENTS

2016 2017 2016 2017

Web-chat/Video-chat

13.3 million

R$ 112.8 million 33 million R$ 114.3 million

SAmplE: 22 BANkSSOUrCE: 2018 FEBrABAN BANkiNg TEChNOlOgY SUrvEY

Transactions with financial activity

Transactions without financial activity

Marketing and sales

Consumer customization

Accessibility

Multi-channel integration

77%

55%

50%

36%

32%

32%

82%

59%

45%

36%

41%

18%SAmplE: 21 BANkSSOUrCE: 2018 FEBrABAN BANkiNg TEChNOlOgY SUrvEY

PRIORITIES IN INVESTMENTS

Internet banking Mobile banking


41

Trends to observe for the new cycles

42


One of the consequences of being at the forefront of using technology is the stra-

tegic – and complex – need to stay in that position. That is why banks in Brazil

and in the world need to constantly assess their structures and how to keep

them ahead of the new challenges. Looking at the longer term, Deloitte’s “2018 Banking

Outlook – Accelerating the transformation” study pointed to six areas that should be at

the top of the financial institutions’ agenda right now: Consumer centricity, regulation,

technology portfolio, cybernetic risks, partnerships and workforce. Here are some reasons

why these topics are so relevant.

1. Consumer centricityOver the past few years, banks have made great strides in efforts to focus their strategies

on consumer needs. It is not an easy transformation, it means changing a decades-old lo-

gic, more aimed at capturing the consumer, to the new market logic: offer consumers the

most varied possible reasons for wanting to stay in that institution. Actually, putting the

consumer at the center of the strategy will lead banks to further enhance their ability to

reach the most appropriate target audiences, segment the public and develop innovative

services. This is what fintechs do – today, already recognized as an opportunity to enrich

the market rather than a risk to the industry. Interacting with these springing companies

can help banks further improve the delivery of quality services to their consumers. This

will not only require technology. It will also require organizational agility: this involves in-

vesting in innovation, talent management, and partnerships, within a broader ecosystem.

2. Regulation To operate in complex regulatory environments, in constant modernization, banks should

consider integrating their compliance objectives – from a property and accounting stan-

dpoint – with strategic initiatives such as expansion, operational simplification, risk mana-

gement, and cost efficiency. Or, at a glance: regulatory compliance must be in tune with

business strategy. Moreover, this topic must be on the transformation agenda of banks,

with leaders dedicated to enforcing compliance standards in business management.

3. Technology portfolioThe technological capabilities of most banks continue to grow – making it more dif-

ficult to manage a framework of systems, platforms, software, and tools. Most of the

legacy infrastructure, in this logic, demands significant resources. To gain agility, te-

chnology leaders must emphasize, within the portfolio, the technologies that really

differentiate banks from those that only perform generic functions. Thus, technology

management modernization becomes an urgent priority for banks. The proliferation of

technology platforms and suppliers, and especially the maturation of cloud computing,

should present good opportunities for the pursuit of technological efficiency. Together,

banks and suppliers can develop new outsourcing or external management models –

that meet with more quality and security the institutions’ needs.


43

4. Cybernetic risksThe main driver of the banks’ transformation is technology. Therefore, ensuring high levels

of information security in every aspect of management and strategy is essential. None

of this is new for banks, which already demonstrate a fairly high level of maturity when

it comes to cybernetic risks. Resources for this area are growing around the world – and

there is increasing cooperation between banks, business partners and regulators, with ex-

change of information and best practices. Moreover, highly specialized professionals in in-

formation security have been recruited by many institutions. None of this prevents chal-

lenges from becoming more complex – and they have followed that path. Threats change

daily and tend to take forms and methods that are still poorly understood or predictable.

In other words, much remains to be done to transform the financial institutions’ informa-

tion security into a predictive and defensive rather than reactive and corrective task. To

follow this path, banks must continue to build a robust security culture across the com-

pany’s structure, and ensure that the topic remains high on the agenda when it comes to

thinking about processes, strategies, and innovations.

5. PartnershipsRegarding fintechs and the impact of their operations on the banking industry transforma-

tion, there is a series of positions that banks can take. They are strategic choices – and they

can dictate much of the market’s future. Replicate what fintechs do, attacking with solu-

tions as innovative as theirs and privilege symbiosis rather than competition in the current

ecosystem – or then, adopt a mix between these strategies. As much as the fintechs have

brought the banking industry that incensed word into the markets – disruption – they are

unlikely to threaten the industry’s competitive and structural landscape. Larger compa-

nies are likely to maintain their leadership because of three factors: regulatory barriers,

the natural consumers’ inertia, and the lack of large resources to acquire or replicate com-

petitors from those entering the market. Nevertheless, one should not lose sight of some

fintechs’ ability to really redesign consumer expectations. This is one of the main impacts

on the market – and this makes it urgent to have a new point of view. Probably, coexisten-

ce between established banks and fintechs does not create a hostile environment, but a

structural ecosystem that transforms itself. It is where partnerships can be born, especially

in areas such as data sharing, analytics and cognitive computing. Developing a less comba-

tive approach to fintechs is essential – and one of the keys to ensuring that banks do not

lose their place in what fintechs do best: rapidly understanding the new consumer needs.

6. WorkforceNIt is not just consumer habits that are changing. The labor market’s logic – and the very

nature of functions – also changes with the advancement of technology and the arrival of

new generations. Automation gains more space, and diversity and multidisciplinary ability

become key words. The workforce in the future should change the group of professio-

nals, bringing in a logic of highly specialized freelancers and independent contractors who

44


work at the same time for various banks and fintechs, as well as individual creators, who

quickly develop new projects and pass them on in the future market – not forgetting ro-

bots, which, with automation, should take the trivial functions. How to navigate this new

scenario? The skills demanded for the future will need to be developed in the in-house

professionals. Topics such as the digital environment and emerging technologies need to

be mastered by everyone, as well as interpersonal skills and the ability to collaborate and

create together. Connecting the company’s activities with purpose and offering a balance

between professional and personal life are ways in which it is not possible to go back.

Mobile banking at the heart of consumer experienceThe mobile banking escalation as the most promising channel in the relationship bet-

ween banks and consumers brings more opportunities than is seen on the surface. There

is a great chance to foster expansion and transformation, as institutions redirect their

strategies, services, and consumer service to a logic that has the mobile at the core of

the action. One way is to employ analytics capabilities to understand consumer habits in

an almost unprecedented manner, since there has rarely been such a great opportunity

to follow them so closely and for so long. Banks may also offer rewards or discounts to

encourage the provision of less obvious user profile data. From this effort, it is possible to

offer even more customized services and experiences, which opens up a range of benefits.

Mobile banking, worldwide – and as this survey shows, in Brazil as well – begins to replace

the other channels as the focal point of the relationship. Among the largest heavy users,

millennials are also the most likely to demand and use innovations in the service. And, in

the long term, they will be the users in the age group with the most resources to tran-

sact and invest. In a way, seeing mobile banking as only a channel is myopic. It is a tool

to improve the user experience, but also to increase other channels’ productivity. Digital

branches are a clear example. A professional can serve consumers face-to-face – but also

answer questions from many others, through video-chat mediated by online channels.

The digital transformationBy taking not only mobile, but the digital logic to the center of the strategy, the banks find a

great opportunity to lead a transformation in the institutional structures. Regulatory needs,

for example, may benefit from the ability to collect data. Another example that seems fu-

turistic, but which is already feasible – and helps in illustrating this opportunity, is to use

facial recognition. This technology is already available on many smartphones to transact the

accounts, strengthen security, and also provide accurate data and assurance for the transac-

tions’ risk management and regulatory transparency. And this is just one example of how

essential it is to be so close to the consumer. This, in addition to the benefits of this business

mentality already mentioned: such as the greater acquisition and engagement of consu-

mers and the increase of productivity.


45

In a more radical approach, digital can change business models. New logics such as the

Open Banking Standard in the UK have transformed the rules on accessing and using ban-

king consumer data – as well as reducing market entry barriers. With the ability to explo-

ring information and data to advanced levels, banks and fintechs already assess how this

information can help reimagine the entire consumer journey, creating new experiences

and bringing them to an interconnected ecosystem. It is within this ecosystem that new

business opportunities can arise for banks – whether in partnership with other companies

or in launching new brands or complementary operations. Today, digital is consolidated as

an important driver of business and strategies.

A LOGIC BASED ON THE MOBILE BANKING

SOUrCE: “2018 BANkiNg OUTlOOk– ACCElErATiNg ThE TrANSFOrmATiON” (DElOiTTE)

Mobile bankingonline

Email

open APIs

Contact center

Branches

Future

Actual model

Contact center online Mobile banking E-mail

Branches

46

A NEW INSTITUTIONAL INFRASTRUCTURE

Automation Artificial intelligence Agility

Anchoring on digital

Increased professionals’ productivity

Consumer acquisition and

engagement

Transforming consumers

into one of the compliance

driverse

Relationship with fintechs and other companies

on platforms, through open

APIs

SOUrCE: “2018 BANkiNg OUTlOOk – ACCElErATiNg ThE TrANSFOrmATiON” (DElOiTTE)


47

2018 FEBRABAN banking technology survey

survey project leader: Brazilian Federation of Banks (FEBRABAN)

FEBRABAN professionals directly involved in the initiative:

Gustavo Fosse (Sectorial Director of Technology and Banking Automation),

Sergio Leo (Director of Image and Communication Policies),

Cleide Sanchez Rodriguez (Communications Manager),

Adriana Mompean (Communication Advisor) and

Carolina Leonor Souza (Director of Business and Operations)

Preparation of this edition of the survey: Deloitte

Deloitte professionals directly involved in the initiative:

Elias Zoghbi (Lead Partner of Financial Services),

Paschoal Pipolo Baptista (Partner of Banking & Capital Markets),

Renato Souza (Director of Brand & Communication)

Giovanni Cordeiro (Research Manager),

Beatriz Barbosa (Research Analyst) and

Evelyn Carvalho (Content Supervisor)

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