Latin American banks are already tightening their budgets for innovation and digital development as part of a strategy to strengthen their businesses against a potential recession, industry leaders have told iupana.
“Investment in innovation has gone down considerably, and in practice budgets have been directed towards tactical, operational projects,” says Angélica Arana, a bank innovation specialist.
Worldwide, IT spending across all sectors is set to fall around 8% in the remainder of the year, according to Gartner‘s forecasts. ETR expects technology budgets to flatline for at least the next 2-3 months.
In recent weeks, talk has focused on the opportunities and accelerated changes that COVID-19 has brought to digital transformation in banking. That has been spurred by a greater adoption of digital channels during lock-downs. But the road ahead looks a little more complicated.
Digital banking usage in Latin America has grown rapidly in recent years, but it’s likely that will slow down as a result of coronavirus, according to a survey conducted by iupana.
Some 86% of respondents to the online survey said they expected that the pandemic would impact banks’ investments in innovation. The survey was open online in the first weeks of May, and 79% of respondents were digital banking and innovation professionals.
Re-thinking bank tech priorities
The impact of COVID-19 on banks has been severe, says Arana: forcing investment to be cut and plans to be re-thought, with a focus on the most immediate priorities in the current environment.
The pandemic has driven up numbers of digital banking users, but it’s possible that clients return to tradition channels as the crisis eases, says Arana. As a result, Arana says a key focus should be on delivering the best digital experience possible to retain the newly-acquired digital customers.
The comments indicate that large-scale transformation projects may be on the back-burner for the moment. At the same time, financial institutions will continue investing in technology, but will drive hard bargains with suppliers.
Demetrio Stripopolus, who runs BanregioLABS, says banks have to act cautiously when it comes to new technology propositions in the current climate.
“The projects that we had budgeted for are still going ahead. Strategic projects will continue ticking over, but we have to be cautious with any new investments going forward,” he said.
Given this context: what tech tools are most useful for financial institutions today and into a post-covid world? It’s a key question for the iupana community at the moment. So to address the topic, we have convened a live discussion, this Thursday at 11am ET, to discuss the tech advantages that banks and fintechs can make use of in the current climate. Join the conversation to hear the views of Vicente Fenoll, founder of Mexican fintech Kubo Financiero, Ernesto del Villar Hernandez, CTO at Colombian lender Financiera Dann Regional, and Edgardo Torres-Caballero, head of Mambu Americas. Sign up here.
All the same, the current crisis represents an opportunity to capitalize on the digital projects that have been in process for the past years – such as the bank’s digital spin-off, Hey Banco.
“It makes a lot of sense – after working on it for four years – to keep strengthening it in this period we’re going through,” Strimpopulos says in regards to the app-based bank.
This approach is similar in other Latin American banks including Banistmo. Before the pandemic, the bank had projects in motion to digitalize services, and offer new products with different business models – such as the digital spin-off Nequi.
“One that caught us mid-crisis and which we went ahead with was a partnership with PayPal that we’d been working on for a year. Luckily, all our remote working set-up allowed us to keep going with the project,” says Diego Ponce, VP for innovation and digital transformation at Banistmo.
Despite the lockdown, the bank was able to finalize details with PayPal to complete the integration process, having already completed most of the development work, says Ponce.
“To start with, we considering pushing back the partnership, given all the noise around the crisis. But we looked at it the other way around. It was the perfect moment to launch this, since what we were doing was making it easier for many business owners to sell products.”
Focus on the immediate needs
Before COVID-19 hit, financial services were already in a process of change: the pandemic has in many ways just accelerated the need for providers to take action faster than ever. The question now is whether banks will have the same commitment – and spending power – in the year ahead.
For Ponce, banking competition has changed radically. A few years ago, rivalries centered on the best rates, products or services. Today, the focus is on customer attention and the need to make the bank part of daily life, he says.
Arana offers a similar vision. She warns that poor usability for clients now could push them back to traditional payment channels, something that would mark a failure for digital investments. So now, and in the future “banks must work on maintaining momentum that was generated by the pandemic, and addressing the pain points on their clients’ digital journeys.”