Embracing the Power of Data: Transforming PrivatBank Ukraine with a Comprehensive Data & AI Strategy
27. 04. 2023
Financial inclusion and accessible banking services still remain an issue in Latin America where, on average, only 57,3 % of people over 14 years of age have a bank account. For some, this issue presents an opportunity, and it is especially notable when we look at a number of fintech startups that have been springing up in Latin America like new baby boys named Lionel after the World Cup final.
As of 2023, we can say that almost one-fourth of all fintech startups globally are based in Latin America, with around 2,500 companies. That is an incredible number that has been constantly fueled by venture capital, especially from the USA. The opportunity is there, and the market sees it. We all know huge success stories like NuBank which managed to onboard a large number of previously unbanked population where it is estimated that circa 20 % of their portfolio was unbanked before they had started with NuBank.
But why are there so many new startups on the market? Well, the LATAM market has been suffering from a few headaches which do not have a single simple solution. The first has to do with access to payments. In 2023, about 50 % of all transactions are done in cash and that is because there is no simple solution for the backbones of LATAM economies – SMEs – to accept payments electronically since it has been costly for financial institutions to serve these micropayments.
The second headache has to do with access to credit. Requirements for credit approval are often stringent because of two reasons – one, lack of data that could be used for traditional risk assessment which makes conservative banking underwriting processes very difficult to pass for the ordinary population (also due to a large portion of the population working in gray economy and thus having no official proof of income) – two, high cost fueled by high inter-banking interest rates but mainly by inefficient manual processes within banks.
"Optimized digital operations in banks are one of the basic requisites for offering cheaper and more accessible credit products. LATAM banks can make use of lessons learned from more developed markets and digitalize faster and cheaper."
Put these headaches together, add high penetration of mobile internet, and suddenly you have a pool of opportunity for technological startups racing to grab the market by making financial services cheaper, more accessible, and easier to understand.
Now, where do traditional financial and banking institutions stand in this equation? To have some idea, we can take a look at some of the more developed markets such as Europe where the fintech boom in the 2010s was followed by widespread acceptance of digital practices, new products, and cheaper services. Those who had not followed the trend lost market share to their more innovative market peers. And of course, Latin America is in many ways different than Europe or USA, but it can learn from their lessons and hence adopt already functioning services much faster. ABC has been delivering change across developed and emerging markets for many years and can substantially increase the speed of any transformation process. From our experience, there are mainly four things that banks, and financial institutions need to do to start their digital transformation:
For the large part, Latin America, like Asia, skipped the era of desktop computers, moved directly to mobile, and new fintech companies are showing them how seamless digital experience looks like. Opening current and saving accounts, making payments, requesting loans, and receiving benefits, all need to be digitalized.
One of ABCs clients in Panama requested a definition of a new digital strategy for a bank serving both retail and SME clients. After 8 weeks the ABC team consisting of 4 members of different expertise thoroughly analyzed the status of all departments in the bank and delivered the following results:
Additionally, the team started a follow-up project to implement the proposed roadmap of changes.
The digital services mentioned in point 1 need a solid infrastructure of processes and IT technology to be sustainable. An organization cannot offer cheaper services if there is an army of back-office workers keeping up with the whole product lifecycle from sales to onboarding, underwriting, administration, and collections. These background processes require tight coordination between business and IT and should work as a well-oiled machine so you can think of new customer propositions and better customer service.
One of ABCs clients in Latin America requested optimization of their current underwriting process for new-to-bank clients in the retail segment. A team of 3 ABC consultants in 16 weeks delivered the following results:
We can talk about the underbanked (those who have not used any credit product) or unbanked (those who do not even have a bank account) but probably the hottest market right now are SMEs. The trend is to treat micro and small companies in a more similar manner as retail clients but those who manage to offer affordable and comprehensible services to all the small entrepreneurs in Latin America will take a big piece of the cake. ABC can deliver not only the definition and launch of new financial products but also necessary parts and pieces such as new sales channels processes or risk policies, and models.
One of ABCs clients in Latin America requested the development of a new scoring model for SMEs to be able to offer them additional financing services. A team of 3 ABC consultants 12 weeks delivered the following results:
Data and data quality is something that is often neglected until it’s too late but without correct data, there is no digitalization. Data is blood running through process veins and it is absolutely crucial that companies have their data of appropriate quality and accessibility. Basics of Data Governance such as metadata management, data quality management, and reference data management should be applied in any company and companies of more than 100 employees should start thinking about advanced ways of integrating, storing, and reporting their data. A digital company simply cannot live off Excel sheets.
One of ABC’s clients requests a build-up of a new Data Warehouse and its adjacent reporting layer for a national lottery operator. ABC together with Adastra put together a team of 10 consultants and data specialists and embarked on a 14-month project which will have delivered:
Get in touch with us and let us talk about how we can help on your journey to define new financial products, capture a larger market share, improve your customers’ experience, or digitalize your processes.