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BNameicas spoke with VeriTran's commercial director, Marcelo Fondacaro, about the contract the company recently closed with Chilean state-owned Banco Estado to provide mobile payment solutions, among other digital solutions, as well as the implications these technologies have for banks, including cost savings and the possibility of reaching sectors that have so far been excluded from the services offered by the financial sector.
BNamericas: Last time we talked you were negotiating a contract to provide VeriTran-Suite digital solutions to Banco Estado and by the end of 2016 you managed to close the deal. What does this deal mean to you?
Fondacaro: Through this contract we're conducting a number of tasks, but the one which is already working is payments using your ID [pago RUT] which allows anybody who has an ID-linked current account [cuenta RUT] in Banco Estado to carry out payments using their cell phone. These payments may be made directly to another person, whether present or via a remote transfer.
It's universal technology that works on any cell phone, which allows offline payments as long as the person who receives the payment is connected.
BNamericas: Does this technology allow retail payments and could it replace points-of-sale?
Fondacaro: I don't know if it's already been implemented, but yes, the same technology allows retail payments. It's more of a complement to points-of-sale. Both technologies complement each other.
Remember when the credit card appeared and it was expected that checks were going to disappear? Well they didn't and their circulation has even increased, although perhaps with a change in the way they're used, such as for larger amounts. The same thing is true of mobile payments: traditional products will still be used, while mobile payments will replace them in some transactions.
What's important with these technologies we've implemented here in Chile is that they're inclusive, they allow organizations to significantly reduce their service costs, and by reducing these costs they can go down the pyramid to reach segments with no access to credit cards that are currently underserved. There's a lot of demand for this kind of technology for this same reason, as it allows the retail sector to receive such payments and reduce the use of cash.
The use of mobile payments will increase competition, which could be reflected in gains of 2-3% of GDP when they become more widespread. As with the implementation of any technology, there's an acceptance curve. However, the acceptance period has shortened a great deal.
One important aspect is that this product is designed for all types of user, not just millennials. I don't have official figures, but based on what Banco Estado has told us, acceptance by customers has surpassed all forecasts.
BNamericas: Are there any other mobile payment applications currently operating in the Chilean market?
Fondacaro: No, some banks have made effort to implement similar things, but you have to take into consideration a number of factors: first comes the policy to implement the technology, then comes the particular business models and finally the technology.
So what happens is that there's a business model and technologies must be compatible with it. Banks should seek technologies compatible with their business model, but it's often the other way around: the business model is forced into a format which is restricted by the technology.
With Banco Estado we first asked what the business needed, in order to plan how to implement it. In many cases institutions start by getting the mobile application, but that's the least of the problems – an application can be developed by anybody. Some 95% of the applications developed by retailers are only used once and then deleted, they aren't useful to the client.
Our challenge is how we allow the bank we're working to develop a platform that really provides added value to their clients. The added value is reflected in the usage. If there's no value the application is deleted.
BNamericas: In addition to Chile and Mexico, where else have you implemented your applications?
Fondacaro: We've deployed it in a number of countries with different banks. We work with more than 35 banks in the region. In 2015 we processed more than 1.5bn transactions and we exceeded 5mn active users.
BNamericas: How much do these mobile payment applications reduce banks' costs?
Fondacaro: To give you an idea, the average service cost of a Latin American bank is around US$30 per year for each client. With this technology banks have reduced their service costs by US$3 per year per client, or a 10% cost reduction. And the reduction in service costs allows banks to reach more clients.
BNamericas: This is only one of your solutions isn't it?
Fondacaro: The mobile payments application is the most visible one, while the others are more like commodities. Mobile banking and internet banking are used by most banks, they're more like standard services, but depending on what technology you use. For example, we see banks where the number of mobile banking clients has surpassed the numbers for internet banking. In general, the number of transactions in mobile banking has exceeded that in internet banking, but for companies internet banking is still more relevant.
In contrast to the use of internet banking where growth has slowed, use of mobile banking is growing rapidly. You have always your cell phone with you and people tend to feel more secure with mobile transactions, and mobile can add new functionalities such as, for instance, allowing a third party to make cash withdrawals from an ATM machine by just sending a code.