Efinance for SMEs in Brazil

1
E-finance for SMEs in Brazil

• Antonio C. B. Oliveira
• Executive Director, Banco Itaú
• acbolive_at_itau.com.br
• UNCTAD, Geneva, October 2001

2
Commercial Banking in Brazil

• 170 banks
• Leading banks are universal banks
• Large retail banks have an extensive branch
  network covering the entire country
• Banking processes are modern and investment in IT
  is high and comparable to developed countries
• Public services bills and taxes are paid at
  banking branches
• Service oriented culture
• Trend is toward consolidation and reduction of
  the number of banks
• Highly competitive banking system with incresing
  presence of global players

3
Top Brazilian Banks
SourceBrazilian Central Bank - billion US
dollars
4
Why Brazil has a modern banking system?

• Brazilian banks have invested heavily in IT since
  the late 60s.
• High inflation rate was driving the technological
  development in the banking system
• Inflation may also be the explanation of the
  relatively high penetration of banking in Brazil
  (65 of the population have a banking
  relationship)
• Inflation is under control since 1994 and
  competition is driving IT investment

5
Internet in Brazil

• 5,9m regular home users
• 11m total number of users
• 46m projected number of users in 2005
• 8m e-banking users
• ISP offer includes free access, low speed paid
  access and broadband
• E-commerce still very small but growing

6
Internet banking overview

• Most Brazilian banks are following the clicks
  bricks strategy
• Internet used as low cost distribution channel
• Increasing acceptance of internet banking by both
  individuals and companies
• Active promotion of online banking
• Some banks are entering into strategic alliances
  with ISP, others are offering free Internet
  access to customers

7
SME and E-finance

• SME are active users of E-finance in Brazil
• 30 of Itaú SME customers use E-finance
• National payment system is essential
  infrastructure for E-finance
• E-finance more important for transactions and
  payments than in credit and loans

8
Payment systems infrastructure

• Brazil has a standard national system to handle
  all types of payments by individuals and
  enterprizes
• This system was the foundation upon which
  E-finance was able to develop

9
National payment system

• Seller send invoices eletronically to banks
• Banks print invoices and deliver them to buyer
• Buyer can pay invoice on any branch bank in the
  country or through e-finance
• Invoices sent to banks for collections are used
  as collateral to get credit
• The system is evolving to a completely paperless
  system in which invoices will be sent by email or
  presented to the buyer in XML format and paid by
  e-finance transactions.

10
Standard format for all invoices
11
Clearing system for payments

• Invoice payments are handled by a national
  clearing system operated by Banco do Brasil
• Money transfers between individuals and companies
  are processed by the same system
• The system is paperless, very eficient and fully
  compatible with the Internet banking channel.

12
Payment system costs and volumes
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E-finance services available to SME

• Current account management
• Obtain balances, statements and other information
  (browser and e-mail)
• Transfer money to other accounts
• Send payment orders
• Request checkbooks

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E-finance services available to SME

• Payment of salaries
• All employees open accounts in the same bank as
  the company
• Salary payments are electronically sent to the
  bank and credited to employees

15
E-finance services available to SME

• Collections of receivables
• SME send electronically all sales invoices to
  bank
• Bank print and mail invoices
• Invoices are paid at any bank branch or by
  Internet transaction
• Bank collect payment from clearing system and
  transfer money to SME

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E-finance services available to SME

• Payment of suppliers
• Invoices sent by suppliers are eletronically sent
  to bank
• On or before due date, company authorize on
  Internet the bank to charge the payment to the
  current account
• Bank send payment through the national clearing
  system
• Company can manage payment schedules and receive
  control reports

17
E-finance services available to SME

• Credit Related Services
• Credit application submitted electronically
• After a line of credit is approved by the bank,
  SME can use the loan via internet transaction.
• Receivables are electronically sent to bank and
  used as collateral for loans

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E-finance services available to SME

• Expense account management
• Employees are given magnetic cards
• From any ATM in the country they can witdrawl
  advances from company accounts
• Company can manage amounts and authorize
  withdrawls

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E-finance services available to SME

• Other functions available
• Mutual funds investment
• Payment of taxes and utilities bills
• Credit card related transactions
• Mobile banking
• Insurance purchase
• Buy and Sell stocks

20
Critical factors for E-finance development

• National payment infrastructure as a foundation
  for E-finance
• Service oriented culture
• Bricks Clicks strategy
• Technologically advanced banking system

21
Critical issues for E-finance evolution

• Laws and regulation for digital signatures of
  loans and other financial transactions
• PKI infrastructure will be essential for lowering
  transaction costs
• Adoption of compatible regulations for E-finance
  in Mercosur will enable international trade to
  use same mechanisms already in use for domestic
  financial transactions