E-finance for SMEs in Brazil

1. E-finance for SMEs in Brazil Antonio C. B. Oliveira Executive Director, Banco Itaú acbolive@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 Source:Brazilian Central Bank - billion US dollars

4. Why Brazil has a modern banking system? • Brazilian banks have invested heavily in IT since the late 60’s. • 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

13. 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

14. 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

16. 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

18. 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

19. 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