Article

Latin America finance: Banks lead in B2B e-commerce

In Latin America, unlike in the US, traditional banks are well positioned to be leaders in B2B e-commerce.

Par Daniel Baranowski, Andre Castellini and Karchi Lukac

First published on janvier 08, 2001
min


In Latin America, unlike in the US, traditional banks are well positioned to be leaders in B2B e-commerce due to their approach of: collaborating with customers, forging corporate partnerships from the start, leveraging and complementing technological capabilities; moving relatively early to market; and exploiting lower levels of competition. Latin banks are moving quickly to create eMarketplaces and to provide clients with value-added services such as logistics, credit, e-payment and settlement etc. Regional B2B transactions are projected to be between $124B and $175B by 2004 (an annual grow rate up to 130%) and banks are eager to cash in on the boom. While these projections may be optimistic, there is no denying that the growth will be huge and that B2B has the potential to create significant value for all participants. Nearly all of the region's leading banks have recently announced B2B ventures or have initiatives in development. By contrast, in the U.S., banks were late to the B2B market in creating exchanges and in providing e-payment solutions (credit authentication, back-end processing, payments and settlement, etc.) to clients and web businesses. Leading non-bank B2B eMarketplaces started to be developed as early as 1997 and there are currently over 500 neutral market-makers and consortia-led exchanges in operation. However, major U.S. banks such as Chase, Bank of America and Wells Fargo didn't even start announcing their eMarketplace ventures until early 2000, garnering them a significant late-mover disadvantage. Additionally, it was not until recently that U.S. banks finally announced e-payment ventures, a B2B solution that offers a significant opportunity for value creation. Although large banks have strong internal capabilities in the e-payments space, they will face tough competition from early moving start-ups like eCredit. The story in Latin America, however, is quite different and three Latin banks that are leading the B2B charge are Banamex, Bradesco and Unibanco. Banamex was the first bank to attack the B2B segment when it announced a joint venture with Commerce One in December of 1999. The partners will invest $35M this year to roll out Artikos.com, an e-procurement portal targeting small- and medium-sized businesses. In July, Brazil's Bradesco teamed up with Votorantim, Cemex and Alfa to create an e-procurement marketplace named Latinexus. The consortium expects to invest between $75M-$ 100M over the next three years in the exchange, which aims to coordinate B2B transactions in the region. In August Brazil's Unibanco, Argentina's Galicia Bank and Portugal Telecom announced that they would invest around $60M to create vertical and horizontal B2B portals in the Mercosur region. Banks developing B2B strategies would do well to study five key factors that have positioned leading Latin banks to succeed in B2B: * Collaborating with Customers - In Latin America banks are working to leverage long-standing customer relationships and intimate knowledge of their clients' supply chains and procurement processes. They are positioning B2B offerings as another step in deepening collaboration with customers. Additionally, Latin banks have positioned themselves with customers as the most credible and secure transacting environment in a region which lacks dependable, established eMarketplaces. * Forging Corporate Partnerships Early On - A few Latin banking e-procurement ventures have taken the forward-thinking approach of signing-up large corporations to participate from the start. This gives the exchange immediate scale and liquidity and is crucial to getting smaller buyers and sellers to join. Additionally, large corporations bring to the table an in-depth understanding of their industry, including peculiarities in the procurement process and what value-added services should be provided. To date only Latinexus, Citibank Brazil (agrobusiness exchange) and Unibanco/Galicia, to a degree, have adapted this strategy of partnering up-front with corporations but other exchanges would be wise to follow their lead. * Leveraging and Complementing Technological Capabilities - Latin banks are touting their technology leadership to attract B2B business. In many countries they've become technology leaders as a result of years of high inflation and financial turbulence. This environment required them to invest in infrastructure for rapid transactions in an era where time was literally money. Banks have also been quick to partner with technology firms like Ariba and Commerce One in areas where they lack internal capabilities, such as building the infrastructure behind an eMarketplaces. * Moving Relatively Early in the Market Cycle - Internet markets in different countries and regions are at different stages of development. The Latin American market is about two or three years behind the U.S. market, but has been evolving much more quickly as local players have learned from what has happened in the U.S. Given this, Latin banks moved relatively early to roll out their B2B strategies. The Banamex/ Commerce One joint venture was formed at an amazingly early stage in the Latin Internet market's evolution, analogous to where the U.S. market was at in 1997. At that point practically no B2B exchanges had been announced and only a handful were even in development. * Exploiting Lower Levels of Competition - The type and degree of B2B competition that banks face differs by country and region. In Latin America, start-up and industry specific consortia exchanges will be nowhere near as powerful as they are in the U.S. While banks are flush with cash, many Latin B2B start-ups will not get past a first-round financing and will have trouble establishing critical mass. Only a few exchanges in Latin American are currently hosting transactions but banks will be in the right place with the right solutions as transaction volume grows. Corporate customers will see significant value in banks' ability to aggregate buyers and sellers, offer value-added services and provide comprehensive payment solutions. It is important to emphasize that exchanges will not make much money by simply executing transactions. The path to profits lies in deepening the customer relationship by offering a wide selection of value-added services such as: in-bound logistics, inventory management/ securitization, credit services, trade financing, electronic billing, payment and settlement etc. The ability to offer one-stop shopping or essentially a trade financial supermarket will be very attractive to customers. Visionary banks will not see the Internet simply as a means to cut costs and shift service on-line but rather as a revenue-and, in turn, profit-enhancing opportunity. Banks that effectively execute their B2B strategies will realize the ultimate shareholder reward: Higher stock prices resulting from the creation of new value. Contributed by Daniel Baranowski, an Associate Consultant at Bain & Company, Boston; Andre Castellini, Vice President of Bain Sao Paulo; and Karchi Lukac, Managing Director of Bain Mexico.

In Latin America, unlike in the US, traditional banks are well positioned to be leaders in B2B e-commerce due to their approach of: collaborating with customers, forging corporate partnerships from the start, leveraging and complementing technological capabilities; moving relatively early to market; and exploiting lower levels of competition. Latin banks are moving quickly to create eMarketplaces and to provide clients with value-added services such as logistics, credit, e-payment and settlement etc. Regional B2B transactions are projected to be between $124B and $175B by 2004 (an annual grow rate up to 130%) and banks are eager to cash in on the boom. While these projections may be optimistic, there is no denying that the growth will be huge and that B2B has the potential to create significant
value for all participants. Nearly all of the region's leading banks have recently announced B2B ventures or have initiatives in development.

By contrast, in the U.S., banks were late to the B2B market in creating exchanges and in providing e-payment solutions (credit authentication, back-end processing, payments and settlement, etc.) to clients and web businesses. Leading non-bank B2B eMarketplaces started to be developed as early as 1997 and there are currently over 500 neutral market-makers and consortia-led exchanges in operation. However, major U.S. banks such as Chase, Bank of America and Wells Fargo didn't even start announcing their eMarketplace ventures until early 2000, garnering them a significant late-mover disadvantage. Additionally, it was not until recently that U.S. banks finally announced e-payment ventures, a B2B solution that offers a significant opportunity for value creation. Although large banks have strong internal capabilities in the e-payments space, they will face tough competition from early moving start-ups like eCredit.

The story in Latin America, however, is quite different and three Latin banks that are leading the B2B charge are Banamex, Bradesco and Unibanco. Banamex was the first bank to attack the B2B segment when it announced a joint venture with Commerce One in December of 1999. The partners will invest $35M this year to roll out Artikos.com, an e-procurement portal targeting small- and medium-sized businesses. In July, Brazil's Bradesco teamed up with Votorantim, Cemex and Alfa to create an e-procurement marketplace named Latinexus. The consortium expects to invest between $75M-$ 100M over the next three years in the exchange, which aims to coordinate B2B transactions in the region. In August Brazil's Unibanco, Argentina's Galicia Bank and Portugal Telecom announced that they would invest around $60M to create vertical and horizontal B2B portals in the Mercosur region.

Banks developing B2B strategies would do well to study five key factors that have positioned leading Latin banks to succeed in B2B:

* Collaborating with Customers - In Latin America banks are working to
leverage long-standing customer relationships and intimate knowledge of their clients' supply chains and procurement processes. They are positioning B2B offerings as another step in deepening collaboration with customers. Additionally, Latin banks have positioned themselves with customers as the most credible and secure transacting environment in a region which lacks dependable, established eMarketplaces.

* Forging Corporate Partnerships Early On - A few Latin banking e-procurement ventures have taken the forward-thinking approach of signing-up large corporations to participate from the start. This gives the exchange immediate scale and liquidity and is crucial to getting smaller buyers and sellers to join. Additionally, large corporations bring to the table an in-depth understanding of their industry, including peculiarities in the procurement process and what value-added services should be provided. To date only Latinexus, Citibank Brazil (agrobusiness exchange) and Unibanco/Galicia, to a degree, have adapted this strategy of partnering up-front with corporations but other exchanges would be wise to follow their lead.

* Leveraging and Complementing Technological Capabilities - Latin banks are touting their technology leadership to attract B2B business. In many countries they've become technology leaders as a result of years of high inflation and financial turbulence. This environment required them to invest in infrastructure for rapid transactions in an era where time was literally money. Banks have also been quick to partner with technology firms like Ariba and Commerce One in areas where they lack internal capabilities, such as building the infrastructure behind an eMarketplaces.

* Moving Relatively Early in the Market Cycle - Internet markets in different countries and regions are at different stages of development. The Latin American market is about two or three years behind the U.S. market, but has been evolving much more quickly as local players have learned from what has happened in the U.S. Given this, Latin banks moved relatively early to roll out their B2B strategies. The Banamex/ Commerce One joint venture was formed at an amazingly early stage in the Latin Internet market's evolution, analogous to where the U.S. market was at in 1997. At that point practically no B2B exchanges had been announced and only a handful were even in development.

* Exploiting Lower Levels of Competition - The type and degree of B2B competition that banks face differs by country and region. In Latin America, start-up and industry specific consortia exchanges will be nowhere near as powerful as they are in the U.S. While banks are flush with cash, many Latin B2B start-ups will not get past a first-round financing and will have trouble establishing critical mass.

Only a few exchanges in Latin American are currently hosting transactions but banks will be in the right place with the right solutions as transaction volume grows. Corporate customers will see significant value in banks' ability to aggregate buyers and sellers, offer value-added services and provide comprehensive payment solutions. It is important to emphasize that exchanges will not make much money by simply executing transactions. The path to profits lies in deepening the customer relationship by offering a wide selection of value-added services such as: in-bound logistics, inventory management/ securitization, credit services, trade financing, electronic billing, payment and settlement etc. The ability to offer one-stop shopping or essentially a trade financial supermarket will be very attractive to customers. Visionary banks will not see the Internet simply as a means to cut costs and shift service on-line but rather as a revenue-and, in turn, profit-enhancing opportunity. Banks that effectively execute their B2B strategies will realize the ultimate shareholder reward: Higher stock prices resulting from the creation of new value.

Contributed by Daniel Baranowski, an Associate Consultant at Bain & Company, Boston; Andre Castellini, Vice President of Bain Sao Paulo; and Karchi Lukac, Managing Director of Bain Mexico.