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E-finance for SMEs in Brazil Antonio C. B. Oliveira Executive Director, Banco Itaú acbolive@itau.com.br UNCTAD, Geneva, October 2001 Commercial Banking in Brazil 170 banks Leading banks are universal banks Large retail banks have an extensive branch network covering the entire country

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E-finance for SMEs in Brazil

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E-finance for SMEs in Brazil

Antonio C. B. Oliveira

Executive Director, Banco Itaú

acbolive@itau.com.br

UNCTAD, Geneva, October 2001


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


Top Brazilian Banks

Source:Brazilian Central Bank - billion US dollars


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


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


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


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


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


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.


Standard format for all invoices


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.


Payment system costs and volumes


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


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


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


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


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


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


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


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


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


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