Digital Banking in Brazil & Mexico

According to the fifth UBS Evidence Lab Global Mobile Banking B2B Survey, 73% of retail transactions in Brazil are currently conducted through digital channels, the second highest proportion among the emerging markets (EM) surveyed (and third among all countries/regions). In Mexico, 52% of transactions are digital, below the EM average. While digitalization creates cost-saving opportunities, there are also disruption risks. In Brazil, 100% of surveyed banks view regulations as promoting new entrants, while 100% of respondents in Mexico view them as a constraint (on average, 54% of EM respondents viewed regulations as supporting new entrants).

According to the survey, disruption risk in Brazil and Mexico is concentrated in the payment segment (cards), followed by retail transactions (ATM fees and checking accounts fees). In both cases the risk of disruption is below the average in EM. Deposits and lending businesses are the segments with the least risk of disruption according to the survey (both below the EM average). Interestingly, the perception of disruption risk in investment advice was above the EM average in Brazil, while in Mexico, perceived disruption risk in insurance is material (and above the EM average). Regarding the source of disruption risk, banks in Mexico and Brazil are not so worried about fintechs; the real issue seems to be the big techs.

The survey also showed Brazilian banks considered digital transactions 63% cheaper than traditional transactions, while Mexican banks indicated they were 56% cheaper (EM average 50%). The migration to digital transactions also creates room to reduce branch networks – Brazilian banks seem more willing to close branches, reduce their size and cut branch staff than respondents in other EM. The survey shows such reductions are less likely in Mexico.