By Margaret Butler
With the rise of smartphone adoption across the Caribbean, many industries have sought innovative ways to engage consumers by digitalizing their services.
The banking industry is no different, as companies seek to establish future financial trends. As proven by the launch of the Sand Dollar, the world’s first central bank digital currency, the Bahamas’ finance sector is now looking to transform its legacy infrastructure by going digital to improve its security, lower costs and grow its customer base.
Initially rolled out on Exuma and Abaco, as of March 2021, nine digital wallet providers circulated $130,000 worth of the Bahamas’ digital currency throughout the entire archipelago.
Several trends are pushing Caribbean banks to accelerate their digitization initiatives.
Firstly, mobile telephone and broadband rates have improved appreciably. Excluding Haiti, the share of individuals using the internet in the Caribbean rose from 27% to 53% between 2008 and 2016, while the average mobile-cellular penetration rate is over 110%, drastically increasing the need for reliable and secure digital banking services.
For example, MonCash, a mobile phone-based digital wallet, is used by households and rural farmers to increase access to financial services in Haiti. An estimated 14% of Haitians now own these accounts while 38% of adults receive or send domestic remittances through their mobile phones.
Likewise, the COVID-19 pandemic curtailed customers’ retail banking activities. This catalyzed a customer shift from traditional banks to fintech startups. The Bahamas’ relatively high banking rate of 80% is further expediting current trends.
A survey of 105 Latin American and Caribbean banking executives found that data security is their primary incentive for digitization. This has been a persistent concern for financial institutions, as the region is particularly vulnerable to cybercrime.
According to a report by the Organization of American States (OAS), at least nine out of 10 banking entities suffered cyber incidents during 2018, while 37% of banks in the region were victims of successful attacks.
The total annual cost of banking entities’ digital security incident response and recovery was approximately $809 million in 2017.
Digitization allows companies to base their infrastructure in the cloud through platforms such as Amazon Web Services (AWS), Google Cloud Platform (GCP), and Microsoft Azure, thereby ensuring constant security updates. In contrast, older legacy in-house systems’ lack of agility can make them more susceptible to hacks and other cyberattacks.
Digital banks leverage technology to reduce operating costs. Large traditional banking institutions have an average cost-to-income ratio (CIR) of between 45%and 55% while leading digital banks run a CIR of 32 to 40%. Though initial digitization and cloud migration costs may be high, they can drop up to 70% and deliver a return on investment (ROI) of 15% within the first years. Moreover, traditional banks spend an average of $150 to acquire each new customer.
Margaret A. Butler has led the Bahamas franchise of Citibank as Citi Country Officer since June 2005, with the responsibility to manage Citi’s interest in the country. She has responsibility for the Domestic Corporate Banking business and also leads the Offshore Booking Center which supports the offshore product delivery of Latam ICG businesses.
Margaret joined Citi in 1994 heading up the Legal Vehicle Management team of the Latam Offshore Processing Center and assumed the Legal Vehicle Controller role for the 14 booking entities in 1998.
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