FINANCIAL SERVICES ADVISOR a PUBLICATION of the DIALOGUE March 14-27, 2019

LATIN AMERICA ADVISOR FINANCIAL SERVICES ADVISOR A PUBLICATION OF THE DIALOGUE www.thedialogue.org March 14-27, 2019

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Ernesto Armenteros Vice Chairman of the Board, INSURANCE Banco de Ahorro y Crédito Unión What Trends Are Massy United Pablo Barahona President & COO, Starts Offering Global Retail Markets West, Liberty Mutual Group Shaping Payments Insurance in Felipe Carvallo Jamaica Vice President - Analyst Latin America Banking in Latin America? The company’s entry into Jamaica Moody’s Investors Service will mean increased competition, Richard Child leading to better prices and terms CEO, for consumers, said Finance Mattrix Group Minister Nigel Clarke. Michael Diaz Jr. Page 2 Partner, Diaz, Reus & Targ MOBILE PAYMENTS Ernesto Fernández Holmann Chairman of the Board, Mexico Seeing Ayucus Rich Fogarty Interest in Mobile Managing Director, Payments System Berkeley Research Group Several companies have Desiree Green The payments sector in Latin America took a step toward consolidation with Fidelity National expressed interest in the new Vice President, Information Services’ announcement of a deal to acquire Worldpay. // File Photo: hloom.com International Government Affairs, system, said central bank chief via Flickr. Prudential Financial Alejandro Díaz de León. Earl Jarrett Fidelity National Information Services, or FIS, announced Page 3 Chief Executive Officer, March 18 that it is acquiring London-based payment The Jamaica National Group processing company Worldpay for some $35 billion in cash BANKING Thomas Morante Chair, Insurance Regulatory & Q and stock. The deal values Worldpay at approximately $43 U.S. Sanctions Transactional Practice Group billion and creates a giant global payments company. What does the deal Kaufman, Dolowich & Voluck Venezuelan between the two companies, both of which serve Latin America, mean Manuel Orozco State-Run Bank Director, for consumers in the region? How does consolidation in the payments Migration, Remittances & Development, The U.S. Treasury imposed Inter-American Dialogue sector affect banks and other businesses? What trends are shaping Latin sanctions on Venezuelan state- run bank Bandes. President Adalberto Palma-Gomez America’s payments industry, and how does the region compare to other Senior Partner, parts of the world in terms of innovation and leadership? Nicolás Maduro’s government has Proxy, Gobernanza Corporativa distorted the bank’s purpose in Rodolfo Pittaluga order to help keep him in power, Adjunct Professor, Lindsay Lehr, senior director at Americas Market Intelli- said Treasury Secretary Steven Florida International University Mnuchin. gence: “The acquisition of Worldpay speaks to the increasing College of Law Page 2 Fabian Saide consolidation of the payments industry; it is notable that— Founder, CEO and President, similar to the acquisition of Digital River World Payments Paykii A by Worldline in 2017—even already-large, global corporations are being Jan Smith Partner, acquired, and not just emerging start-ups. FIS, primarily a provider of KoreFusion financial services such as insurance and corporate payments, is clearly Roberto Teixeira da Costa Founder & Board Member Emeritus looking to round out its offering by strengthening its position in payments, CEBRI as well as increasing its international reach. Worldpay is strategically Mario Trujillo positioned in Latin America as a provider of payment services to leading CEO, DolEx Dollar Express retail, travel and digital companies, including Rappi, perhaps the region’s most exciting start-up—a Colombian on-demand delivery app that has now expanded to seven markets thanks to help from Worldpay. The acquisition by FIS will strengthen Worldpay’s value proposition and enable it to provide increasingly sophisticated services to its clients.” Mnuchin // File Photo: U.S. Treasury. Continued on page 6

BANKING NEWS apply to Bandes subsidiaries, including Banco NEWS BRIEFS Bandes Uruguay. The Treasury’s statement U.S. Treasury said Maduro attempted to move more than $1 Citigroup Expects Higher billion out of Venezuela early this year through Revenues From Brazil Sanctions Venezuelan the Uruguay subsidiary. Over the past decade, the China Development Bank has provided Citigroup’s chief executive in Brazil said the State-Run Bank Bandes with billions of dollars in exchange bank expects fees from advising on public as- for oil, Reuters reported. Earlier this year, the set sales and a revival in capital markets could The U.S. Treasury on March 22 imposed sanc- United States slapped sanctions on Venezuelan bring annual revenue from $1.1 billion today to tions on Venezuelan state-run bank Banco de state oil company PDVSA and also on Vene- $1.5 billion in the coming years, Reuters report- Desarrollo Económico y Social de Venezuela, or zuelan security forces that support Maduro. ed March 18. Marcel Marangon did not cite a Bandes, and four related institutions, the Trea- Additionally, the White House revoked the timeframe, but added that Citi is also planning sury said in a statement. The sanctions were visas of top officials and relatives of Maduro’s to expand its commercial banking division in the latest move to increase pressure on Vene- government, Politico reported. [Editor’s note: the South American country, according to the zuelan President Nicolás Maduro and followed See related Q&A in the Feb. 28-March 13 issue report. Citi sold its consumer banking business of the Financial Services Advisor.] in Brazil to Itaú Unibanco in 2016.

Roberto Marrero Brazil’s Bradesco Hits and other political López Obrador, Head of prisoners must be 100 Mn Interactions Mexican Bank Association released immediately.” Call for More Competition —Steven Mnuchin Through AI Platform Mexican President Andrés Manuel López Brazilian bank Bradesco has reached 100 Obrador and the leader of the country’s banking million interactions through its artificial association on March 22 said there should be government agents’ arrest last week of Roberto intelligence, or AI, platform, and it’s looking to more competition among Mexico’s banks so Marrero, the chief of staff of Venezuelan start generating revenue through the system that commissions are lowered and more peo- National Assembly President Juan Guaidó, who this year, ZDNet reported March 25. Bradesco, ple enter the formal banking system, Reuters has international recognition as the country’s the South American country’s second-larg- reported. The government is open to the idea acting president. “The regime’s continued use est private lender with more than 71 million of allowing more licenses for the creation of of kidnapping, torture, and murder of Venezue- customers, has seen the number of users in its new banks, López Obrador said at a convention lan citizens will not be tolerated by the U.S. or AI service increase four-fold since February of in Acapulco. López Obrador also said he would the international coalition that is united behind last year. Approximately 14 million customers not push for new laws to regulate the commis- President Guaidó,” U.S. Treasury Secretary use it. Bradesco launched the AI platform, sions that banks charge. Steven Mnuchin said in a statement. “Roberto Bradesco Inteligência Artificial, in 2016, but 75 Marrero and other political prisoners must be percent of the interactions through the system released immediately.” The sanctions freeze have occurred over the last 12 months, accord- any assets that Bandes or its subsidiaries have ing to the report. The service can answer text, Massy United under U.S. jurisdiction and prevent U.S. citizens chat or voice-based questions about products Insurance Starts from any dealings with the state-run bank. “The or services through the bank’s app, WhatsApp Operations in Jamaica willingness of Maduro’s inner-circle to exploit or Google Assistant. The bank is aiming to Venezuela’s institutions knows no bounds,” start generating more business through the AI Massy United Insurance has started offering Mnuchin said in the statement. “Regime insid- platform this year, introducing more complex its products in Jamaica, where it has opened a ers have transformed Bandes and its subsid- operations such as loans and investments, branch, Caribbean 360 reported March 15. The iaries into vehicles to move funds abroad in an ZDNet reported. About 90 percent of the bank’s company already has operations in 18 other attempt to prop up Maduro. Maduro and his services are already available on its app, but English- and Dutch-speaking islands in the enablers have distorted the original purpose sales made via mobile are just roughly 20-30 Caribbean. Jamaican Finance Minister Nigel of the bank, which was founded to help the percent of the bank’s overall business volume, Clarke said Massy’s entry into Jamaica’s insur- economic and social well-being of the Venezu- Forbes reported earlier this year. “It’s a low ance market will mean increased competition, elan people, as part of a desperate attempt to [percentage],” Mauricio Minas, Bradesco’s ex- leading to better prices, terms and savings for hold onto power,” he added. The sanctions also ecutive vice president, told Forbes. “We want to customers.

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 FINANCIAL SERVICES ADVISOR March 14-27, 2019 increase sales in that channel,” he said, adding that the goal is to increase mobile sales to 50 percent this year.

MOBILE PAYMENTS NEWS

Mexico Seeing Interest in Mobile Payments System s

Several companies, including Uber, have expressed interest in using the Mexican central bank’s new mobile payments system, the head of the bank said March 22, Reuters reported. 2019 In an interview with the wire service, Alejandro Díaz de León said the bank was seeking to The SWIFT Latin American educate companies about how the program Regional Conference could be used, adding that the ride-hailing

SPEAKERS

Irene Arias JF Legault CEO, IDB Lab Global Head of Cybersecurity Operations, JP Morgan Cesar Cernuda Díaz de León // File Photo: Notimex. President, Microsoft LatAm Humberto Lopez Director of Strategy and company had shown interest. He noted that George Doolittle Operations for Latin America, many prospective users were exploring how EVP-Head of Global World Bank the platform, called CoDi, could work for them. Payments, Corporate & Invest- CoDi would allow customers to make and ment Banking, Wells Fargo Margaret Myers Director of the Asia & Latin receive payments through their smartphones Monica Garcia America Program, free of charge. “In general, I’d say there is lots Vice President of Finance, Inter-American Dialogue of interest in understanding the platform,” Díaz Banco Bisa de León said. “The idea is to listen to all of Beatriz Quevedo, Claudio Irigoyen these potentially interested companies and see Regional Head of Client Man- Head of Latin American Eco- how we can ... incorporate the biggest quantity agement Global Liquidity and nomics and Foreign Exchange Cash Management for Latin of possible users to the platform. And they and Fixed Income Strategy, America, HSBC can be of all kinds,” he added. Amazon and Ar- Bank of America Merrill Lynch gentina-based MercadoLibre have also shown interest in the payments platform. Earlier this month, Banco de México said a pilot project would be launched within the next several To learn more about the conference weeks, El Universal reported. The central bank and to register, click here seeks to promote financial inclusion with the new mobile payments system, in a country

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 3 FINANCIAL SERVICES ADVISOR March 14-27, 2019 where more than 50 percent of the population, roughly 42 million people, doesn’t have bank ADVISOR Q&A accounts.

POLITICAL NEWS Should Guatemala Grant Amnesty for Civil War Crimes? South American A scheduled vote in Guatemala’s won. This means that the reform that the Presidents Launch Congress granting amnesty for ‘corrupt pact’ wants Congress to pass is war crimes was suspended on destined to fail because it’s unconstitutional. New Regional Bloc Q March 13 after several lawmak- The deputies intend to restore military juris- ers walked out, leaving the session without diction—which was eliminated in 1996—and A group of South American presidents on a quorum, The New York Times reported. total amnesty to war criminals, including March 22 launched Prosur, a new regional bloc The proposal would have freed more than those who have been tried in court and are set to replace the Union of South American Na- 30 former soldiers and paramilitaries serving sentences. Since 1999, the public tions, or Unasur, the Associated Press report- convicted of human rights crimes during ministry has taken to court 16 cases of ed. The founding presidents, from Argentina, Guatemala’s 36-year civil war. The bill human rights violations during the conflict, Brazil, Chile, Colombia, Ecuador, Paraguay and would also halt thousands of investigations. resulting in the imprisonment of 42 retired Peru, said they were committed to “renew and What’s behind the latest controversy over military and paramilitary leaders and one strengthen” regional integration under a more Guatemala’s war crime process? To what former guerrilla member. If the reform is flexible and effective framework. “Today has extent is the issue being politicized ahead destined to sink, why are deputies promoting been a good day for collaboration, dialogue, un- of the June presidential election? How it? Retired militaries in Congress and the could the Central American country’s human executive, in full political proselytism, are rights mechanisms be improved? operating as interest groups. They are stuck Today has been a good in 1980s politics, when the Guatemalan state day for collaboration, Édgar Gutiérrez, former Gua- and the world functioned quite differently. dialogue, understand- temalan foreign minister: “The Then there are hyper-conservative civilians ing and the integration law of national reconciliation ex- who finance pro-impunity campaigns. They of South America.” A tinguishes criminal responsibil- still use language reminiscent of the Cold — Sebastián Piñera ity for political crimes and related common War era, and in their mind, there is only a crimes, but it does not apply to genocide, binary society of communists and anti-com- torture, forced disappearance or to crimes munists. The reform came up in 2017 when not subject to the statute of limitations un- Jimmy Morales’ attacks against the CICIG derstanding and the integration of South Ameri- der domestic law and international treaties. began, and the ‘corrupt pact’ formed. The ca,” Chilean President Sebastián Piñera, who When preparing the law nearly 23 years ago, amnesty law unites all these actors. The lost hosted the meeting of South American heads there were two sides of the debate. On one cause of the reform means a new social con- of state in Santiago, said at the event. Piñera hand, the government, the army and the frontation is looming, just as the electoral had previously attributed Unasur’s failure to “an guerrillas furtively slipped a sort of end-point period begins.” excess of ideology and bureaucracy.” Late Ven- law to free perpetrators of crimes against ezuelan President Hugo Chávez had promoted humanity from all responsibility. On the Unasur, which was created in 2008 when many other hand, a civilian-led coalition of victims EDITOR’S NOTE: More commentary on this countries had leftist leaders, to counter U.S. and human rights defenders accepted the topic appears in the March 26 issue of the influence in the hemisphere. Over the years, criminal prescription of political crimes to Latin America Advisor. the 12 nations that formed Unasur suspended make peace viable, but not of those related their memberships over leadership differences, to atrocious and large-scale acts. The latter as well as for the bloc’s failure to take action in crisis-wracked Venezuela. The current Vene- of Prosur in January, Colombian President separation of powers and a market economy,” zuelan leader and Chávez’s successor, Nicolás Iván Duque said the new regional group would El Tiempo reported. [Editor’s note: See related Maduro, was not invited to the Prosur meeting, work to “coordinate South American nations on Q&A in the Jan. 31 issue of the daily Latin according to the AP. In announcing the creation public policies, the defense of democracy, the America Advisor.]

NEWS BRIEFS ECONOMIC NEWS Lapin Tapped as Spain Rejects Mexican Haiti’s Acting Brazil’s Bolsonaro President’s Demand for Apology for Conquest Prime Minister Proposes Military

The Spanish government has rejected Mexican Haiti’s president on March 21 named Jean-Mi- Pension Reform President Andrés Manuel López Obrador’s chel Lapin, the country’s culture and com- demands for an apology for the abuses that munications minister, as his government’s Brazil’s government on March 20 sent lawmak- Spanish conquistadors committed, El País acting prime minister, Agence France-Presse ers a proposal that seeks to save a net 10.45 reported March 26. López Obrador had sent a reported. The move followed lawmakers’ vote billion reais ($2.8 billion) over 10 years by im- letter, dated March 1, to Spanish King Felipe VI to censure Prime Minister Jean-Henry Céant, posing tougher retirement rules for the military, urging him to ask for forgiveness. The Spanish saying he had failed to improve the country’s The Wall Street Journal reported. President government in a statement said it “emphati- living conditions. Céant had been the target of Jair Bolsonaro, a retired army captain, person- cally rejects” the contents of the letter, saying nationwide protests in February. On March 21, ally went to Congress to deliver the military “the arrival of Spaniards 500 years ago to Céant tendered his resignation. pension reform plan, accompanied by Economy present-day Mexican territory cannot be judged Minister Paulo Guedes and Defense Minister in light of contemporary considerations.” Fernando Azevedo, as well as army command- Guatemalan Judge er Edson Leal Pujol, Folha de S.Paulo reported. Issues Warrant for The government’s bill would raise payroll Prince Charles, Camilla contributions to 10.5 percent from 7.5 percent Candidate’s Arrest and increase the minimum number of years Meet With Díaz-Canel members of the military would have to serve Prince Charles and his wife, Camilla, on before retiring. Military police and firefighters A Guatemalan judge has issued an arrest March 25 met with Cuban President Miguel would also be affected. The conservative gov- warrant for former attorney general and current Díaz-Canel as part of the British royals’ first ernment submitted the military pension reform presidential candidate Thelma Aldana, a court official trip to Cuba, Reuters reported. “The proposal exactly one month after delivering its said March 19, but her candidacy gives her im- visit expresses the good state of our relations,” plans for a major pension overhaul that would munity from prosecution, Prensa Libre report- Díaz-Canel wrote on Twitter. British Foreign save more than $240 billion in taxpayer money ed. A spokeswoman for Guatemala’s Supreme Secretary Jeremy Hunt told his Cuban coun- over 10 years if approved in its current form. Court said the warrant is related to a corruption terpart in a phone call the same day that he However, analysts expect Congress will water investigation alleging some form of embezzle- hoped the visit would boost cooperation. down the reform. ment, but authorities have not provided further details, the Associated Press reported. Aldana, 63, who is running with the relatively new Seed Argentina’s Economy Former Brazilian Movement party and is polling in second place, President Temer has denied wrongdoing. She was the Central Contracts 2.5 Percent American country’s top prosecutor from 2014 Released From Jail to 2018 and led some of the country’s most Argentina’s economy contracted 2.5 percent A Brazilian judge on March 25 freed former prominent investigations. Among them was the last year, the country’s official statistics agency President Michel Temer from jail, four days case against former President Otto Pérez Moli- said March 21, Bloomberg News reported. after he was arrested on corruption charges, na who, along with other politicians, was jailed It was Argentina’s worst performance since The Wall Street Journal reported. Temer is still for corruption. Aldana worked closely with the 2014, when it defaulted on its debt under the under investigation and faces prison time if he U.N.-backed International Commission Against previous government. GDP dropped 6.2 percent is tried and convicted. However, Judge Antonio Impunity in Guatemala, or CICIG, to try to lift in the last quarter of 2018, as compared to a Ivan Athié ruled that the crimes that Temer President Jimmy Morales’ immunity to start year earlier, the worst quarterly performance allegedly committed happened too long ago to a probe into his alleged involvement in illicit since 2009, according to the report. Analysts require his detention before trial. Temer and campaign financing in 2015. The president has had forecast a 6.4 contraction. Unemployment nine associates, who were also ordered to be denied wrongdoing, and attempts to remove also rose in the fourth quarter, by a notch to freed, are accused of taking as much as half a his immunity have failed in Congress. [Editor’s 9.1 percent from the previous period. [Editor’s billion dollars in bribes related to construction note: See related Q&A in the Sept. 20 issue of note: See related Q&A in the Feb. 19 issue of contracts at a nuclear power plant. the daily Latin America Advisor.] the daily Latin America Advisor.]

FEATURED Q&A / Continued from page 3 FINANCIAL SERVICES ADVISOR is published biweekly by the Inter-American Dialogue, Copyright © 2019 Wally Swain, managing editor of of payments will bring efficiencies for banks Mirador Communications: “This and large retailers. But there will be no major Erik Brand merger is deep in the ‘engine innovation until regulators and large banks Publisher [email protected] room’ of the payments world, so loosen their grip and bring their concepts A Gene Kuleta consumers and online vendors will not see into the 21st century.” Editor any impact except perhaps in transaction [email protected] fees. Today, payments are limited to credit/ Kai Schmitz, leader of FinTech Anastasia Chacón González debit cards, some country-specific solu- Investment for Latin America at Reporter tions and a few universal online payments the IFC Global FinTech Invest- [email protected] systems like PayU. PayPal now permits A ment Group: “Latin America has consumers in most Latin American countries a low penetration of electronic payments

to sign up, but, for Colombia at least, a as compared to similar countries in other Michael Shifter, President vendor hoping to use PayPal must register regions, in particular in Asia. With the excep- Genaro Arriagada, Nonresident Senior Fellow through an ‘alliance partner’—Nequi, which tion of payment cards in Brazil, neither cards Sergio Bitar, Nonresident Senior Fellow nor wallets have taken off in Latin America. Joan Caivano, Director, Special Projects The reasons are manifold: high concentra- Michael Camilleri, Director, Peter D. Bell Rule of Law There will be no major tion in the card issuing and acquiring market, Program innovation until regu- regulatory barriers and poor payment infra- Kevin Casas-Zamora, Nonresident Senior Fellow lators and large banks structure. However, the tide may be turning. Ariel Fiszbein, Director, Education Program Peter Hakim, President Emeritus loosen their grip and Regulators have begun initiatives to break Claudio Loser, Senior Fellow bring their concepts open uncompetitive markets by creating new regulated entities such as the SEDPE in Nora Lustig, Nonresident Senior Fellow into the 21st century.” Colombia, which allow non-bank issuers to Margaret Myers, Director, Asia and — Wally Swain Latin America Program offer wallets and other prepaid instruments. Manuel Orozco, Director, Migration, They are also deregulating merchant ac- Remittances & Development quiring to make it easier for new entrants to Jeffrey Puryear, Senior Fellow is a division of the country’s largest bank, compete with the dominant existing players Tamar Solnik, Director, Finance & Administration BanColombia. Guess where your bank ac- and offer better solutions. The benefits of Lisa Viscidi, Director, Energy Program count must be. Online vendors complain that electronic payments are well documented: Denisse Yanovich, Director of Development and External Relations they have to establish subsidiaries in each higher efficiency, lower processing costs, country in which they want to do business. better security and access to data that can Financial Services Advisor is published This is not normally an issue for multina- be used for various purposes from loan biweekly, with the exception of major holidays, by the Inter-American Dialogue at tional, multilatina and pan-latina companies underwriting to electronic tax filings. But 1155 15th Street NW, Suite 800 such as MercadoLibre. However, small in most cases, innovation does not come Washington, DC 20005 vendors that sell subscription-based and from the large global payment processors www.thedialogue.org other online services find country-specific or card networks, but rather from innovative ISSN 2163-7962 subsidiaries an expensive and cumbersome new financial technology companies such as Subscription inquiries are welcomed at [email protected] obligation. As to point-of-sale ‘innovation,’ Stone in Brazil, Minka in Colombia and oth- Colombians still must sign credit card ers. For the region to be able to catch up on The opinions expressed by the members of the Board of receipts. Incredibly, all my Colombian credit electronic payments, it needs scalable and Advisors and by guest commentators do not necessarily cards have chips and must be inserted into affordable solutions that offer consumers represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily the chip reader at point-of-sale terminals, and small businesses the ability to benefit represent the views of their respective employers or firms. but I have no PIN, and I must sign every from electronic payments.” The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, time, no matter the amount. No tap-and-go nor the opinions based thereon, are guaranteed. If you have for Colombians unless the merchant wants The Advisor welcomes comments on its Q&A any questions relating to the contents of this publication, to print out a receipt and have the customer section. Readers can write editor Gene Kuleta contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a stop and sign. This merger in the plumbing at [email protected]. retrieval system, or transmitted without prior written permis- sion from the publisher.