According to an old saying, to get a loan at a bank, it is first necessary to demonstrate that it is not needed for all the requirements. This is how a bank asks the potential beneficiary of a loan to somehow demonstrate that he can pay it, and TRULY gives the bank information about the Client’s behavior in the system. Non-bank electronic wallets are again winning the race against the bank for several reasons:
- They do not ask their Client to prove anything because they have the detail of the cash flow.
- Since these are generally unbanked Clients, they are willing to pay higher rates than they would in a bank.
- As the electronic wallet is not regulated, you can collect whatever you want.
It is an almost zero risk business with very high risk interest rates. In short: in electronic wallets, three factors with well-differentiated origins come together:
a) Technological: It is the technological development that allowed them to develop and when it comes to technology, we involve: the capacity of smartphones; capacity, quality and coverage of communications; new development tools and concepts such as “APPS” The objective is to connect all types and sizes of companies with the widest range of electronic payment methods, financial institutions and providers, to facilitate the acceptance of multiple payment options.
b) Regulatory: In Argentina today, Fintech companies have very few regulations. As we said at the beginning, nothing is so similar to a bank as a Fintech, the question that arises is then, why don’t they have the same regulations as a bank? The Provisions Com. 7744 (04/17/23) and Com. 7783 (06/02/23) of the BCRA express a glimpse that can be interpreted as an incipient signal granting the Governing Entity “Sanctioning Powers” in the face of the lack of a comprehensive regulatory system that reaches them.
c) Sociological: After the events of 2001 there is still a large part of the population that does not trust banks and if you can operate with something that looks like a bank, but is not, so much the better.
However, the other side of this process are the frauds are committed from accounts with CVU. With the irruption of Artificial Intelligence, the Financial System will face increasing challenges to streamline its operations and greater risks of fraud and cybercrime. The competition for credit suffered by the Banking sector increases day by day. Large companies have direct access to financing via the Mcapital market without going through the Banks (2nd Great Competition).
The Capital Market, bringing institutional investors and individuals closer to placement alternatives, which very attractively offer financing vehicles with hard dollar or dollar linked (ON) adjustment clauses. This effect includes, in a separate chapter, large home appliance chains who then unload their portfolios in the Capital Market to get funding again.
On the other hand, after a complicated 2022 for the crypto industry globally, companies in the sector in Argentina seek to reinvent themselves to get through what remains of what they call crypto winter. As financial technology, the crypto system started the other way around: first in the hands of retailers, on the periphery of the financial system (3° Great Competition in the youth sectors)
With an average salary highly eroded by inflation, the generating units of these credit instruments (Private Banks) slow down The adjustment of card limits, overdrafts in checking accounts, by virtue of not increasing the Blackberry. On the other hand, informal workers suffer the impact of the most marginal suppliers (Mutuals, Cooperatives, local stores, etc.) that collect this demand but charge exorbitant interest (4th Great Competition).
Non-bank debts are generated mainly through personal loans (26.3%) and “trusted” purchases (26.1%). These types of debt are found in more than 1.2 million households. Informality is a big problem in our country. The number of households in poverty levels, or in the income threshold to be poor, causes the majority of households to resort to non-bank debt to finance their cost of living.
Families that resort to credit or non-bank debt are the most affected because, in these cases, the total financial cost sometimes doubles the Bank rate. The harsh competition, the country’s lack of external credit, the increase in rates and the consequent greater availability of $ in the Banks, was channeled to the Treasury bond and liabilities of BCRA whose impact on banks’ assets went from 36% to more than half in recent years with the consequent reduction in exposure to the private sector, which went from 42% to the 28%.
Despite these figures, bank share prices have risen so far this year on the Buenos Aires stock market, which indicates that market expectations are optimistic for the future of the sector. The credit that companies are predominantly accessing in the market from private banks is purely transactional.
Public banks have shown that they are up to the task by propping up credit oriented to SMEs, Production and sustaining the emergency. When circumstances have led us to a scheme of financial repression like the one Argentina has today in a context of low expectations, gaps are generated. Today the three most visible gaps are: the would changethat of rates and of prices between the “careful” and the “neglected”.
Argentines in general, but mainly businessmen, quickly adapt to the every man for himself. They take credit at negative interest rates, buy cheap official dollars and sell at sloppy prices. As Miguel Bein said: “the national sport is to grab all the pesos from the Treasury and all the dollars from the BCRA.” Assuming that because Macri, Bullrich or Milei arrive the markets are going to start financing us, with a rain of investments is a serious mistake whose costs we evidenced in 2018.
Some developed countries have a private sector credit/GDP ratio between 40 and 100% while in Argentina that ratio is 8%. That is why in other countries a rise in rates can keep inflation at bay and here it is insufficient.all great crisis is a chance to be honest about the reality of what is happening to us and the complexity of finding solutions reasonable and not magic, that our economic problems have, accepting that the best policy is to end the “crack” that separates us.
by Raúl Garré, Director of the BNA
