Digital technology has transformed the way people interact with each other and also the way services are provided. In the financial services industry, the widespread adoption of digital platforms have been transforming, creating new competitive opportunities and challenges. In that context, Itaú Unibanco (ITUB), Latin America’s largest corporate & investment bank, has implemented one of the most innovative operating models for digital services, which revolutionized the traditional financial services in Brazil by introducing (i) new digital channels to its operations, with the use of digital branches and (ii) cutting-edge mobile technology in its interactions with clients.
The Digital Branch
Launched as a pilot project in 2013, the digital branch was designed to operate in extended schedule, from 7:00 in the morning to midnight, providing the bank’s clients with more convenience and flexibility. The biggest difference in this model is how the manager relates to the client. The goal is to solve 100% of the customers’ banking needs remotely and, whenever possible, instantaneously, without them needing to go to a physical branch. Chats, cellphone messages and videoconferencing with managers and financial advisers are some of the alternatives. As a result, the bank was able to (i) strengthen their relationship with their clients, (ii) increase client satisfaction and process efficiency by reducing throughput time of its services and (iii) improve profits by reducing its overall costs associated with providing the services in a physical branch.
As of December 2015, approximately 59.7% of ITUB customer base banked through digital channels. As shown in the graphs below, the number of digital branches have been increasing since 2014 and will be probably follow that trend in the upcoming years. In addition to that, ITUB also have been increasing the number of transactions made through electronic channels to almost 70%. Since transactions performed in electronic channels bear a lower cost for the company, ITUB was able to increase its profits for these transactions and at the same time scale up its client base.
In addition to investing in new channels, ITUB also improved its current electronic tools by developing a range of apps that allow clients to access their accounts and perform banking transactions using smartphones or tablets. One example is the Itaú Pagcontas app, which allows convenient bill pay through cell phones. Another example is the Itaú Tokpag app that allows person-to-person money transfers via mobile phones. Both examples, illustrate the way how the bank is disrupting with the financial services supply chain. In a traditional bank, the customer goes to the bank, while in a digital bank the bank goes to the customer.
In this new business model created by ITUB, one of the main challenges faced by the bank will be to make the business scalable. In order to address that, Itaú has invest more than 10 billion Brazilian reais in a Data Center that is the state-of-art of its category. Also, in order to ensure that the bank will be able to reach its clients, it will need to invest in (i) mitigating the risks of cyber-attacks (investing in cyber security) and (ii) expanding its client base by promoting digital inclusion.
In order to deal with digital safety, ITUB has created an internal team to develop new security features and also design internal process, policies and procedures to deal with better safety both in the bank’s website as well as in its apps. Also, the company has created a Virtual Card tool, which generates a unique credit card number to be used in online transactions and that expires after the purchase is made, making it safer for its customers to use the credit card online without sharing personal and financial information with the seller.
However, in regard to the digital inclusion challenge, the bank still needs to show some improvements. The bank’s lower-income segment, which has 23 million account holders, depends on access to smartphones, which is something that not all the population has. As a result, the company should create projects aiming at increasing the level of digital inclusion. One way to do that would be to partner with retailers to provide loans for cell phone purchases, which would address the digital inclusion concern and at the same time increase cross-sell. Similarly, the bank should invest in providing its clients with digital training in order for them to be more familiar with the available technologies. By doing that, the bank will increase the utilization rate of its apps and reduce costs associated with processing clients demands through traditional and more expensive channels.
It is clear that ITUB is recurrently investing in developing new technologies to improve its operations and client interface and delivering on its promise to “be the leading bank in sustainable performance and customer satisfaction”. However, the road for innovation is endless, and there is still a lot of room for improvements. (794 words)
 Initially the project was aimed for account holders with monthly income of more than R$10,000 (approx. USD 3,200), who did not have the time, neither the desire to go to a physical branch. However, as it succeeded, it was later expanded to other client levers.
 As per Itaú’s 2015 Institutional Presentation available at: https://www.itau.com.br/_arquivosestaticos/RI/pdf/en/Apresentacao_Institucional_eng.pdf
 In 2012 the bank announced the investment of R$ 10.4 billion in technology, innovation and service over the course of the next 3 years, which represented one of the largest private investments of a financial service provider in technology. The money would be directed to (i) the construction of a new Data Center with capacity to support the expansion of operations in the next three decades and also (ii) the improvement and design of new tools for expanding digital channels, such as internet banking and mobile banking.