Digital technology is turning the business of financial services “completely on its head,” and the pace of innovation is quickening to “light speed,” compared to just five years ago.
Millennials in particular are sour on banks, and “if they could send money through Facebook messaging, that’s what they would do.”
Those were among the views shared by executive and entrepreneur Arnoldo Reyes, who leads financial services and business development for Latin America and the Caribbean for online payments company PayPal. He led talks on digital payment services at WorldCity’s CEO Club on April 10.
Reyes comes from a background in finance and has worked for MasterCard Advisors, American Express and Barclays, among other companies. His current employer PayPal, now owned by eBay Inc. and set to become a separate publicly-traded company this summer, started up in 1997 by stealth.
At that time, when Palm Pilot hand-held devices were cutting-edge because they could share contacts by holding the device near one another, some entrepreneurs imagined taking the sharing concept a step further. “Wouldn’t it be cool if we could send money between Palm Pilots?,” the group asked. They invented a mobile payments system.
eBay, the auction site, had its own online payments system then, but the PayPal group began to compete. The entrepreneurs in some cases posted fake items on eBay, and when potential buyers wrote in, they would answer that they’d only accept payment on PayPal.
Consumers soon began asking eBay about making their payments through PayPal, which did not require a credit card. By 2002, with eBay’s own payment system dwarfed by PayPal and losing money, the auction giant bought PayPal for more than $1.2 billion, said Reyes.
Scaling up in Latin America through partnerships
Initially, PayPal focused on North America, where opportunities were huge. It then expanded to the United Kingdom, some more countries in Europe and later to Australia.
About six years ago, PayPal entered Latin America, first in the region’s largest market of Brazil and then, the second-largest market of Mexico. Reyes oversees all markets in Latin America and the Caribbean except for Brazil and Mexico.
Across Latin America, PayPal’s business has been growing, together with Internet use. The recent rise of the middle-class in Latin America has brought an explosion of Internet access to homes and increased penetration of mobile devices such as smartphones and tablets – helping spur the online payments business, said Reyes.
To scale up PayPal quickly, Reyes is focusing on developing strategic partnerships – some with banks. It partnered first with Banco Nacional in Costa Rica, as a way to leverage that bank’s large platform. The bank provides the front-end and PayPal the back-end of the online payment system, he said. Larger banks have been signing up for the partnerships as a way to stand out from rivals.
“Banks in Latin America are almost like a bucket full of piranhas. Every bank is trying to outdo the others,” said Reyes. Signing up with PayPal gives banks cachet as well as new fee revenues, he said.
Do you partner with more than one bank per country?, asked Michael Costello, vice president of international business for consumer goods veteran The Clorox Company.
So far, it’s one per country, but PayPal is “agnostic” about platforms, said Reyes. In the United States, the company works with some 17,000
Familiarizing regulators with new technologies
Are there regulatory issues that make business in Latin America different than in the US or Europe?, asked Fred Medina, executive vice president and managing director for media company BBC Latin America.
Familiarity with online payments is a big issue in Latin America. When you walk into a regulator’s office in the region, officials often ask: Where’s the money? Where is it sitting?, said Reyes.
“It’s challenging to explain that it’s all virtual,” he said. The payments moves between buyers and sellers. PayPal takes a fee for its online service but does not hold cash. “Think of us as kind of the tollbooth..When you are doing almost $200 billion a year in payments, that [fee] adds up.”
To familiarize Latin American regulators with mobile payments, PayPal has even brought some officials to the United States to check out their systems.
“We are, at the end of the day,” said Reyes, “a technology company.”
Tech skills are helping the company brach out to new businesses. For example, thanks to its depth in understanding who pays who digitally, it now can offer loans to online companies that traditional banks might not finance.That’s further up-ending the financial services business and accelerating the pace of innovation.
The CEO Club is one of five event series organized by media company WorldCity to bring together executives in greater Miami on multinational business topics. The CEO series is sponsored by the University of Miami School of Business Administration and real estate company CBRE.
The next CEO forum is set for May 8 to feature Diego Ramos, vice president of Audi Latin America.