Banorte-Ixe, Mexico’s third largest bank has signed a ten-year, US$1billion contract with IBM Global Business Services, encompassing a total overhaul of its customer facing and back end systems. “This is unlike any partnership that exists in Latin America’s financial services industry today,” explained Rafael Arana de la Garza, General Director of Planning and Finance of Banorte, in an interview with Nearshore Americas.
While IBM has worked on projects with the bank for years, the scope of this partnership involves a much deeper level of commitment between the two groups.
“Everything is on the table,” explained Garza when asked which systems and processes would be targeted for optimization. Slated ‘transformational’ services will focus on improving client interactions through Big Data, mobility, analytics and social applications. ‘Operational’ services will streamline internal business processes and systems that have grown cluttered and out of date, as the group expanded from a small regional bank, to one of Mexico’s biggest over the last 20 years.
The ten-year arrangement will include IT services, but also back-end and customer-facing functions. “We will be looking at many different business lines, including procurement and call centers as part of the partnership with IBM,” explained Garza. When asked which functions take priority, Garza foresees a 60/40 split in emphasis between the operational and transformative elements of the integrated program.
Initially, Banorte and IBM will focus on streamlining back-end systems in light of a string of acquisitions and mergers that have expanded the bank’s footprint in the Mexican market. Two decades ago, Banorte was a small regional bank with just 140 branches. With their merger with Ixe Group in 2010, the bank now oversees around $27 billion in deposits and $32 billion in loans, while co-managing Mexico’s biggest pension fund. The group is now the third largest financial services company in the country. It is also the largest Mexican-controlled bank, with a network of over 22 million customers, 1,300 branches, and 6,700 ATMs.
Efficiency and Profitability
The IBM push comes amid “stakeholder pressure” to improve on the bank’s efficiency and profitability. “We are not quite there yet when it comes to efficiency. Our efficiency ratio (expenses / revenue) is at 50 percent, we need to be at 40 percent,” noted Garza. The bank also expects to raise their return on equity to 20 percent, up from 12 percent in 2012. “We are confident that better client engagement and streamlined operational processes is the best course of action to achieve this objective.”
IBM would not specify how in-house IT functions at Banorte would be affected. However, the multinational vendor plans to “utilize all available global resources to ensure best possible delivery,” explained Pablo Suarez, the VP, Global Center of Competence Banking and Financial Markets, with IBM Global Business Services. “We already have resources in 20 different countries allocated to this project.” Given the pressures to reduce operating costs, various Banorte business units could see significant restructuring as a result.
Banorte-Ixe plans to finance this overhaul with cash flow freed from different projects it currently undertakes with IBM, so that the bank won’t have to raise additional capital. The partnership will maintain a strict corporate governance model which will monitor progress of new projects and the re-routing of existing spend, estimated to reach US$ 1B within the 10 years of the agreement.
“We work with various multinational technology services vendors on a project-by-project basis, but this is the first time we’ve committed to such a comprehensive program and solid corporate governance structure”, remarked Garza. “By partnering with IBM, Banorte-Ixe will have access to the best scientists, engineers and industry experts in the world to help transform their business and become one of the most competitive banks in its market,” explained Salvador Vidal, Mexico Country Manager with IBM.
IBM in Latin America
The Banorte-Ixe deal marks another milestone for IBM as it grows into Latin America, as well as the financial services vertical. While specifics were not given, IBM representatives hinted that this could be the company’s largest banking client to date, both in terms of scope of services and potential revenues. “This is a partnership relationship not a buyer/vendor relationship and one that is the first of its kind in Mexico,” noted Suarez.
This is the second billion dollar deal IBM Global Services has captured in Mexico in the last year. As reported by Nearshore Americas, Mexican multinational Cemex, the world’s third largest producer of cement products, signed a similar sourcing partnership with IBM in July of last year.