FEBRABAN Research of Banking Technology 2013

FEBRABAN Research of Banking Technology 2013 A healthy, ethical and efficient financial system is a prerequisite for the economic, social and sustainable development of the country.

GOALS  The “FEBRABAN Research of Banking Technology” is held for 22 years in order to show to different publics the evolution of the national banking industry, especially in issues related to technology;

 This year, the Brazilian Federation of Banks - FEBRABAN, in partnership with Strategy& (formerly known as Booz & Company), continued innovating and furthering research with the goal of providing new perspectives and reflections on technology in the banking sector;

GOALS  In this sense, it surveyed, consolidated and analyzed a large set of indicators showing the effort and commitment of the sector to an efficient and sustainable financial system that contributes to the economic development of the country;  In 2014, the research encompassed 97% of the banking sector relative to the total number of branches, also representing more than 90% of total assets of the sector - totaling 18 financial institutions operating in Brazil;

 In addition, the research was complemented with data from other associations and even international governmental agencies to incorporate important issues in order to broaden and deepen the analysis of the data.

The banking market in Brazil continues to grow 2 digits in assets and linearly on current accounts (6% per year) - banking index also evolved from 2009 to 2013 (1) Total of Assets of the Banking Sector [in Billions]

+16% per year

6,340

5,640

+12%

4,970 4,200 3,520

2009

2010

2011

Note: (1) Data from the Central Bank of Brazil regarding the banking sector as a whole Source: Central Bank of Brazil, Analysis by Strategy&

2012

2013

The banking market in Brazil continues to grow 2 digits in assets and linearly on current accounts (6% per year) - banking index also evolved from 2009 to 2013 Banking in Brazil(1) Active CPFs(2)/PEA (2009-2013)

Total of Current Accounts(1) [in Millions]

+4%

+6%

per year

per year 83

89

92

97

103

49%

51%

53%

55%

+4%

+6% 2009

2010

2011

2012

2013

57%

2009

2010

2011

2012

Note: (1) Data from the Central Bank of Brazil, regarding the banking sector as a whole Note: (2) Total number of CPFs with active relations disclosed by CCS (Customer base of the National Financial System) of the Central Bank of Brazil.

Source: Central Bank of Brazil, IBGE, Analysis by Strategy&

2013

Number of branches grows in line with the banking, ensuring quality of care agencies index by 100,000 customers in Brazil is similar to those of developed countries Number of branches, PABs and PAEs(1) (Absolute total in working – in thousands)

+3%

per year

+3%

Bank Branches PABs and PAEs

Count Current Per Branch Branch / 100 Thousand Banked Adults

61 20

61 19

65 21

67 22

68 23

41

42

44

44

46

2009

2010

2011

2012

2013

4.148

4.546

4.319

4.379

4.511

33

30

30

30

30

Note: (1) The definitions from PAB and PAE from Resolution No. 2,099 from the Central Bank of Brazil, Chapters III and VI, respectively, from Attachment III, must be taken into consideration.

Source: Central Bank of Brazil, PNAD, IBGE, World Bank, Analysis by Strategy&

Number of branches grows in line with the banking, ensuring quality of care agencies index by 100,000 customers in Brazil is similar to those of developed countries.

Number of Branches per 100 Thousand Banked Adults (2013)

16

20

22

27

30

33

38

10 Current Account per Branch

CIN

AFS

IND

MEX

N/A

13,302

9,174

6,312

UK

5,735

BRA

4,551

TUR

6,060

USA

4,889

Note: (1) The definitions from PAB and PAE from Resolution No. 2,099 from the Central Bank of Brazil, Chapters III and VI, respectively, from Attachment III, must be taken into consideration.

Source: Central Bank of Brazil, PNAD, IBGE, World Bank, Analysis by Strategy&

Branches in regions North and Northeast showed a higher percentage growth from 2009 to 2013 – Central-West increased more in 2013 Number and Penetration of Branches [in Thousands- 2013]

per year

Penetration: Branches /100,000 economically active people

Note: Source:

The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

Branches in regions North and Northeast showed a higher percentage growth from 2009 to 2013 – Central-West increased more in 2013 Number and Penetration of Branches [in Thousands - 2013]

per year

Penetration: Branches /100,000 economically active people

Note: Source:

The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

Branches in regions North and Northeast showed a higher percentage growth from 2009 to 2013 – Central-West increased more in 2013 Number and Penetration of branches [in Thousands - 2013]

per year

Penetration: Branches /100,000 economically active people

Note: Source:

The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

Branches in regions North and Northeast showed a higher percentage growth from 2009 to 2013 – Central-West increased more in 2013 Number and Penetration of Branches [in Thousands - 2013]

per year

Penetration: Branches /100,000 economically active people

Nota: Source:

The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

Branches in regions North and Northeast showed a higher percentage growth from 2009 to 2013 – Central-West increased more in 2013 Number and Penetration of Branches [in Thousands - 2013]

per year

Penetration: Branches /100,000 economically active people

Note: Source:

The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

North and Northeast regions have the highest annual percentage growth in the number of branches – Southeast region had the greater absolute increase in 2013  The percentage increase in the number of branches in the last five years has occurred primarily in the Northeast and North regions;

 Last year, the Southeast had the highest

absolute growth in branches - about 340 branches- and the Central-West, the largest percentage increase (+6.1%), driven also by the relevance of the agricultural economy;

 The Southeast, South and Central-West regions have similar levels of penetration of branches, around 25-30 branches per 100,000 economically active people;

 The difference in penetration for

Northwest and Northeast regions is related to the lower banking in these regions and the profile and frequency of consumption of bank customers in the regions Central-West, Southeast and South.

Note: Source:

The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The coverage of clients via correspondents is representative; their total number and penetration continue to grow in all regions Number and Penetration of Correspondents(1) [in Thousands - 2013]

Penetration: Correspondents/100,000 economically active people

Note: Note: Source:

(1) Data from the Central Bank of Brazil, regarding the banking sector as a whole The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The coverage of clients via correspondents is representative; their total number and penetration continue to grow in all regions Number and Penetration of Correspondents(1) [in Thousands - 2013]

Penetration: Correspondents/100,000 economically active people

Note: Note: Source:

(1) Data from the Central Bank of Brazil, regarding the banking sector as a whole The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The coverage of clients via correspondents is representative; their total number and penetration continue to grow in all regions Number and Penetration of Correspondents(1) [in Thousands - 2013]

Penetration: Correspondents/100,000 economically active people

Note: Note: Source:

(1) Data from the Central Bank of Brazil, regarding the banking sector as a whole The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The coverage of clients via correspondents is representative; their total number and penetration continue to grow in all regions Number and Penetration of Correspondents(1) [in Thousands - 2013]

Penetration: Correspondents/100,000 economically active people

Note: (1) Data from the Central Bank of Brazil, regarding the banking sector as a whole Note: The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Source: Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The coverage of clients via correspondents is representative; their total number and penetration continue to grow in all regions Number and Penetration of Correspondents(1) [in Thousands - 2013]

Penetration: Correspondents/100,000 economically active people

Note: (1) Data from the Central Bank of Brazil, regarding the banking sector as a whole Note: The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Source: Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The coverage of clients via correspondents is representative; their total number and penetration continue to grow in all regions 

The correspondents in the country ensure a good coverage of basic banking services in all regions, complementing the role of branches;



In addition, the correspondents in the country have an important social role, enabling greater professionalism of the economy and financial and social inclusion;



The Southeast, South and Central-West regions have similar levels of penetration of correspondents around 350-400 correspondents to every 100,000 economically active people;  Due to changes in the regulation of hiring correspondents in the country by CMN Resolution 3,954, from 2011, there was a significant variation in the amount of correspondents between 2011 and 2012.

Note: Note: Source:

(1) Data from the Central Bank of Brazil, regarding the banking sector as a whole The penetration of branches is calculated as the quotient between the number of branches over the PEA of a given region.

Central Bank of Brazil, IBGE, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

The volume of banking transactions grows 2 digits, driven primarily by transactions without financial movement and transactions from internet and mobile banking.

Banking Transactions per Origin (in Billions)

31.8

23.6 5% 4% 16%

28.2

4% 4%

5% 4% 14% 13%

12% 12%

27%

12%

TACC 09-13

+13%

+14% a.a.

35.7 2% 4% 4% 11%

40.2 6%

Mobile Correspondents 4% 3% Contact Center 10% Branches 13%

POS

23%

ATM

41%

Internet

+270% +8% +5% +1% +16%

13%

+6%

26%

29% 31%

31% 2009

36%

2010

39%

39%

2011

2012

2013

Transactions per Active Current Account

Source: FEBRABAN Research of Banking Technology 2014

2009

2010

2011

2012

2013

283

318

346

367

389

+23%

The volume of banking transactions grows 2 digits, driven primarily by transactions without financial movement and transactions from internet and mobile banking.

Banking Transactions per Origin With financial movements (in Billions)

Correspondents Branches POS

ATM Internet Banking

Source: FEBRABAN Research of Banking Technology 2014

Banking Transactions per Origin Without financial movements (in Billions)

Mobile Contact Center Branches ATM

Internet

The channels have very different profiles on the type of transaction - virtual channels are even more representative in handling financial transactions without financial movement Channel per Type of Transaction % of the total of transactions per channel and total of transactions [in Billions]

2012 POS

100%

Correspondents

7% 1,4

75%

ATM

25%

49%

20%

100%

4,8

93%

Branches

Internet Banking

2013

51%

80%

8% 1,3

92%

74%

4,0

9,1

14,0

5,2

26%

50%

18%

50%

82%

3,9

9,4

16,6

Mobile Banking

3%

97%

0,81

3%

97%

2,3

Contact Center

3%

97%

1,6

3%

97%

1,5

With Financial Movement Source: Central Bank of Brazil, FEBRABAN Research of Banking Technology 2013

Without Financial Movement

Although internet banking grows in importance for transactions with financial movement, the branches are still relevant to this type of transaction Average of Monthly Transactions per Current Account With Financial Movement 2009

2012

2013

POS

2,9

4,1

4,2

Correspondents

0,9

1,1

Branches

3,0

ATMs

Without Financial Movement 2009

2012

2013

-

-

-

1,0

0,1

0,1

0,1

2,6

2,3

0,8

0,8

0,8

3,6

3,9

3,8

3,7

3,9

3,8

Internet Banking(1)

1,8

2,4

2,5

5,6

9,6

10,9

Mobile Banking(1)

< 0,1

< 0,1

0,1

N/D

0,7

1,8

Contact Center

< 0,1

< 0,1

< 0,1

< 0,1

1,3

1,2

1)Calculation performed based on the total of active current accounts on the banking system, and not on accounts with enabled internet or mobile banking â&#x20AC;&#x201C; in such a case weâ&#x20AC;&#x2122;d have the following profile: - Internet Banking (2013): with movement = 6,2 / month; without movement = 26,9 / month - Mobile Banking (2013): with movement = 0,9 / month; without movement = 15,8 / month Source: Central Bank of Brazil, FEBRABAN Research of Banking Technology 2014

In 2013, there was the consolidation of the importance of transactions via internet and mobile banking, which is also reflected in the types of banking transactions Users Behavior (% of the Sum of the Volume of Transactions)

Comparison between Modalities (% of the Volume of Transactions)

1. Transfer vs. Deposit Transfer Deposits

2. POS vs. Withdrawal POS Withdrawal

3. Credit Hiring for Individual Non-Attendance Attendance Internet Banking and Mobile Banking

Other Channels (Branches, ATMs and Contact Center) POS + Correspondents Source: 1) Hiring credit considers only transactions held at branches. Non-Attendance considers all other channels Source: FEBRABAN Research of banking Technology 2013

Internet Banking recorded a strong growth in recent years with strong relevance of financial transactions without financial movement â&#x20AC;&#x201C; the ones with financial movement also grow Accounts with Internet Banking (in Millions)

Transactions in Internet Banking (in Billions)

TACC 09-13 +14% +25%

+19%

+23% per year

per year

20.8 2009

25%

25.3 2010

29%

31.4

37.0

41.8

+13%

7,3 1,8 5,5

2011

2012

2013

2009

34%

38%

40%

352

% of Accounts with Internet Banking

With Financial Movement

Source: FEBRABAN Research of Banking Technology 2013, Ibope

10,0 2,2 7,8

12,5 2,6 9,9

2010

2011

397

398

14,0 2,8 11,3 2012

379

16,6 3,1 13,6

+18%

2013

397

Annual Transactions in Internet Banking per Current Account with Internet Banking Without Financial Movement

Transactions via mobile banking continue to increase exponentially, and banks continue to bet in the platform

Accounts with Mobile Banking (in Millions)

Transactions in Mobile Banking (in Billions)

per year

per year

2.338 80 823

2

% of Accounts with Mobile Banking

With Financial Movement

Source: FEBRABAN Research of Banking Technology 2013, Anatel, IBGE, Analysis by Strategy&

Annual Transactions in Mobile Banking per Current Account with Mobile Banking Without Financial Movement

With the increase of use of this channel by users, banks are increasingly investing in applications, both internationally and in Brazil

International Examples

The accelerated penetration of smartphones in all social classes also helps the growth of transactions by electronic means Penetration of Internet and Smartphone (% of the population total) 100%

80%

USA

GER

FRA

UK

Penetration of developed economies today

80-85%

Convergence Zone

75-80%

60%

52% Current level of countries with greatest smartphone penetration

Penetration Internet

40%

31%

Korea

27%

20%

UK

USA

Norway EAU

Penetration Smartphone 1% 0%

’07

’08

’09

’10

’11

’12

’13E

+5 years

Source: World Bank, International Telecommunication, Union, World Telecommunication/CT, Cetic, IPC Target, Analysis by Strategy&

+10 years

The number of ATMs maintains the constant growth in recent years (2% annually), while transactions per terminal grew at higher rates in the last 5 years (5% per year).

Total of ATMs in Brazil (in Thousands)

per year

Source: FEBRABAN Research of Banking Technology 2013, FMI, Analysis Strategy

The trend for higher concentration of functions per ATM allows for increased and better use level of each terminal, Brazil is one of the countries with the largest number of possible operations at ATMs globally Transactions per ATMs (in Thousands)

per year

Source: FEBRABAN Research of Banking Technology 2013, FMI, Analysis Strategy

Even though the representativeness of transactions at ATMs declined from 2009 to 2013 on total channels (31% vs. 23%), the absolute number of transactions grew on average 6% per year during the same period Total Transactions at ATMs (in Billions)

per year

Source: FEBRABAN Research of Banking Technology 2014, FMI, Analysis Strategy

Banks also continue investing in accessibility and functionality on ATMs for customers Base Configuration of ATMs In Thousands (2009-2013)

# of ATMs (Thousands)

ATMs with Accessibility (%)

200 -

150 -

90

156

161

159

162

166

80 70

60 100 -

52%

57%

60%

61%

61%

50 40 30

50 -

0

28%

27%

10% 10%

6% 10%

26%

25%

24%

20

5% 9%

2% 12%

2% 13%

10

Checks Dispenser

Cash Dispenser

Terminals for deposits/extracts

ATMs Full

Note: ATMs Full are equipment with two or more of the following functions: cash dispenser, terminal for deposit and extracts and check dispenser.

Source: FEBRABAN Research of Banking Technology 2013, Analysis by Strategy&

0

% of ATM - Accessibility

34

The increasing number of transactions at POS indicate increased penetration and use of cards Number of Cards(1) [in Millions]

Expenses with card [% of Family Consumption - 2013]

52%

+10% per year

46%

48%

35% 30% 27%

+9% 20% 565

628

687

2009

2010

2011

749

2012

800-850

2013E BRA 2009

Note: includes debit cards, credit cards and retail Source: ABECS, Bank for International Settlements, FEBRABAN Research of Banking Technology 2014, Analysis Strategy&

BRA 2013

AFS

TUR

UK

USA

CAN

The increasing number of transactions at POS indicate increased penetration and use of cards Total of POS Transactions [in Millions]

per year

Note: includes debit cards, credit cards and retail Source: ABECS, Bank for International Settlements, FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

Transactions per Card [in Number of Transactions]

per year

Even at a time of slower economic growth, expenses and technology investments by banks continue to rise

Expenses and Investments in Technology per Banks in Brazil (in Billions of Reais)

27%

Note: â&#x20AC;&#x153;Otherâ&#x20AC;&#x153; includes expenses and investments, including new technologies not classified as hardware, software or telecom by the banks Source: FEBRABAN Research of Banking Technology 2014, Analysis by Strategy&

Brazil is a major player in the banking technology industry worldwide which has become the largest investor in IT among industries Participation of the Financial Sector on the Total of Expenses with IT in Brazil (% of the Total Expenses with IT â&#x20AC;&#x201C; 2013) Total expenses with IT in Brazil: USD 61 Bi (2013)

GER

(1) including Banks and Insurance Companies Source: FEBRABAN Research of Banking Technology 2013, Gartner, Analysis by Strategy&

USA

Brazil is a major player in the banking technology industry worldwide - which has become the largest investor in IT among industries Expenses and Investments in Technology of the Financial System(1) (in Billions of USD - 2013)

Total expenses with IT by the banking industry: USD 336 Bi (2013)

11,1

(1) Source:

including Banks and Insurance Companies FEBRABAN Research of Banking Technology 2013, Gartner, Analysis by Strategy&

FEBRABAN Research of Banking Technology 2013 A healthy, ethical and efficient financial system is a prerequisite for the economic, social and sustainable development of the country

Key Findings  In 2013, transactions on Internet Banking accounted for 41% of total transactions, the channel being the most representative

 The Mobile Banking channel had an exponential growth of 184% over the previous year and now

represents 6% of the total number of transactions - the faster penetration of smartphones in all social classes also helps the growth of transactions in this way;

 As effect of this trend, in the last year Internet Banking and Mobile Banking have already exceeded

the sum of transactions in branches, ATMs and Contact Centers, becoming the preferred channel for transactions by bank customers

 In 2013, expenses and investments in technology by banks reached U.S. $ 20.6 billion and, even at a time of slower economic growth, continue to increase (3% in 2013) - part of these investments can be explained by the increasing demand for access to banking services by electronic means;

 The tech industry for the banking sector is already approaching investments in developed countries such as France and Germany, and corresponds to 18% of IT expenses in Brazil countries - in line with developed and emerging countries;  The growth of around 20% per year of software expenses is a positive sign for the quality of IT

expenses - software also increased its share of the total expenses between 2009 and 2013.