Simon Hughes of International Banker Interviews Mario Hernández, COO of LAFISE Bank Costa Rica, discussing banking in Costa Rica, the innovative Monibyte platform and the history and future of Banco Lafise.
Many congratulations to Bank LAFISE and, of course, yourself on the awards for Best Innovation in Retail Banking and Best Commercial Bank. Congratulations.
Thank you so much. We’re really honored to be here, so on behalf of Banco LAFISE and Monibyte, we want to thank you for this recognition that moves us and motivates us to continue developing new products and services for our customers and to keep on the path of innovation for the benefit of our customers. Thank you.
And here is one of your awards.
Thank you so much.
Thank you so much. I appreciate it.
Let’s start at the very beginning. How did your career in banking begin?
Well, I started working in banking when I was a grad student in Boston. It was a very interesting process because I started working for a bank that within about three years ended up going through a process of mergers and acquisitions three times. So I had to go through all the pains that customers feel when they have to change from one bank to another, and you have to change their cards, their PINs, their banking systems, user names and passwords and integrate all these systems. It was very, very interesting. After that I went back to Costa Rica, where I’m from, and I started working for one of the largest issuers of credit cards. And it was a great job experience as well. That was back in 1996. Passing the Y2K was a big challenge. There was news all over the world that systems were going to crash, and I think we did a great job changing all the systems and platforms to make sure that the year 2000 would go through very seamlessly, and customers wouldn’t feel anything. And I’ve been working, and I love working in banking since then. That was about 16 years ago.
And in those 16 years, how do you think the banking sector itself has developed?
I would say it’s changed a lot. It’s unbelievable. To start, back in 1996, you wouldn’t probably even talk about banking, Internet banking. Back then what we had, I remember, at this bank in Boston was a CD kit or a disk drive kit that you would plug into your computer, and then you would have to dial up to connect to the banking platform. Back in Costa Rica it was interesting as well because back in 1996, the banks were controlled by the government, so we had government-owned banks. And we had some private, smaller private banks, but we didn’t even have access to the checking accounts. I think it was 1997 when we, the private banks, the non-government owned banks, had access to the checking accounts, and that I would say leveled the playing field. But, for example, the first web, Internet banking systems came to play in Costa Rica probably back in 1998 or so. So, you know, if you take a look back 16 or 20 years ago, and if you take a look at today, it’s incredible how much it’s changed.
And within that process of change and development, what are your leadership qualities that you developed over that period?
I would say, I love working with people. I really like sitting down and talking to customers and understanding what they need. I talk to my people all the time. I would say what I really like doing is communicating, letting everybody know what we’re doing, why we are doing something. Why if someone is doing something, why is that important for the ultimate goal of the bank? So I would say communication is very, very important for me. I look for passionate people. People who really like what they’re doing. I think that’s very, very important.
Thinking of the kind of people you like to work with, being good communicators, being passionate about what they do—what else do you look for when you’re hiring people? What are the qualities that you seek out?
I would say another one would be commitment, probably. It’s very important for someone to be not only passionate about what they do, and people should really, really love what they’re doing, and understand why they are doing something for the company. But you also need to be committed to what you’re doing. So I think that’s something that I look for in people who work with me.
Thinking about LAFISE’s mission statement, you talk about sustainable innovation, efficiency, technology and profitability. How do you actually promote those values and those core features?
Every single day, we talk to our people, and we try to find out new ways to improve our core values. For example, we are constantly trying to find ways to reduce costs. We’ve improved our efficiency these past years. And it’s been a big challenge. Because if you think back, when I came on board to LAFISE about five years ago, we were a smaller bank. We had about $180 million in assets, and in less than five years we’ve managed to grow to about $700 million. And it’s been a challenge because we’ve grown so fast, but also we’ve been able to improve our efficiencies; our cost basis is important for us. We need to be sure that…we’ve hired a lot of people, and we need to be sure that these people are the right people, and that we’ve put them in the right places. So we’re constantly focusing on our core values, and we try to make sure that our employees and the people who work with us are the right people.
You’ve mentioned some of the kind of major challenges that faced you. What were the other ones when you took on the bank?
Back in 2010, when I came on board, I would say, not only were we a smaller bank, but also we were more of a commercial boutique bank. So what we needed to do was to make this bank grow and diversify our portfolio. So, for example, back then, we had small mortgage assets, but it was really just a hundred or so operations funded by a specific line of credit. We started working on a retail-banking unit that back then was non-existent, and today it’s about 45 percent of our portfolio. So we’ve been able to manage to make it equal. The retail and the commercial unit. So now today we’re more of a universal bank, where you have mortgages, where you have credit cards, where we have car loans, savings for the people, but also we’ve been very innovative in terms of what we do for our commercial side of the business.
Now that’s looking backwards. If we project forwards five years, what do you think your objectives are looking forwards for the bank and for yourself?
Innovation for us is very important. I think that’s how we’ve managed to outgrow and outperform our competitors in Costa Rica. We’ve launched quite a few products; we’ve been the first to deploy new services and new products for our customers, so innovation is in our DNA. We’re constantly doing new things, finding new ways to improve, finding new products, finding new needs. We just launched this new product that brought us here, that’s Monibyte, and it’s become a flagship for us. We’ve been very successful with this. And in the next five years, we’re probably going to…I would say LAFISE will keep growing in our countries. We’ve just recently opened a bank in Dominican Republic, and in terms of Monibyte, I would say we are, we’re probably going to grow also in other markets. We just want to keep pushing our product into different markets.
We’ll talk about Monibyte in a bit more detail, but in terms of the competition, do you see there being much consolidation in this sector in Central and South America?
Oh, yes, absolutely. Back in 1996, we had about 30, 31 or 32 banks, and today we have about 16 banks. Consolidation is important for the system. You gain efficiencies when you have a larger bank. They are also challenging, because I have gone through some of those mergers and acquisitions. And if you’re not able to manage them well, then you lose customers, and you lose market share. We’ve been very successful in LAFISE to outgrow and outperform our competitors by what we call organic growth. So we haven’t in Costa Rica, we haven’t done any mergers or acquisitions. We’ve done some due diligences, and we’ve seen opportunities. But in the end, we made the decision to grow by ourselves and invest in our own selling and our own capabilities and our own infrastructure rather than buy another bank.
Do you think your development will see expansion into other financial-service sectors over the next few years?
Yes, absolutely. We just recently, about two months ago, we launched an insurance company. And we’re constantly seeking for new opportunities. If you think about it, we had a system in Costa Rica where recently the insurance was a government-owned business. It was basically a monopoly. And, for example, in Nicaragua, we have one of the largest insurance firms. And we didn’t have one in Costa Rica. So when this law changed, and the banks were allowed to have, or the financial institutions were allowed to have, insurance companies, we were the first ones to go out and open an insurance company. And we’ve been very successful with that. We are constantly looking for new opportunities. For example in Nicaragua, we have other financial-related businesses like leasing. And we’re thinking about those opportunities in Costa Rica. And in other countries as well. We have banks…LAFISE has banks in Panama, in Costa Rica, Nicaragua, Honduras and Dominican Republic. So we are constantly looking for new opportunities.
You’ve mentioned innovation, and you also mentioned Monibyte as part of that vehicle for innovation. Innovation could be captured in words like convenience and simplicity. And how did those words feature when you came up with the idea of Monibyte?
Well, we found that need back in, I would say 2006. For some reasons, I had to put the idea on hold, in the freezer if you will. And back in 2010, when I came back to Costa Rica, the need was still there. We needed to provide a payments solution for companies. And if you look at it, it’s not that complicated. For example, in less developed countries such as Costa Rica, less than five percent of the total transactions are done with commercial products. So you have five percent of purchases on POS with commercial products, being commercial corporate cards, and 95 percent retail cards. So we started researching, why does that happen? And the companies will tell us that they don’t use credit cards as a means of payment because they lack the controls or the functionalities that they need. So we said, this is an opportunity for us, and we decided to develop our platform.
In the development process, what were the biggest challenges?
I would say getting the funds to the technology. I went to a couple of places to get the funds, and I guess the first conversation that I had was with our…the president of our bank, and I told him that I wanted to create this new technology. And he said, “Well, if you’re able to do that technology then the bank will fund the lines of credit.” The next step was to get the funds. And that was very challenging because if, you know, if you have an idea, it’s only an idea. I put together a business case; a lot of detail, but in the end it was just an idea, and I needed a big amount of money. We were lucky enough to find a private-equity firm, and they invested in our company. And in less than one year, we created what we were very proud to say is one of the best products that we have on the market out there. So I would say that the biggest challenge was getting the funds to create a technology with nothing but an idea.
And the foundation of this product in many ways was that partnership between private equity and the bank. And how did that work? What was the experience like of creating that partnership?
I would say that’s part of innovation. When you’re doing something new, lots of things can happen, and it was a very interesting process. We had to, from a legal point of view, show how this was integrated with the bank. I think it’s a story that has a happy ending, at least for now I’m pretty sure that it’s going to get even better because last week the bank is becoming a partner in the company. Just a couple of months ago, we had this company that had different owners than the owners of the bank. So today the bank will be partners in Monibyte. And basically all the objectives have been aligned. And I think that from now on, it’s going to keep growing even faster, which is what we were looking for, because we’ve had lots of opportunities in other countries. And that’s basically what we’re looking for, just a partner that will help us make the company grow.
And one of the other values for the bank is a kind of laser-like focus on customer satisfaction and customer service. And what are customers saying about Monibyte?
It’s really amazing. I can tell you that I’ve visited about 80 or so companies, and the selling process is very different than when you sell a credit card. Remember our product is based on payments platform, and we have what I call now non-traditional credit-card people within a commercial banking unit. So this product was created by commercial banking. All these customers are thrilled; they are using our products. We are even asking the CEOs or the COOs that we work with that have adopted our product, that use them in their companies, and you know, they told us, “Listen we can be your, we can give you testimonials of how this product has helped us in our operations, saving costs, improving our processes, helping us get better control over what we do”. And what’s really incredible is how much the software has evolved in less than seven months. We launched a product back in April 2014, and it was basically a web-based platform where you could take and change all the parameters in your payment. So, for example, someone will be able to use his or her card only on airlines or only Monday through Friday or all these kinds of restrictions. Seven months later, all these customers have given us great ideas of how to improve these services. So, for example, today we have customers who are automatically integrating all their transactions into their accounting platforms. And customers are really, really happy, and we’re growing really, really fast.
And with that real-life experience, where is it going, do you think, in terms of the strategic growth of Monibyte over the next few years?
We are right now in the process of launching Monibyte in other LAFISE countries. So that’s probably going to happen this year. As for signing this deal with LAFISE, then we will be able, and it’s going to be easier for us to go into these other LAFISE countries: Nicaragua, Panama and Dominican Republic and Honduras. But also LAFISE is supporting us when it comes to growth to other countries. Because the product can certainly be put in front of another bank, another financial institution, where we don’t have a banking presence, and that’s what we’re thinking of doing right now.
Now apparently, mind you, this was an idea you had way back in 2006, and it’s finally got to where it is now. What one piece of advice would you give someone who is thinking, I’ve got a good idea, and I’m not quite sure what to do with it?
I would say never give up. Just keep thinking that, keep pushing your ideas. Be persistent. If you think you have something, just try to find a way to make it happen. I’ve always thought that. You know, when I was working on the business case for Monibyte, and I needed a fairly important amount of money, you know, I had friends who would tell me, “No, that only happens back in Silicon Valley in the United States, where people don’t mind investing five million dollars into an idea, but that’s not going to happen here in Costa Rica, where we have a country that has a GDP that’s about half the size of Manchester City’s GDP. That doesn’t happen here.” And so I would say, keep thinking of your ideas, and never give up, and eventually you will find a way to make your ideas happen.
Thank you very much indeed for sharing your experience with us today.
Thank you so much.