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Bankaool Bank: architecting an online-only financial brand

Pável Reyes-Mercado,
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 Bankaool Bank: architecting an
online-only financial brand
Pável Reyes-Mercado

In mid-2016, Claire Solís, Bankaool’s appointed Director of Marketing, Channels, and New Pável Reyes-Mercado is
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Business was driving back to the bank’s headquarters located in the corporate area of Professor at the School of
Santa Fé in Mexico City. She had just taken lunch along with a friend who was enduring the Business and Economics,
Anahuac University,
troubles of an automation system in a retailer company. “What an experience!” she thought.
Huixquilucan, Mexico.
After sitting at her desk, she started to think on the latest news about the performance of the
Bankaool brand. A long time had passed after the hard financial crisis of the 1990s and
2008, but the banking industry in Mexico was still struggling to go ahead. Many banks had
been acquired by global brands, the mobile business was showing a slow take off and
financial inclusion remained a societal challenge. Nevertheless, Bankaool business focus
was clear: to remain as the only branch-less bank in Mexico –“We expect to acquire
100,000 active customers by the end of year” (La Razón, 2016), Frank Meré, Bankaool’s
chairperson, had declared.
Bankaool had launched its all-digital account products early in 2015 as an attempt to
promote an inclusive image as well as attending the increasingly young and tech-savvy
consumers beyond its original niche in agribusiness loans. Bankaool customers have
access to a bundle of basic financial products including saving accounts, debit cards,
credit cards and personal loans. As head of marketing, Solís was responsible for
developing new products and rolling them out:
When we received tegreen light from Government to operate as a supervised bank, we looked
for a business model focused on cost effectiveness. How many branches would we need to
compete with the big banks? How large would investments be?

Her predecessor said (Milenio, 2016). The products had reached about 20,000 new
accounts in less than one year, and increased to 30,000 the first two months of 2016 (La
Razón, 2016). The organization enjoyed the advantages of cost-focus strategy; the
products were still on penetration stage and expected to grow quickly. The bank was
happy with the growth performance but there were concerns after the CEO mentioned that
they would only reach 50,000 active customers by the end of 2016 (Excélsior Tv Dinero).
He was not feeling comfortable after he analyzed the increasingly higher operating
expenses from the last months. “We will reach break-even point in 2016 and deliver 16-17
per cent of return on equity to our shareholders” (Excélsior Tv Dinero, 2016b), the CEO
Disclaimer. This case is written
said. Mexican economic growth along with penetration levels presented a business solely for educational
opportunity for the bank, he added. purposes and is not intended
to represent successful or
In view of this scenario, Solís and her team had spent some weeks drafting a marketing unsuccessful managerial
decision-making. The author/s
plan to foster Bankaool’s growth and brand value. Within days, the chairperson would meet may have disguised names;
financial and other
her at Mexico City’s office and she wanted to gain his approval to move her plan forward. recognizable information to
She had requested one of his more seasoned associates to help her develop the core protect confidentiality.

DOI 10.1108/EEMCS-02-2017-0016 VOL. 7 NO. 3 2017, pp. 1-17, © Emerald Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
 activities for turning around the business, a branding plan and its further implications for the
bank. The main questions in mind were what do Bankaool need to do to accelerate growth?
Bankaool had praised itself to be the only branch-less bank in México. Given the slow
growth, should it continue as a digital bank or also go off-line? Besides, How can Bankaool
increase brand awareness?

1. Mexican financial services industry

The Mexican banking industry had remained under Government ownership until 1989,
when banks were privatized for a second time, after they had previously been nationalized
in 1982. After 1989, private commercial banks engaged in incipient competition which
would last until the exorbitant devaluation on late 1994 – the infamous “Tequila effect” –,
which represented the most extenuating crisis in Mexican history: a high deficit
accompanied by a low level of cash reserves provoked that gross domestic product fell
more than 6 per cent, and interest rates rose 49 per cent in 1995. This led to closure of
many small and medium enterprises (SMEs) and stagnant economic growth for the
following years.
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Before the North American Free Trade Agreement signature in 1994, Citibank was the only
foreign bank operating in Mexico. Citibank’s assets totaled only 0.5 per cent of industry.
Later, quotas were increased to allow foreign investors to participate in the financial
industry and were extended from 5.00 to 52.4 per cent in 1996. These legal changes
attracted the attention of international financial groups as BBVA that acquired the Mexican
bank Bancomer, Citibank acquired Banamex and HSBC became the main shareholder of
Bital in the late 2000 (Turrent, 2015). As investors regained confidence, the industry started
to consolidate through a series of mergers and acquisitions with varying levels of
international participation. With this unique history, the foundations that allowed the
Mexican banking industry to become a real intermediate and compete at international
levels were settled.
While the overall industry reached an undisputable global position, some challenges
remained for individual players as banked population reached only 25 per cent (El
Universal, 2008). Analysts suggested that the banks would attempt to position their brands
in the market by attending segments of unbanked and underbanked consumers in more
geographic areas. Since then, personal credit became the main focus of the industry.
The US financial crisis of 2008 posed another challenge to the Mexican financial system.
Because this financial crisis became a production- and employment-related crisis, Mexico
suffered the consequences, given the strong economic ties between the two countries:
Gross domestic product, exports to USA and foreign direct investment dropped. Mexican
Government requested a US$30-bn credit line to the International Monetary Fund and the
US Federal Reserve to assist troubled banks. The credit line was not used; both
Government and industry gained confidence on the capitalization levels of the Mexican
banks (Villareal, 2010).
By May 2016, there were 47 supervised banks in Mexico. High concentration levels in the
industry seemed to disappoint new entrants. About half of the banks only maintained
representation offices on international banks whereas some others only attended some
very specific market niches. BBVA Bancomer, Santander, Banamex and Banorte
accounted for 62.9 per cent of total assets (Turrent, 2015).

2. Bankaool background
Bankaool was originated in 2005 under the name “Agrofinanzas” when the company
ECOM, an international commodity trading company, spun off its financial division. The
company United Agribusiness of Mexico acted as the Mexican subsidiary in Mexico and
had been previously operating in the country for more than 50 years (IFC, 2014). The
strategic focus of Agrofinanzas was to work with a number of unbanked small farmers with

PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 7 NO. 3 2017

 good credit risk profiles and connect them with a network of traders to issue credit lines to
them. A critical aspect of its business model was to connect rural producers with large
agribusiness companies. The parties negotiated the price for agricultural production in
advance of the harvest season, so Agrofinanzas knew how much fruit the farmers would
sell. The bank helped the farmers to predict their credit profiles and financed them with
lower risk. This profiling allowed Bankaool to reached 3.5 per cent of default levels. By
2011, Agrofinanzas had doubled its loans portfolio to achieve US$100 m with 99 per cent
of its almost 7,000 customers coming from the base of the pyramid (less than US$38 per
day; IFC, 2012). In 2006, Agrofinanzas started to generate profits and by 2011 they had
reached US$2.6 m with a 20 per cent of return on equity. International agencies and local
financial stimulus played a role in the success of Agrofinanzas’ inclusive business model.
International Finance Corporation supplied US$1.7 USD million in 2010 whereas the
Mexican agency Trust Funds to Agriculture supplied about 80 per cent of lending capital
and guarantees (IFC, 2012b). Agrofinanzas was recognized by the G20 group as one of the
15 global companies showing innovating practices on inclusive business models as well as
an inclusive business leadership (IFC, 2012).
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Bankaool was established in Mexico in 2006 as an SOFOL (Limited Purpose Financial

Society), a legal corporation with the limited purpose of attracting capital from financial
instruments and to issuing credit lines for specific activities as agribusiness or
manufacturing (CNBV, 2013). Further changes in financial regulations were modified and
the company switched to the legal form of SOFOM (Multiple Purpose Financial Society); the
company was not able to grant credit lines, leasing and financial factoring. The business
model remained with a strong focus on sustainability and financial inclusion. In 2012,
Agrofinanzas changed its legal foundations to become a supervised regional bank under
the name “Bankaool”.
With the beginning of bank operations in 2014, Bankaool launched a technological platform
oriented to support a number of saving and credit products beyond the initial agribusiness
niche. The bank offered debit and credit cards as well as loans to consumers and SMEs
(Bankaool, 2016). All bank transactions are performed online through its website; that is, all
back up processes can be considered as digital native because applications did not start
on printed forms. Rather, processes were born in digital forms.

3. Internet in Mexico: online and mobile banking

Internet coverage has had impressive growth rates in recent years. While in 2006, only 21
per cent of the Mexican population used Internet, by 2014 the percentage reached
51 per cent; users increased by an impressive 59 per cent. A profile of the Mexican Internet
user shows that half of them are women. In total, 34 per cent of users are 18 years old or
younger, 37 per cent are between 19 and 34 years. The most frequent user belongs to the
C, C⫺ and D⫹ socioeconomic segments whereas 31 per cent belong to the C⫹ segment
(see a description of typical C segment in Table I). Users habitually connect to the Internet
for long periods of time (7 h, 14 min a day) using a smartphone (77 per cent) in any place

Table I Descriptive features for socio-economic segment C

Education High school/unfinished university
Family Families with youngsters, collectivistic thinking
Purchase style Based on cost-benefit
Housing 16% live in a rented house or apartment, one bathroom
Income Mainly from employee salaries. On average 2.5 persons contribute to family
income
Lifestyle Segment C has services and resources for a practical living without luxuries
and other benefits
Source: IAB (2014)

VOL. 7 NO. 3 2017 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3

 (52 per cent). Ludic activities as participating in virtual social networks (79 per cent),
watching movies and series (52 per cent) and listening to radio and music (52 per cent)
attract most of the users time whereas purchasing online (36 per cent) and performing bank
transactions (26 per cent) are not so habitual.
In spite of the low penetration of online banking activities, user behavior shows a mix
among online and offline bank transactions: 19 per cent of bank users complete their
transactions using only the online channel and 38 per cent prefer the online channel to the
offline. Bank offline users –those who go to physical branches– reach only 9 per cent and
there is a diminishing share of 34 per cent who prefer such offline channels. About
one-quarter of Internet users not engaged in online banking activities claim that they will
perform bank transactions through online channels at some point in the future (AMIPCI,
2015).
Another study conducted in 2013 aimed to analyze online banking from the overall Internet
users. Mexico has 100 million smartphones but only 2.3 million mobile bank accounts
(Economista, 2015). Drawing from a universe of 2,475 Internet users, 83 per cent have used
at least one financial product (debit, credit, insurance or payroll). A very contrasting use
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profile emerges from the data because 29 per cent has used a financial product for less
than two years whereas 33 per cent has used financial products for more than 8 years.
Approximately 80 per cent of Internet users also perform bank transactions on a regular
basis. When 425 non-users are asked about barriers to online bank adoption, they mention
a strong preference to use bank branches (54 per cent), concerns on privacy and security
(49 per cent), unwillingness to pay fees (25 per cent, see Table II) and complexity of the
service (17 per cent). From the current users of online banks, 36 per cent visit the banks’
websites more than once a week whereas 21 per cent visit the pages only once a week.
Almost all users (96 per cent) use a laptop to access online bank but 29 per cent also use
a smartphone. The most frequent transaction was checking balances of saving
(34 per cent) and payroll accounts (22 per cent). Slightly more than half the users also pay
for household services and credit cards. In spite of the growing use of online banks, half the
users go to a bank branch between one and three times a month. A quarter of the users visit
a branch less than four times a year (AMIPCI, 2013).
From the overall mobile banking accounts, one bank, BBVA Bancomer, attracted half the
share (50.9 per cent) and Banamex reached almost the remaining half (46.7 per cent)
(Economista, 2015). Similarly, traffic tendencies on the Internet revealed that five banks
were among the top searches in Mexico (Table I). However, many other places ranked
higher than any bank, as digital social networks (Facebook, Linked and WhatsApp) and
e-commerce sites (e.g. Amazon and Mercado Libre).

3.1 E-commerce
E-commerce had a late and slow take-off in Mexico but things have changed. E-commerce
has achieved impressive growth rates. In 2009, the market was valued at US$1.8 bn which
increased to US$12.2 bn in 2014. It is expected to grow at a CARG[1] between 13 and 19
per cent for 2017 (AMIPCI, 2013). Local retailers such as TododeComputo.com were among

Table II Top searches in Mexico (only banks)

Bank Place in 100 top searches

Banamex 34
BBVA Bancomer 38
Banorte 42
Santander 51
HSBC 61
Source: www.alexa.com/topsites/countries/MX

PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 7 NO. 3 2017

 the first Mexican retailers who started to deploy online stores to gain traction on an incipient
market. By 2013, a number of product categories led the market share: Clothing and apparel
had 53 per cent of such market share followed by digital downloads (49 per cent) whereas
almost one-third of purchases were related to travel (AMIPCI, 2016b).

3.2 Mobile commerce

The advent of mobile devices has enabled consumers to perform activities direct from
mobile phones and tablets. No visits to physical stores, no queues at banks and
supermarkets and no waiting times are some of the advantages of using these devices.
Half the online consumers in Mexico use three common gadgets to complete transactions
in e-commerce and m-commerce contexts: smartphones, tablets and laptop/desktop
computers. Once purchases are complete, customers pay by credit and debit cards
mainly. Payment services such as PayPal now comprise about 60 per cent of total of
processed payments in Mexico (AMIPCI, 2016a).
However impressive the growth, offline payments still involve 75 per cent of online
purchases. These payments are processed through a countrywide network of convenience
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stores such as Oxxo (12,000⫹ branches) and 7-Eleven (1,800⫹ branches). Cash on
delivery and cable transfers are the less preferred offline payment options (AMIPCI,
2016b).

4. Products at Bankaool
Bankaool acquires all customers through its website. The web page constitutes the most
visible asset; it serves almost all of the customers across the country and is the initial visual
cue for attracting new customers. The friendly design of the website allows customers to
quickly fill in the application form to open a savings account. This avoids visiting a physical
branch and the hassle of queuing and waiting for a branch executive to be served. By only
submitting some information besides complete name, date of birth, residence location, the
bank connects with the Government individual identification system to validate all
information. Customers fund their new bank account through bank transfer or even
charging the amount of money to someone else’s credit card. Once the account is
activated, customers receive a debit card by mail. Customers have immediate access to
Internet banking to check balances, perform money transfers and pay services. “One of the
valued proposals is that we are the only bank who offers the digital experience of opening
an account in 3 minutes” (Milenio, 2016), Frank Meré explained.
The bank also offers personal investment products, mainly debt bonds with no fees
attached. Bankaool has been attracting consumers by offering higher interest rates in small
deposits. Consumers may start an investment with $1,000.00 Mexican pesos (around
US$45) with interests rates ranging from 4.2 to 8.0 per cent depending on the time span
and amount invested. This contrasts with the lower interest rates paid by other big banks.
This transaction is also carried on through the bank’s website.
In spite of growth in the digital product portfolio oriented to individual users, the core
product remains the same – credit for SMEs, mainly in agribusiness enterprises. Customers
apply for loans using the bank’s web page and receive approval within 48 h. SMEs start to
receive the money within 7 days:
Our customers represent SMEs with sales ranging between $100,000 and $1 million Mexican
pesos (4,500-45,500 USD) per annum [. . .] we learned that an SME may not be so disciplined
as big corporations so the bank lends the money in fractional allowances,

Meré said (Milenio, 2016). A value added for all products is that Bankaool charges no fees
to its customers for using Internet bank and mobile bank. Similarly, withdrawing money from
others banks’ ATMs involved no fees. See Tables III and IV for a comparison of fees among
banks.

VOL. 7 NO. 3 2017 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5

 Table III Comparison of fees for online and internet bank for selected banks
Bank Fee (USD) Charge

Banamex 0.54 Monthly

Banregio 4.05 Monthly
Interacciones 10.81 Yearly
Mifel 13.51 Yearly
Santander 1.08 Monthly
Source: Banxico (2016)

Table IV Comparison of fees for ATM use

Operating bank Fee charged to others bank’s customers per money withdrawal (USD)

BBVA Bancomer 1.51

Banorte 1.30
HSBC 1.24
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Banamex 1.43
Santander 1.19
Bankaool 0.81
Source: Banxico (2016)

4.1 Business model and digital marketing

“Regarding millennials, our main challenges are: first, our brand is not well recognized, it is not
the same as launching a new product with an incumbent brand. Second, we have a new
business model –a branch-less bank [. . .] we had a soft launch, and then we started to deploy
an online marketing strategy and performance marketing [. . .] our strategy relied on alliance
marketing in which we are unknown but we associated with brands recognized in the digital
world, so, we started to gain confidence”. Espinosa explained his approach. “We transformed
ourselves in a ‘neo-bank’ which are Fintech companies with a regulated bank core and develop
a new type of relationship with customers” (Merca 2.0, 2016), he added.
As a digital-only bank, Bankaool needs a novel kind of marketing strategy transversal to all
digital channels on Internet. “In an highly concentrated industry as the Mexican banking, in
which 7 banks have a share of 90 per cent share of assets, branches, there is no way to
compete with a traditional business model” (Merca 2.0, 2016), Charles Green, former Director
of digital marketing, explained. One of the tools the bank had early introduced to the market to
attract customers was the mobile application (App). By late 2016, Bankaool app had been
downloaded less than 50,000 times from Google Play (Google Play, 2016). In line with market
share measurements, all big banks’ apps have been downloaded many thousands of times more
than Bankaool’s and revealed better customer reviews (Table V). The mobile app allows performing
basic transactions –checking balances, money transfers, and security token activations.
The segmentation process also took a different form at the bank:
We avoid segmenting customers by socio-economic level: imagine on one hand a boy in the D or
D⫹ in the suburb slums and, on the other hand, imagine a boy in the affluent segment who has
access to credit through his father’s additional credit card, both of them are not banked. However,
both of them have a Facebook account and watch streaming videos in their smartphones. Rather
than being hyper-connected, these boys are hyper-consumers of digital contents (Merca 2.0, 2016),

Charles Green mentioned. From the beginning, the bank started to monitor how new
customers were being attracted. They noticed that 75 per cent of all new accounts were
opened using mobile devices. They also identified that accounts were opened at nights, a
time in which traditional physical branches are closed (Pymnts, 2016).

PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 7 NO. 3 2017

 Table V Performance metrics for mobile applications (Android operating system) for selected banks
App Downloads Review rating Exemplary pros Exemplary cons

Bankaool mobile 10,000-50,000 3.1 (247 reviews) I can do all transactions I have to reactivate token each time
I want to do a transaction
Citibanamex mobile 1,000,000-5,000,000 3.5 (24,372 reviews) I don’t need to go to the Can’t add accounts on the fly
branch
Bancomer mobile 5,000,000-10,000,000 3.9 (95,121 reviews) I’ve been using it for six I’ve tried to install the token for two
months, it’s easy and months and it’s still not working
handy
Santander mobile 1,000,000-5,000,000 3.8 (18,180 reviews) Useful to check Can’t do anything without token
balances and transfers
HSBC mobile 500,000-1,000,000 3.8 (7,964 reviews) Very handy although Many passwords
design is awful
Source: Google (2016)

The bank communicates with its customers using digital channels –Internet, social
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networks and the app. Because Bankaool relies on a less expensive technological
platform, it is capable of offering a range of products without using minimum account
balances or high fees (Entrepreneur, 2016). This goes against the mainstream behavior of
other banks in the industry in which, having a personal credit product involves monthly fees
of about $800.00 Mexican pesos (US$36) (DineroEnImagen, 2016).

5. Concerns
The hype of digital marketing, changing behavior of hyper-connected consumers and the
increasing bank competition in the digital arena had made banks’ expectations high. However,
some concerns existed for Bankaool. As the bank was strongly relying on agribusiness credit,
the associated assets were far from being productive. This problem concurred with
climatological issues, which put the bank in a vulnerable position (Standard and Poors, 2016).
Besides, as a niche bank, Bankaool had a couple of additional weaknesses. One was that
income was not growing at the same pace as expenses and the bank had been operating on
losses for many quarters already. The other concern was that Bankaool had low market share
which hinders its funding capability. To address this, the bank had been receiving generous
injections of money from its investors (Fitch Ratings, 2016).
Amid the performance concerns, the financial sustainability of Fintech companies has started
to be questioned among industry players given some harsh experiences. For example,
TransferWire, a unicorn startup that provided services on money transfers, charging only 0.5
per cent fee of transactions, lost around US$14 m because of an aggressive marketing
campaign, its international expansion and administrative expenses in spite of a fivefold growth
(Telegraph, 2016). Investors were willing to see their returns at the expense of further funding
the company for additional rounds but the issue remained the same: how to identify if the
business model was sustainable in the long run. In Mexico, other Fintech companies – Konfio,
Kubo, and Kueski – had attracted considerable attention; these players had managed to attract
US$25m in a short period of time (Expansión, 2017).

6. What to do?
In late 2016, Charles Green left Bankaool to join a big bank. His successor, Claire Solís, a
seasoned manager in the financial industry knew the financial industry was evolving rapidly
and she needed to move fast; digital bank products had started to gain traction and
customers. Besides, concerns from investors to harvest the money they had put in the bank Keywords:
were escalating. The bank would need to become ambidextrous: plan for the long run while Marketing,
executing in the short term. How does Solís make sure Bankaool starts to making profits Finance companies,
quickly in the short term? How does she increase brand awareness in the long term? Internet marketing,
Should the bank remain as an online bank or should they develop an on-off-line mix? International branding

VOL. 7 NO. 3 2017 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7

 Notes
1. See www.investinganswers.com/calculators/return/compound-annual-growth-rate-cagr-calculator-
1262 for a definition and examples of CAGR.
2. Across the entire case study and teaching notes we use “product” to depict a value proposition
to keep a difference with the activities retail branches deliver – bank service.

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Further reading
IAB (2014), “Socio-economic segments and families in Mexico”, IAB Mexico, available at: www.
slideshare.net/iabmexico/nivel-socioeconomico-y-familias-en-mexico

Suárez Dávila, F. (2005), “Two visions of economic policy in Mexico: a debate in history (from 1946 to
1970)”, History of the Economic Thinking in Mexico, Issues and Trends México, Trillas (Ed.).

About the author

Pável Reyes-Mercado obtained PhD in administrative sciences from EGADE Business
School in 2015. His professional experience includes positions at Alcatel, Coca Cola
Femsa Company and HSBC Bank. Currently, he teaches marketing courses at graduate
and undergraduate levels as Research Professor in Anáhuac University, Mexico City. His
research interests include adoption of innovations, technology-enabled marketing
and online consumer behavior. Pável Reyes-Mercado can be contacted at:
pavelreyesmercado@hotmail.com

VOL. 7 NO. 3 2017 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9