Strategic Advisory Board Q&A with Alex Rosal
August 19, 2020
Strategic Advisory Board member Alex Rosal knows when the time is right for banks to adopt new technologies. He also knows that being behind the innovation curve today can be a blessing in the future, having helped develop and implement the technology 𐆑 mobile payment solutions 𐆑 that enabled Latin American banks to jump over existing systems and quickly deliver mobile banking to its customers.
This experience and others in his ongoing 30-year career of entrepreneurship and R&D for the financial technology markets informs his firm belief that the time has never been better for community banks to invest in AI and cloud-based solutions.
You’re a pioneer of remote check capture (Check 21) and mobile payment solutions. What did implementing this tech in Latin America show you about its banks “leapfrogging” over U.S. banks?
AR: Of course it’s tricky this question: why can’t the U.S. be one step ahead? In some ways it is — even IBM and Unisys had great beta products always in the pipeline. Bureaucracy is of course one example, and I don’t necessarily mean governmental. Institutionally, bureaucracy at large U.S. banks is vast and takes a lot of work to overcome: what it takes to put one product in all the branches of a Bank of America, for example, is enormous. In Latin American countries, the banking industry makes it very easy to implement a new technology immediately because there aren’t the same hurdles to get into these companies. It’s part of why I see huge potential for fintechs in Latin America.
Here’s one quick example with Check 21. The last country in Latin America to implement Check 21, BANCARD Paraguay, which is the connector between all banks, was the easiest one. There are only 17 banks in the country and the process was completely top-down. The government coordinated with the banking industry regulator to standardize the remote capture process around rules for image capture/check recognition, including working with the check companies on the minutiae of security standards, etc. Because everything was so well coordinated, implementation was fast and easy and secure. I see parallels between this and how Neocova works so closely with regulators to make sure its solutions are certified.
What legacy systems did mobile skip over?
AR: In most Latin American markets mobile banking has of course become a textbook case of leapfrogging. Some regions altogether leapfrogged most of the legacy financial systems associated with desktop computing and went straight to mobile. Fintech innovations have also enabled shortcuts in building infrastructure, allowing many countries to achieve fast results. This is a big part of why neobanks and bitcoin are seeing such rapid growth in Latin America today.
I think the following numbers tell you a lot: as of just last summer, about 92% of bank customers in the U.S. were using online banking through their desktop, while most Latin Americans access the internet through their smartphones. Today, mobile internet traffic in Latin America is roughly 55x more than total Latin American internet traffic in 2005!
Did you see the trend toward mobile coming in Latin America?
AR: Absolutely. I experienced this with the Check 21 program. It was something of a canary in a coal mine. As Check 21 neared full implementation, checking activity decreased and credit card and electronic transactions increased exponentially. Of course we followed this closely and saw in advance the market would soon need a mobile payment solution so we developed the application and implemented it in a telecom company operating in several Latin American countries. That was the first mobile payment system in Latin America and it integrated the banks, credit card companies and telecom. This is a clear example of how two different technologies can emerge and coexist during 20 years and then, quite rapidly, one replaces the other.
Rapid time-to-implementation was a key factor with these technologies. How does this apply to community banks and AI and cloud-based solutions?
AR: I think one obvious parallel is with COVID-19 today and September 11, 2001. Things work well enough and then something colossal and totally unexpected happens that nobody was prepared for. So the systems need to be redesigned and adjusted to the new situation with the tools we have access to. And just like with RICC or mobile payments then, the technology and the tools exist to securely move forward now. They’ve been available, but now people are really paying attention. With AI the time to implement is so fast. This serves community banks particularly well because they can transform faster than big banks and reap the benefit of this technology, especially now when the financial industry needs faster change to adjust to what COVID-19 has put in place.
How did the Check 21 technology develop?
AR: As with so much, it was a confluence of right-time, right-place factors for me and a regional or global crisis to spur industry change, much like we’re seeing today with Covid-19. In the early 90s I was with IBM Latin America looking to find new software and hardware platforms. IBM sent me to Miami at the same time fraud was a major issue in Latin America. The physical infrastructure there was such that you had 300-400 branches delivering their checks, quite literally by motorcycle, to the central bank for end-of-day processing. So the bad guys stole, cleaned and falsified these checks in staggering numbers, a lot like in the movie “Catch Me If You Can” with Leonardo DiCaprio’s character falsifying the Pan Am checks. In fact, Frank Abagnale Jr. worked with us to help fight the fraud.
Fraud propelled the need for change, but was the technology ready to implement?
AR: I had the technology to scan a check electronically and send it to another bank but the tech was too expensive and cumbersome to put in every branch. In 2000, I found the tech to make this happen and part of the solution was implementing Remote Image Check Capture (RICC) to improve the process. At the same time I founded Tech Imagine, Inc. in partnership with PANINI SpA Italy specializing in small reader sorters and offering integral solutions to the financial system. We implemented the first RICC in South America in early 2000. The solution integrated the software application and the hardware required, which included a small scanner installed in the branch. All checks were scanned before they were sent electronically to the central bank. This eliminated 100% of the fraud.
So that’s the regional crisis. What was the global one?
AR: The September 11 terrorist attacks. When it happened I was in Puerto Rico meeting with an executive at Banco Popular talking about scanner and software image capture technology. With all air travel grounded, we knew there would be a problem physically getting checks from Puerto Rico, indeed all 50 states, to New York for clearing. And just like that there existed a new option to transmit checks for catastrophic incidents. Eventually President Bush signed the Check 21 Act to authorize the use of electronic check images and the U.S. became the leader worldwide for this solution since all banks had to install small scanners in the branches in order to comply with the Check 21 legislation.
Lastly, Alex, do you see specific hurdles in the way of community banks implementing new technologies?
AR: Actually no, I don’t. Cloud-based, AI technology with strong cybersecurity is available and is exactly what community banks and credit unions need right now to be more competitive. It offers great flexibility for future change, it’s readily transitional, it’s a low-cost, quickly implementable solution that will, I think, be a long-term solution too. Because it’s cloud-based it’s easy to integrate via web services and new solutions.
Currently CEO at Tech Imagine Inc., Alex Rosal is an entrepreneur, investor and pioneer of remote check capture (Check 21) and mobile payment solutions. Beginning his career working with IBM, NCR and Unisys in Sales, Marketing and Strategic Board Advisory, he has spent more than 30 years developing the financial technology markets in Latin America and the Caribbean.