When the talk turns to the growth of the Internet, South America hardly ever looms large. Yet in Brazil, the use of the Internet for consumer banking not only is much more common than it is in Asia (Exhibit 1) but also approaches the level achieved in the United States (Exhibit 2). Despite this accomplishment, the on-line strategies of Brazilian banks will succeed in the longer term only if they can satisfy the demands of increasingly sophisticated and decreasingly loyal customers.

Internet banking in Brazil is now reaching a level of penetration comparable to that of telephone and traditional banking. In September 2000, two leading retail banks, Banco do Brasil and Banco Bradesco, had 2.1 million and 1.5 million Internet clients, respectively—17 percent and 14 percent of their total customer base. By comparison, Bank of America had 2.7 million on-line customers and 19 percent on-line penetration, while Wells Fargo had 2.3 million on-line customers and 26 percent penetration.

The big factor in the development of Brazilian banking and the speed of its move to the Internet was the industry’s early use of technology. Brazil endured hyperinflation from the late 1970s until 1994, when the government introduced a rigorous anti-inflation...