Reconnecting U.S. And Cuba’s Banks: How Far Have We Come? by Knowledge@Wharton
Last year, Pompano Beach, Florida-based Stonegate Bank was making early inroads at reconnecting the U.S. and Cuban banking systems. In July of 2015, immediately following the reopening of the U.S. embassy in Cuba and the Cuban embassy in Washington, D.C., Stonegate signed a correspondent banking deal with Banco Internacional de Comercio, a Havana-based bank. Then in November, the bank introduced a debit MasterCard to be used by Americans who qualify to visit the island.
A lot has happened since then, says the bank’s founder and CEO, Dave Seleski. At the second Cuba Opportunity Summit, held in New York in March, Seleski spoke with the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 about how the business relationship between Cuba the U.S. has grown, and the surprising area in which the island’s banks outperform their U.S. counterparts. (The summit was organized by Knowledge@Wharton, The Lauder Institute and Momentum.)
Following is an edited transcript of the conversation.
Knowledge@Wharton: A year ago, the ink was about just drying on everything in terms of the new relationship between the U.S. and Cuba. How has the year gone for you?
Dave Seleski: For us, it’s been very good. But I think for American companies, it’s been great. You look at how many more companies have gotten engaged in Cuba: You’ve got the airlines now, you’ve got the cruise lines. Verizon, Sprint; they’re talking to AT&T now, Starwood. I’d say probably close to 100 Fortune 500 companies have been down there and at least explored the possibilities.
[Last year,] people were saying, “Well, maybe I’ll go down, maybe I’ll see what’s going on; we’ll see what opportunities arise.” Now, it’s tremendous. And we’ve got the President visiting. I think it’s just going to lead to more good things.
Knowledge@Wharton: How much does President Obama’s visit add to it? [His] going down there, I think, affirms for a lot of people where [the relationship] is headed.
Seleski: I think you’re exactly right. It’s about permanency. The fact that he is going down is just another example of how permanent these changes are and how this really cannot be rolled back at this point. I think it really puts an emphasis on that, and it also is a legacy — in terms of making a change that’s going to significantly impact the Cuban people.
“Their banking system is sophisticated…. They have all the products that we would typically have.”
Knowledge@Wharton: What have you been doing in the last year to expand your reach into Cuba and build up the banking infrastructure on the island?
Seleski: We’ve been more focused on helping American companies and their financial needs in getting down there. Our correspondent relationship is up and running. A big thing was figuring out how to get money back and forth on a timely basis; that’s been a big issue over the last nine months. Now, we can get money through an intermediary bank in 24 hours or less, which I think is faster than anybody else. We formed our Cuba banking group internally with two people who handle everything related to Cuba. We issue debit cards to travelers who are going down there, and it’s especially important for commercial travelers who have continuous needs.
And we’re working on some other things…. [When] you’re a little bit of a pioneer, there’s a lot of research and development costs as you set this stuff up. So it takes a little bit longer. But we’re very pleased with the results so far.
Knowledge@Wharton: What do you see as the next level for this whole process?
Seleski: Well, there are some other products and services we’re working on, but I think it’s more a matter of just being a help to these American businesses that are going down there, being able to navigate the financial system — being able to assist them, to add value. You know, a bank is a bank. I mean, let’s face it, you make a car loan; you make a car loan. They’re all the same, right?
Seleski: Maybe the interest rate is a little different, but it’s really about service, and it’s really about being able to add value. To be able to help them to navigate the Cuban banking system, for instance, to be able to help the payment systems go back and forth, and that type of thing — I think that’s really going to be the critical component of what we’re really working on.
Knowledge@Wharton: What are the basic differences between our banking system in the United States and what’s operating right now in Cuba?
Seleski: Well, their banking system is sophisticated. I mean, there are about five or six banks, and they’re all 100% owned by the government, but it is sophisticated. They have all the products that we would typically have. But there are two banks in particular that are focused on international business and they have their bulk of the correspondent relationships. We liaise with those two banks — there are cultural issues, there are language issues and technology issues that need to be sorted out. We hope to be able to bridge that gap for American companies so they don’t have to worry about it.
Knowledge@Wharton: I would imagine all of that gives you a good overall perspective about what changes still need to happen in Cuba. As [we’ve noted when talking] with a lot of people, it’s clear that there are many things that need to be upgraded to get them to just a basic level.
Seleski: Yes, but I think a lot of it is creating private enterprise down there, and creating self-employed workers. I think we’re up to a half a million privately owned businesses in Cuba, and a lot of that is going to create wealth. It’s the velocity of money. Really, what it boils down to — because like you said, the infrastructure and everything has been neglected for so many years — is you need a significant amount of capital.
You need to get that as foreign investment, or you can self-generate it via businesses doing better in Cuba. Hopefully, between the two, that will all come about.
Knowledge@Wharton: I’d expect the focus on the local business end — whether it be through entrepreneurs, small business or tourism — is going to be a very important piece to this. It’s important to be able to establish that piece of the economic puzzle on Cuba’s end. Foreign direct investment is a great thing, but when you have it right within your own country — the economy and the capital build up — that’s important.
Seleski: Well, obviously, there’s been a lot of immigration from Cuba to America, and we’ve seen how the Cubans have added so much to American society. We just had two presidential candidates who are of Cuban origin. So given the opportunity, I’m sure the Cuban people will make the most of it.
And I think a lot of the measures we’ve taken will be beneficial, especially the last executive order, which lifted some of the travel restrictions and should increase the amount of tourism, which obviously creates more money in Cuba. And we’re allowing of Cuban nationals to open bank accounts in the U.S. They were allowed to before, but there were a lot of restrictions. If you had a Cuban entrepreneur who potentially needed to buy materials, he’d come to Florida or wherever, and he was very limited on how he could use the U.S. account to do that. Now he can do that. That’s supporting the Cuban entrepreneur, that’s supporting private enterprise down there, and it’s all coming together very nicely.
“I think we’re up to a half a million privately owned businesses in Cuba, and a lot of that is going to create wealth. It’s the velocity of money.”
Knowledge@Wharton: You’re in Miami, and when we talked with you before, we also discussed how the Cuban population in Miami was reacting. Obviously for decades, there has been a well-known negative view towards the island among U.S. Cubans. If I remember correctly, you said it was starting to feel like that was switching, because the millennial generation obviously were not as directly impacted by the Castro revolution as older Cuban Americans.
Seleski: I think that’s true. And I think also that now a lot of people who maybe don’t agree with the [new] policy realize it’s impossible to roll back the policy at this point.
So the best thing is to support the policy — even though they don’t agree with it — because we’re doing this in the interest of the Cuban people. They’ve got relatives in Cuba, so they’re helping them by doing that. I think a lot of people become much more pragmatic about the idea that the train has left the station, and it’s time to get onboard. So we get very little in the way of negative comments about what’s going on.
Knowledge@Wharton: What is it like for you to come to an event like this? Being one of the first companies to have your level of contact with Cuba and Cuban businesses, I would imagine you’re getting asked a lot of questions about your experience.
Seleski: It’s actually pretty rewarding. You know, originally, you’d go to an event, everyone would be kind of be looking at each other and there were no real interactions. But look at the energy in this room…. It’s exciting to be a part of it. And hopefully, more banks will get involved down the road, so that we’re not the only one. I think that’s the goal down the road. But it’s exciting to see what’s going on here.
Knowledge@Wharton: How important, though, are the delegations that are making visits and bringing businesses to Cuba? And there are other nations in the Caribbean doing this as well. These are all important pieces as well, correct?
Seleski: I agree, and I think it’s an educational process on both sides. You’re educating the New York delegation or Texas delegation or Virginia Delegation about what the Cuban culture is, but also, you’re also educating the other side, to some degree, about how we do business. There’s a learning curve for them as well.
It’s been a socialistic model, and it will continue in some aspects to be a socialistic model, in my opinion. Education and health care — these are some areas where they’ve been very successful. But it’s a learning curve on both sides, so the more contact, the better.
Knowledge@Wharton: What was the learning curve like for you, going through this process?
Seleski: You know, it was not as steep, because bankers are bankers.
Knowledge@Wharton: Right. Pretty straightforward.
Seleski: It’s funny: One of the bankers said to me, “You know, your loan growth was a little off; it wasn’t quite what it was before.” So we are concerned with the same things — not having losses, operational issues, money laundering and things like that. It’s probably the same if you had a group of lawyers together — you don’t have that cultural divide as much.
Knowledge@Wharton: It’s interesting you bring up money laundering, because we were speaking with somebody from [Royal Bank of Canada] before, and I didn’t realize that that’s a concern a lot of banks will have with places like Cuba right now.
“[Cuba’s] anti-money laundering procedures are actually tougher than ours … in their banks. [It] goes on everywhere, but their compliance is tougher than ours.”
Seleski: Right, right. Their anti-money laundering procedures are actually tougher than ours … in their banks. I mean, it goes on everywhere, but their compliance is tougher than ours.
Seleski: It really is.
Knowledge@Wharton: Is it the government control of the banks that leads to that?
Seleski: No, I just think that they take it very seriously. You know, it was funny. I had my bank secrecy officer down there, and she is very tough. We were going through branches, and they have an individual bank secrecy officer in each branch.
Knowledge@Wharton: Oh, wow.
Seleski: …They monitor that very closely. They take it very seriously. They take drug trafficking very seriously. You know, money laundering and everything else that goes with it.
Knowledge@Wharton: So the concerns that we hear from time to time up in the United States about the potential for hacking and the disruption of the financial sector, those are really not valid worries?
Seleski: I don’t think so. The issue for banks is the fact that there’s still an embargo in place. If you’re transferring money or if you’re doing transactions in Cuba or with people doing business with Cuba, you’ve got to understand what the ramifications are and what’s legal and what’s not legal. And I think for a lot of banks — they don’t want to deal with it. It’s just too much headache. That’s why we’ve got a specialized group that handles it. I mean, they can probably recite the regulations by memory. But that’s probably the biggest thing that really hurts other banks coming into Cuba. So once the embargo goes away, or we get some more chips away at it, I think we’ll see other banks get more engaged.