" class="no-js "lang="en-US"> EXCLUSIVE: Brazilian FinTech Deepdive
Thursday, March 28, 2024

EXCLUSIVE: Brazilian FinTech Deepdive

Brazilian neobank Nubank ended 2021 with over 48 million customers from across Latin America, earning it the status as the largest neobank in the world. Pix, the Brazilian instant payment system also concluded 2021 powering more than 8 billion transactions according to the Banco Central do Brasil, (Brazilian Central Bank) in 2021. 

Both Nubank and Pix are spearheading the FinTech revolution taking Brazil by storm. Currently, there are 771 fintech startups headquartered in Brazil, with 9 of these achieving the coveted status of unicorn, with Crunchbase reporting FinTech as the industry capturing the most startup capital within LatAm, as the region leverages new technologies to drastically improve its population’s access to financial services.

2022 also saw Nubank gain further investment from Warren Buffet of Berkshire Hathaway as he doubled down his previous USD $500 million stake in the business, to total USD $1 billion. Accompanying Buffet’s increased investment in the Brazilian unicorn came a decision to sell off his USD $1.8 billion stake in Visa and $1.3 billion stake in Mastercard, illustrating the future he sees within both FinTech and more specifically  Brazilian FinTech. 

So, why is the Brazilian FinTech market not only succeeding but exceeding expectations? There is no one answer to this question but a set of contextual factors which has created the perfect storm for Brazilian fintech to explode in the way that it has. 

Legislation

To understand the current state and future of Brazilian fintech one must look at where it truly began. 

Prior to 2013 the market was dominated by 5 financial institutions Itaú Unibanco, Banco Santander, Banco Bradesco, Banco do Brasil and Caixa Econômica which as a result, led to a monopoly over the credit market. This in turn brought about general inefficiencies with lending rates soaring as high as 37.5%, the third highest globally at the time. These 5 were also the only institutions able to issue credit and debit cards, solidifying their authority over Brazilian finances. Until 2013.

2013 saw the introduction of legislation opening up the ability for companies outside of the ‘big five’ to distribute credit and debit cards, thus opening the floor for competition within Brazilian financial services. An opportunity taken by Nubank in 2014 who arrived on the scene determined to revolutionise credit cards. It began to offer a no-fee card via an online application which did not reject you on the basis of a lack of credit history. Instead, it allowed you to build a credit history, starting small but increasing as more debt was paid back over time. 

Nubanks success since its inception is undeniable with 28% of Brazilian consumers over the age of fifteen possessing a Nubank account, with Reuters reporting that the company’s valuation could hit USD $41.5 billion. To put this into context Itau Unibanco Holding SA, one of the aforementioned incumbents has a market capitalization of $37.5 billion. This faith in the Brazilian-born start up from the consumer further illustrates the universal shift away from brand and bank loyalty.

Culture

Another essential contextual factor which has facilitated the blossoming of the market has been the Brazilian rate of adoption. With a 70% rate of internet penetration and 60% rate of mobile penetration and 5th largest smartphone base in the world, the market is there and as proven by Nubank, the market is receptive. 

As one of the countries least affected by the 2008 financial crisis, the trust of Brazilian consumers was not damaged in the way that it was from countries such as  the UK or US. Consumers are more trusting and also have a different perception of FinTech as an evolutionary step forward for traditional finance, not a replacement. From this the trust of the consumers is not as difficult to attain as the general perception of finance has not been tainted as intently as other western markets.  

For Every Problem There Is a Solution

Brazil in recent years has also gone through massive data leaks and exposures, on January 19th 2021, PSafe, a leading company specialising in security, performance and privacy, discovered that private data of over 220 million Brazilian citizens had been leaked. This coupled with the R$60 Billion lost each year according to Fecomérico through fraudulent scams such as ‘cloning’ paints a picture of some of the current issues Brazil is trying to solve. 

Whilst the current financial ecosystem may be rife with problems, there is duly presented the opportunity for a converse amount of possible solutions. RegTechs such as OriginalMy and Idwall are two LatAm industry leaders focusing on fraud and identity verification in response to the perilous problems caused by high rates of fraud and low levels of safety. 

Put simply, problems present opportunities and Brazilian fintechs are taking these opportunities and have been not only encouraged but supported by their government and regulators, shown by the emergence of the Regulatory Sandbox in 2021. The initiative has been coordinated by the three Brazilian financial regulators; the Banco Central do Brasil, the Securities and Exchange Commission, and the Superintendence of Private Insurance as a way of encouraging innovation projects within the financial market.

Those participating within the regulatory sandbox are given a chance to test new solutions in a secure and controlled environment, with some of the technologies that can be tested including distributed ledger technology for blockchain-esque transaction recordings and artificial intelligence, with Pier and Stone being two companies which have taken advantage of the opportunity.

So, Why Brazil? Brazil is a country which is home to a financial ecosystem which is far from perfectly functioning but perfectly suited to harbouring a booming FinTech market. The support of the government and decision to introduce competition into a stale financial market in 2013 lay the foundations for the FinTech’s of the future to flourish.The willingness of the consumers to use the products presented to them has shown that the market is there and with 34 million still left unbanked across the country, the opportunities are endless. Whilst Nubank and Pix have been soaring high as industry leaders they are not all Brazil has to offer with C6 Bank, Creditas, EBANX and many others achieving unicorn status. Whether you agree with my assessment or not, Brazilian Fintech remains a market to keep a watchful eye on.

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