Fintech Landscape in Brazil
by Sergio Botinha
LANDSCAPE IN BRAZIL – by Sergio Botinha
Like many other areas, finances tend to experience upheaval with the digital 4.0 revolution. The fintechs, as are called the financial companies embedded in technology, are most likely to become stars of the IT era. From Artificial Intelligence (AI) determining stock selections in portfolio investments to website platforms expanding reach to credit, there is great potential to disruption (and very profitable disruption) as tech meets finances.
With disruption, the need for taking that new technology and solution to various quarters of the world becomes a task. Taking into consideration that emerging economies represent today a greater share of world’s GDP, we intend to explore in this article such potential in one of emerging economies’ greatest market, Brazil.
Brazil has a 210 million consumer market, most of them now middle class. That means to reach that you need just one set of regulations to comply with, one country, one logistics.
The country has recently positively tuned up to a more efficient regulation scheme. The current government clearly believes in a model of less is better regulation. As examples, the country does not have a strangling regulation on cryptocoins and the recent civil law of the internet was very sympathetic to service providers pleas.
According to a Study conducted by Finovista, at least 219 Fintech startups exist in Brazil. This figure makes Brazil the largest Fintech ecosystem in Latin America, followed by Mexico with 158 startups, Colombia with 77, Argentina with 60, and Chile with 56.
Following, we do not intend to explore all possibilities for Fintechs in Brazil here, but rather point out special remarks for certain business models and their perspectives here.
There are certain roadmaps already established. If you want to invest in Brazil, get the right local help to obtain the correct approach and then the differentiation will come through the ease of use of your startup process or platform. If it is easy and smart, then you have a great, less competitive market ready to be gained.
- Credit Card Online Issuance – The first Fintech hit of Brazil is Nubank. This platform let users request and administrate their credit cards through an android or apple app that is very easy to operate, what made it very attractive for young people and urban middle class newcomers. Only 28% of consumers have as of now credit cards, much less than the number in US and other western countries. There is a huge untapped market and the bulk of those consumers is comprised exactly by those that embrace technological services better (young people and middle class newcomers). Nubank has received more than USD 100,000,000 from Sequoia Capital (including investment from Paypal, Google, etc) and acknowledged more than 8,000,000 credit cards request only in 2016.
- Online Platforms for Credit – An online platform for obtaining a loan is solid business model. But just a few are functional in Brazil and as the trend for people requesting loans is shifting from traditional physical location model to an online platform base, this business model tends to be as successful as easy to operate is the platform. Websites or apps operating on that model are normally partnering with banks and opening up sales channels for them. There is, thus, little regulation, because the main exigencies are to the banks and financial institutions. The types of loans that are normally transacted are lines of secured loans backed by either retirement pensions or wages, therefore a safe business for all involved.
- Peer-to-peer lending can open up a large avenue for credit in Brazil. Now, there are just a few platforms currently in place. The drafting of regulation is on due course in Central Bank, and some market players are having the chance for their say. The denomination for these structures will be SEP (“sociedade de empréstimos entre pessoas”), according to the current version of regulation and apparently there will not be a rough regulation.
- Crowd funding is allowed and is currently regulated at the CVM (Securities Exchange Commission) by ICVM 588/17.
- Insurtechs – Insurers will still have, once wanting to establish in Brazil, to first establish as normally as any other old-fashioned business and stand for the dense regulation normally seen in the writing and underwriting business. But the platforms oriented to offer a new way to sell or market insurance services do not need to stand for that regulation and with the right approach shall be able to tap the market.
- Payment Methods – Since the whole disruption happening right in economy now is the online world, reaching to everyone, payment methods are definitely winners in the business. There are prominent models already for acquirers and subacquirers acting in Brazil right now. There is definitely space for the acquirers, since the existing players and their platforms fall short on some features. Entering as a subacquirer, so to offer systems for those selling to Brazil abroad, you may place or accreditate your platform with partners in the country with less hassle tough. In that case, acquirers and the credit cards will act as a sort of a private regulator.
The trend is that the business models that already are in place are solid and established and won’t be toughened in terms of bureaucracy (that may not be true for cryptocoins – we are still to see what kind of regulation if so will be set). That said, due to its size and central location in South America, bordering almost all other countries in the continent, Brazil is an attractive market to look for. We are following that course and once in a while will be updating with news. A wide range of other financial services can also profit a lot with the mass of consumers in Brazil. As the economy grows again and opens itself, it might be a good move to get in touch with us for further analysis of compliance of other business models.
Meanwhile, a good final thought is that the opening presented by the technological revolution may very well be the fall of the Roman Empire in finances, creating markets for other players and allowing more people to have access to credit. A good thing to see.
Please get in touch with Botinha & Cabral, a boutique law firm specialized in assisting foreign companies in Brazil.
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