"Access to a phone, a bank account and a digital ID is increasingly central to economic health and, in some cases, a matter of survival," says a United Nations report published on August 26… but Brazil already knew that.
Being the largest economy in Latin America, and the 9th in the world, with a USD 1.84 trillion GDP, a population of 211 million inhabitants, and about a 30% (60 million people!) unbanked, it is not a surprise that about USD 185 billion are moved outside the financial system annually (2019, Locomotiva Institute), as it isn’t the fact that the government is giving its’ best to change that.
Brazil may be a country with a history of policy instability and income disparity, as every Latin-American country, but that could change soon if the government keeps the track it’s been following the last fifteen years, during which about 28 million people were lifted out of poverty (even though traditional banking services have not included them).
So we have a scenario of a country with a huge amount of unbanked inhabitants, an even larger amount of money movement both in and out of the traditional banking system, and that ranks 4th in the mobile phone usage worldwide ranking… what would you do?
The government took its decision back in 2018: plant the seeds of the fintech industry. Brazil’s Central Bank issued regulations that boosted the revolution of the financial market, allowing fintechs to grant credit without the intermediation of a bank, promoting the use of electronic payments, strengthening the risk management practices of the sector, encouraging the development of tech solutions, and setting the basis for the regulation of Open Banking in Brazil.
And that’s how it all started. The ecosystem began growing and hasn’t stopped since then, making of the country the home to the largest fintech market in Latin America, and the fifth in the world, including more than 870 firms that have received about US$ 1.9 billion of investment in 2020. And it completely served its purpose: over two thirds of digitally active Brazilians have started to use these newly available financial services… making of the industry a tremendous success. Here are some examples:
Nubank: founded in 2013, is now the world’s biggest independent digital bank in terms of the number of customers. It is also one of the five most valuable financial institutions in Latin America. Its total funding to date is $1.2 billion, with a valuation of $24 billion. This year they have almost tripled the number of users (from 12 to 34 million people), and about 20 percent of their customers had never had a credit card before.
FitBank: founded in 2015, the startup offers white-label payment platform, which allows banks and fintech to use technology to offer digital accounts and services with their own brand to customers; and this year, the monthly transactions of the company doubled to USD 183 million. J.P. Morgan invested an undisclosed amount on it, making its first investment towards the payments industry of Latin America, and such funds will be used to expand the portfolio and for international expansion.
Ebanx: founded in 2012, it is a fintech startup that has already helped more than 70 million people to access financial products and services, and has reached the unicorn status recently. It has formed alliances with formed alliance with companies like Uber, Shopify, Amazon, Tinder and PicPay, among others.
Moreover, this is just the beginning for the industry in Brazil. The open banking regulation is about to be implemented, and it will allow fintechs to access the financial and credit information of the consumers (with their permission, of course) to create solutions that will respond to the needs of each one of them.
Seems like Brazil knows what it’s doing… and has the eyes of the industry locked on it.