The Fintech Revolution in Brazil
The Fintech scene in Brazil, LATAMs business hub, is booming. According to ABFintechs, the Brazilian Fintech Association, there are now more than 250 Fintechs in Brazil. Statistics show 60 percent of the population use online banking, and, with a growing number of smartphone users and a trend of urban migration, this number is set to rise.
Brazil really does present great opportunities for ambitious Fintech entrepreneurs and often is perceived to be low hanging fruit, especially when observing from the distant shores of Europe and the USA. However, from an insider’s point of view, the challenges Fintech companies face in Brazil are unlike any other. Specifically, the increasingly rigorous local regulations inhibit a one-size-fits-all approach. Additionally, Brazilians have a unique cultural attitude to finance which has been defined by hyper-inflation, corruption and political instability. Entrepreneurs who believe they can simply copy and paste their operation from abroad to Brazil, will not succeed.
Entrepreneurs also need to consider the very dominant traditional banks and how they may react to competition. XP Investimentos, a Brazilian fintech success case, just sold 49% to Itau*, Brazil’s biggest bank, for a staggering R$ 6 Billion, which many see as a strategy for stifling out competition. Furthermore, Brazil’s financial institutions are undergoing huge compliance reforms in order to combat money laundering and tax evasion. Ultimately more regulations means higher operational costs and therefore favors the wealthier more established institutions. For example, the international remittance market in Brazil is the most expensive in the world.
The principal regulators to consider in Brazil are as follows: Comissão de Valores Mobiliários (CVM), for investments, Superintendência de Seguros Privados (SUSEP), for insurance, and, for lending and FX the Brazilian Central Bank (BACEN). While financial institutions should always to align their Brazilian strategy with the local regulators, advances in Fintech are happening far quicker than the regulators are able and/or are prepared to react. That creates a dilemma for cutting edge technologies like peer to peer lending and blockchain, where there is no clear regulatory framework to follow. With this in mind it is important for Fintech businesses to develop strong channels of communication within the respective regulating bodies to ensure their compliance standards are aligned.