Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
It’s now time to head to South America, and to the continent’s largest country: Brazil. It just so happens that Brazil is a nascent star on the global fintech scene; with much of the population excluded from traditional banking systems, the country’s emerging players have the clear potential to take over the financial world.
Some of the stranger facts about this absolute mammoth of a country are that, in 1954, the Brazilian government built the city of Brasilia as its new capital in the shape of an aeroplane and Brazil is the home of the giant anteater. What a strange beast. Brazil is, however, the fifth largest country in the world, and it definitely lives up to its reputation of making things ‘giant’. The Amazon Rainforest is the most biodiverse tropical rainforest in the world, with the Amazon itself being (debatably) the longest river on the planet (and is, at the very least, the largest by volume of water discharged). And, of course, Brazil is universally acknowledged as a land of passion and football, winning the World Cup five times and producing the sport’s greatest team ever (QPR 1975-6 anyone?), with the likes of Pele and Rivellino in Mexico 1970. I’d argue that the Brazilian national kit is the most wonderful sporting kit of all time. I’d also like to argue with the phrase
“Os ingleses o inventaram, os brasileiros o aperfeiçoaram.”
(“The English invented it, the Brazilians perfected it.”)
but, alas, I cannot. No-one plays the sport like they do.
Finding its feet
The Brazilian fintech scene is by no means the revered 1970 team within the sector, perhaps more the Southampton to the UK’s Manchester United. It boats a wealth of young, hungry startups that could potentially push to greater heights. I like football.
Despite an ongoing recession in Brazil (political corruption costs the country almost $41 billion a year alone and over 1.5 million lost their jobs in 2015), it already has a firm basis in the financial world. Brazil is home to 1,500 bank branches and is the world’s 7th largest economy. Two of its cities are leading global financial centres (GFCs): São Paulo (ranked 18th in this report, and top in Latin America) and Rio de Janeiro.
Statista notes that the overall transaction value in the fintech market in 2017 amounts to US$42,576 million, expected to almost double to US$80,442 million by 2021 (an annual growth rate of 17.2%). Brazil seems to mainly excel in the realm of digital payments, ranking 10th best payments market worldwide in the aforementioned International Trade Administration (ITA) report. This also accounts for roughly 60% of the total payments market in Latin America. What accounts for the country’s success in this niche is the fact that it is a lover of mobile technology.
As reported by Let’s Talk Payments, as of June 2015, Anatel (the Brazilian Telecommunications Agency) has noted that over 282.4 million mobile phone activations were recorded – a penetration of over 115%. Around 100 million people use smartphones. Combined with the information that around 65 million people in Brazil (around 40%) are ‘unbanked’ (not a user of traditional banking services), more mobile phones exist than payment cards. This provides significant traction for the fintech’s mobile payment market. It is also noteworthy that friendly regulations allow non-banks to offer payments services “on a relatively equal playing field” to their traditional counterparts. In October 2015, Visa launched their online payment service Visa Checkout.
In a summary from Spanish accelerator Finnovista, as of October 2016, Brazil is home to 219 fintech startups that span 16 different sectors. A breakdown of its largest sectors is as follows:
- Payments and remittances (including cryptocurrencies): 31%
- Enterprise financial management: 15%
- Lending: 12%
- Personal financial management: 11%
- Crowdfunding: 8%
- Wealth management and robo advisors: 7%
Even if the wealth-management sector does not seem to account for much here, Brazil does in fact boast the greatest number of wealth management startups than any other country in Latin America, and almost half of these are developing automated management tools or robo-advisors. São Paulo houses around 54% of all fintech startups, and Rio de Janeiro is in second place with 10% closely followed by Belo Horizonte (8%) and Porto Alegre (6%). 90% of companies only cater to a Brazilian market, yet 10% have already expanded beyond the borders. The article outlines the 6 main technologies that startups are utilising to build their products and/or services, which are:
- Big Data & Analytics
- Mobile & Apps
- Open Platforms & APIs
- Cloud Computing
- Machine Learning/Artificial Intelligence
- Cryptocurrencies & Blockchain
The current fintech ecosystem in Brazil is gaining significant interest from investors. Already, 57.5% are fundraising from third parties and 58.1% are currently making efforts to fundraise for future investments. In the space of crowdfunding, in 2015 there were 40 requests for funding in 2015, as listed by the Comissāo de Valores Mobiliārios (CVM, Brazil’s securities regulator).
Ordem e Progresso
As emblazoned on the national flag, the motto ‘Order and Progress’ could certainly be applied to the Brazilian financial sector: the country has strict regulations, but if these are adhered to by startups, progress in fintech will be achieved to attract even further investment to a country with palpable potential.
As outlined by Mondaq, there are a few hurdles that early-stage fintechs must overcome to become legitimate:
- Obtaining a license from the Central Bank of Brazil is necessary to operate as a bank, credit company or payment institution.
- If a service involves securities, authorisation from the CVM is also required.
- The licensing process is timely and costly. The “Brazilian Federal Constitution requires Presidential approval by Decree for any new foreign investment in the financial system.”
Nonetheless, the tech sector has certainly managed to get itself in order, as it has experienced growth rates of over 20% in the last few years, which is the 10th best rate in the world. As Brazilian news magazine plus55 reports, since 2011 the money invested in startup companies is over $1.3 billion a year, and the Brazilian Startup Association estimates that there are over a thousand businesses with the potential to become unicorns (!). Within the financial ecosystem, 80% of all of the money that is deposited in Brazil (over $2 trillion) is controlled by five players, but 2015 saw the opening of two banks that are 100% digital: Neon and ZeroPaper, the latter of which has since been acquired by US fintech company Intuit.
Clearly, Brazilian entrepreneurship is at the forefront of the country’s technological and financial future. In São Paulo, Google has opened a campus for entrepreneurs – one of only six of these centres worldwide. Another humungous tech giant is Microsoft which, in partnership with Brazilian bank Votorantim, will invest $930,000 into a fund established by the US company to invest in six firms. Since 2014, a Brazilian Startups fund has been managed by Microsoft and grew to $5 million by 2016. 70 startups have been financed, and six of these have since been acquired.
Indeed, the Brazilian population is taking to the country’s sudden fintech boost; a bumper report by Nobiletec (a very worthwhile read) records that 74% of the public uses one or more fintech services, as they are not trustworthy of traditional banks. The banking industry has high interest rates and fees, alienating the public who are turning to the services of disruptors. 75% of fintechs have been capitalised, and 40% have received over BRL 1 million in investments.
It seems a necessity for this to happen, to allow Brazil to continue to lead the way in Latin American fintech. Venture investments in the region have grown to US$594 million in 2015 – a big step up from investments in 2012 which reached US$ 387 million. Brazil also took 63% of Latin America’s total investment. Canadian Innovation Hub MaRS describes the increased competition from other South American countries however, such as Chile, forcing Brazil to look for further innovation and international expansion. Taking one example, in 2015 MaRS and the Canadian Consulate explored Brazil’s fintech potential by visiting São Paulo’s financial institutions and startup community, with an aim to foster relationships and talent pools between Canada and Brazil. The collaboration between Brazilian finance and its North American friends does not end there; in 2016 Brazilian bank Bradesco funded co-working spaces in California and New York and sent experts to research digital innovation in Silicon Valley, besides its Venture Capital arm looking to partner with accelerators and to invest in fintech companies. The second largest public bank Caxia Economica Federal is looking to join ventures with fintechs, since regulators have passed an act to allow this.
In Deloitte’s report explaining the up-and-coming success of São Paulo as a fintech hub, here are some other key investors within the Brazilian fintech scene:
Plus some incubators and accelerators:
Cubo – An innovation centre and joint venture between Brazil’s largest bank Itaú and Redpoint eVentures. It is a non-profit organisation dedicated to startup growth and to attract startups to the emerging Brazilian market. Its portfolio consists of 42 startups including 6 fintechs. It is investing consistently in e-commerce payment solution maxiPago.
InovaBra – A 6 month program to nurture startups in the finserv industry, with the aim to market their solutions to Bradesco and become a strategic investor.
Google Campus – The aforementioned São Paulo coworking space partners with accelerators and hosts events.
Another annual event for technology in the financial sector is CIAB Febraban, the hackathon’s theme for 2017 is “Being Digital”. Here’s some information from their website:
“In 2017, the congress will run on three tracks: User Experience, covering issues such as Channels and Fintechs among others; Products, dealing with issues involving Payment Methods and Insurance; and Digital Transformation, concentrating debates on digital infrastructure, innovative technologies, blockchain, virtual currencies, cloud computing and information security, among others.”
In 2016, CIAB hosted 9 fintechs selected from over 140 companies.
And finally, here are some of Brazil’s hottest startups:
Nubank – Ranked #16 in the KPMG Fintech 100 2016, it is a MasterCard platinum credit card which works with mobile applications and is accepted at over 30 million establishments worldwide. It used social media marketing to become viral, distributing 100,000 credit cards within its first few months, and now has 3 million customers. Nubank has raised more than $130 million with venture capital investors and was founded in 2013 by its CEO David Vélez.
VivaReal – Ranked #46 the KPMG Fintech 100 2016 and founded in 2009 by Brian Requarth (Chairman), Diego Simon (VP of Business Development) and Tomas Floracks (VP of Products). VivaReal is an online real estate marketplace for buyers, sellers and renters. It features 1.8m listings and gains over 6 million monthly portal visits.
GuiaBolso – One of KPMG’s “Emerging stars”, GuiaBolso was founded in 2012 by Benjamin Gleason and Thiago Alvarez – a personal finance management solution which categorises payments to see exactly where money is going and securely connects with bank accounts.
Bidu – An online comparison search of insurance and financial services. It finds contracts and prices in real time and has over 600,000 customers.
Creditas (FKA BankFácil) – Founded in 2012 by Sergio Furio with its HQ in São Paulo, this lending platform has lent BRL 100 million to its customers. It is now a full digital service which collects information about a consumers’ day-to-day life to lower interest rates and risks.
Iugu – A financial dashboard to manage online payments, founded in 2011. The company also contributes to the open source economy.
To round us off, courtesy of Techfoliance, here’s a list of Brazilian fintech influencers on social media.
Whilst there are a few other roadblocks for Brazil to overcome – including high interest rates and the fact that Revenue Authorities take up to a third of the money in taxes when an investor sells their shares – their fintech ecosystem is already thriving and can only contribute even more to the global fintech scene as the key fintech forerunner in Latin America.
If you have any thoughts about fintech in Brazil, let us know in the comments below, or you can tweet us.
Check back soon for more instalments of The Fintech World Series!