Technological innovations are shaking up the world of payments and finance in Brazil. The country has an impressive number of new fintech companies that are disintermediating a very concentrated banking system, serving consumers in ways that the incumbent banks haven’t and offering millions of Brazilians their first bank accounts. Some of these companies are revolutionising the country’s finance industry.
First, Brazil’s banking system is small relative to the size of the country, and it is heavily dominated by just a few banks (80% total asset concentration, compared to US at 50%). The rigidity and oligopolistic nature of Brazil’s banking sector has constrained the economy, leaving too many Brazilians unbanked and consumers looking for better and more convenient options.
Second is changing consumer preferences. Brazil’s fintech start-ups identified broad consumer frustration with incumbent banks and quickly jumped in to provide a suite of fintech products, all available via a smartphone and on a comparatively fast time frame.
Third, the government has provided several initiatives aimed at fostering greater competition in the banking and payments sectors. The first was in 2010 when Brazil’s regulator ended the duopoly enjoyed by the dominant credit card acquirers in Brazil. By introducing competition and reducing the fees that retailers pay for credit and debit card transactions, savings were passed on to the consumer, ending a period of supernormal profit for the acquirers.
Another government initiative worthy of note is Pix, launched in November 2020, an instant payments system operated by the central bank whereby consumers and merchants can send and receive money via a QR code. Pix is a way for ordinary Brazilians to avoid some of the fees that banks have typically attached to standard services such as money transfers and it is very popular. An estimated 118m Brazilians (two-thirds of the population) use Pix.
Brazil’s fintech scene is a classic example of necessity breeding innovation. The unmet need for basic banking services is a key reason why Brazil has such a vibrant and innovative fintech scene. The improved experience and lower fees are appreciated by Brazilians across the spectrum. Perhaps Brazil offers a partial roadmap to the future of financial innovations in emerging markets.