Complete guide to Brazilian fintechs shows expansion of investments and business

April 1, 2020
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Brazilian fintechs received almost US $ 1 billion in investment last year, which means more than a third of the total amount allocated to the startups market, in eight segments of the country.

The amount represents an expressive jump of 181% in relation to the US $ 333 million invested in 2018 by venture capital funds to finance small and medium startups in the financial sector with potential for expansion in Brazil. The data are from the innovation consultancy Distrito, based on 271 negotiations made by these investors, of which 63 involved fintechs.

The pace of expansion is expected to increase even more in 2020, with the creation of specific rules for startups to operate in the country, the regulation of open banking in Brazil and the infrastructure for instant payments, announced for November by the Central Bank.

In the first two months of this year alone, Brazilian fintechs received US $ 55 million in investments, almost twice as much as in the same period last year, with the same number of contributions (11). Analysts at Distrito, who compile the data, see this increase in value as a sign of market maturation.

Among the main banks, which, by strategy, do not detail the values, investments for startups also advanced. The resources for innovation (including external agreements, internal solutions, labs, hubs, acceleration programs) are expanding.

Bradesco invested R $ 2 billion in innovation in 2019, which means 30% of the R $ 6.2 billion allocated to technology. At Itaú Unibanco, investment in technology increased by 19%, compared to 2018, and 54% compared to 2016.

Santander also announced, in Spain, that Brazil would receive 30% of all global investment in digitalization (around € 2 billion, R $ 10 billion), in addition to taking SuperDigital, the bank's platform that works with digital inclusion ( prepaid card, payments), for six Latin American countries.

The 233% increase in the start-up mergers and acquisitions market also gives an idea of ​​the interest in expanding partnerships with fintechs and acquiring new businesses, mainly in a less rigid regulatory environment.

Itaú Unibanco bought, for example, in November, the Minas Gerais developer of digital solutions Zup, specialized in big data services, for R $ 575 million. Not only to create more efficient internal solutions and processes, but with an eye on fintech's highly specialized workforce.

Acquisitions have also grown in the digital credit segment. Banco BV (Votorantim's new brand) acquired Just (from the personal finance app GuiaBolso), an unsecured personal credit platform that uses data analysis tools for personalized offers to bank customers. It also invested R $ 400 million, together with a North American fund, in fintech Neon (digital account and credit card).

The expansion of the fintechs also gained more strength with the change of habit of the Brazilians. Four out of ten consumers have used a fintech credit card in the last 12 months, according to a survey by the SPC (Credit Protection Service) Brazil in partnership with the confederation of tenants. A fifth has already made at least one personal loan with digital banks, and a third invests money through digital platforms.

Until March, 510 fintechs existed in the country, which represents a 50% growth compared to 2015, when ABStartups (Brazilian Association of Startups) counted 339 startups in the financial segment. Brazil is already the country with the most fintechs in Latin America, and remains in the lead, ahead of Mexico. It is the third largest creator of unicorns, startups valued at more than $ 1 billion, alongside Germany.

CONSUMER EYE

Fintechs have attracted investors' interest as the way they offer and consume products and services changes, experts say.

On the one hand, there is a more specific view of these companies to serve niches, less explored regions, self-employed, self-employed and unregistered workers - segments in which banks still have limited operations. On the other, the fintechs business model expands and migrates from exclusive customer service (B2C), the initial focus of these companies, to organizations (B2B).

They start with some point of contact with the banks, even with the profile of what they offer; and, over time, the offer of products, areas and services increases. They are fintechs offering services for agrotechs, edutechs, insurtechs; for small and medium-sized businesses; as well as commercial partnerships with banks and retailers.

“Even to reduce the cost of acquiring customers, fintechs have changed their business models, serving companies, as well as end consumers; but without losing its essence, of extracting the best experience in each product created ”,

At first, all financial services were grouped and concentrated in traditional banks (phase known as bundling). With the cheaper technology and more flexible rules, as of 2008, services have fragmented (unbundling), with the advancement of mobile, app stores, open APIs, cloud infrastructure and new regulations in the sector, explains the consultant.

"Now we are moving towards a phase of regrouped services (rebundling), with increased competition, partnerships between traditional banks and fintechs, and consumers demanding simple, agile and economical products", says Diniz, author of the recently launched book "The Phenomenon Fintech" .

He makes an analogy to explain this transformation: “It is as if, before, there was a block of solid plastic (phase when banks offered a complete package of products); with fragmentation, several Lego pieces (the specialized products of fintechs) appeared; now, these pieces will be chosen by customers and join this new phase of open banking ”, says the consultant.

"Caminhamos para uma fase de serviços reagrupados (rebundling), com aumento da competição, parcerias entre bancos tradicionais e fintechs" — Bruno Diniz, da ABStartups (Foto: Divulgação)

This process of regrouping opens space for fintechs to operate even more specifically in segments in which they are already - means of payment, credit, investments, insurance - and to explore areas with potential for growth. In the case of small and medium-sized companies, banking as a service (licensed institutions provide digital services to companies that do not have this permission) and microfinance, for an unbanked audience estimated at 40 million.

Another trend in this stage is the purchase of startups by large fintechs to expand services, says Diniz. The purchase of Creditoo (payroll loans for employees of private companies) by fintech Creditas, and the acquisition of MEI Fácil (specialized in serving individual microentrepreneurs) by Neon, to strengthen its strategy in the PJ segment, are examples of this movement.

WHAT'S NEXT

Financial solutions and products (credit, insurance) aimed at freelancers, professionals with no formal employment relationship and freelancers, in the so-called gig economy (alternative economy or “nozzle”), have the potential to develop in Brazil, in the evaluation of Fernando Freitas, executive superintendent of Research and Innovation at Bradesco. The bank has partnerships with 20 fintechs, of the 33 housed in InovaBra Habitat, Bradesco's innovation center. And it has 25 experiments in testing or contracting phase, through its open innovation program.

He believes that, in the next 12 months, this market should appear here. Today it is more present mainly in the USA, where 35% of the workforce is already in this “black economy”, according to recent data.

The challenge for banks and startups is to understand how to offer “tailored” services to these professionals. “The income stream is more volatile, and it will be necessary to understand the need for these professionals; they can use insurance, for example, at a certain time, when they exercise an activity, and not all the time ”, says Freitas.


Fernando Freitas, do Bradesco, avalia que soluções e produtos financeiros voltados a autônomos, profissionais sem vínculo formal de trabalho e freelancers, na chamada gig economy, têm potencial para se desenvolver no Brasil (Foto: Maurino Borges/Divulgação Bradesco)

In serving SMEs, fintechs see room to grow. Linker, which is in the Itaú Unibanco innovation space, chose to serve small and medium entrepreneurs, with a digital account for legal entities, a virtual credit card and the issuance of slips.

“Our focus is on non-bank accounts and companies that need assistance and lower costs, which today are not served by traditional institutions,” says Ingrid Barth, co-founder of Linker, which already has customers among startups.

“There are banks that see in fintechs the possibility of reaching an audience that they normally do not reach and there are others that do not even want to develop these areas internally; they take in fintech's technology to reach this market ”, says Barth, also director of Abfintech (Brazilian Association of Fintechs).

In a survey by PwC Brasil and Abfintech, 35% of startups in the financial segment say that big banks are current partners; 28% consider institutions as pos

Down the road

From credit card to digital account, Target Means of Payment, a startup that emerged in 2013 derived from other companies in the transportation sector, targets a specific audience among the self-employed - provides products and services to truck drivers who need help dealing with finances.

Known as the “fintech of the roads”, the company from Rio de Janeiro went from an audience of 6,000 truck drivers initially served, to more than 100,000 per month, in services such as mandatory toll vouchers and freight payment and receipt.

“We have 80,000 active credit cards for truck drivers, in partnership with Target and Visa and Bradesco, for whom we provide services on a bank platform, which serves around 1,500 carriers, logistics operators and companies,” says businessman José dos Santos , CEO of Target.

Target's platform provides technology for the bank to work on specific products, he says. “We have customers who, in practice, are our competitors in some areas,” he says, when quoting Valecard, which operates with payment methods in the fuel sector and uses part of Target's technology for toll service.


"Temos clientes que, na prática, são nossos concorrentes em algumas áreas" — José Santos, da Target (Foto: Ricardo Amaral/Divulgação Target)

In October, fintech launched Target's own digital account for truck drivers and will offer a personal loan and prepayment of receivables. He already negotiates with some banks.

“Shipping would be brought forward by around ten days; and personal credit, to buy parts, tires and items necessary to exercise the activity ”, says Santos. The hiring will be through the digital account app, which makes the cost of the operation cheaper.

Target's goal is to reach 30 thousand digital accounts this year. "For the segment, it is an expressive number because it is a challenge to take this tool to an audience that today uses prepaid cards and still runs to ATMs to withdraw money."

Timeline: regulations and initiatives in the fintech environment in Brazil

  • 2010 - July - Opening of the acquiring market in Brazil, with the end of the duopoly exercised by Redecard (Rede) and Visanet (Cielo)
  • 2013 - October - Legal framework of SPB, Brazilian Payment System (payment arrangements); Law 12.865 creates the figure of payment institutions, which opened space for the emergence of fintechs in this area
  • November - Regulation of payment institutions and services - BCB Circulars 3,680, 3,681, 3,682 and 3,683
  • 2015 - September - Changes, within the scope of payment arrangements, in relation to interoperability between institutions - credit portability, salary etc.
  • 2016 - April - Regulation of the opening and closing of accounts on the Internet with Law No. 4,480
  • December - Creation of the BC + agenda, with actions focused on structural issues of the institution and the SFN (National Financial System) and themes related to financial citizenship, more modern legislation, cheaper credit, among others.
  • 2017 - July - Regulation of investment crowdfunding (equity and debt), with CVM Instruction 588
  • 2018 - February - Inclusion of fintechs among agents authorized to operate and participate in the National Oriented Productive Microcredit Program (PNMPO), with the amendment of the text of MP 802
  • March - Change in the regulation of payment institutions and arrangements, in accordance with BC Circular No. 3,886
  • April - Regulation of P2P and online loans, with the creation of entities such as the Direct Credit Society (SCD) and the People Loan Society (SEP), according to CNM Resolution No. 4,656; allowed the creation of financial companies (fintechs) focused on bridging the gap between borrowers and creditors and insurance companies, credit analysis, areas previously restricted to financial institutions, with simpler rules for simpler operations
  • August - The LGPD (General Data Protection Law) is sanctioned, based on the European GDPR; the law goes into effect in August 2020
  • October - Decree nº 9,544 was signed, which allows the participation of up to 100% of foreign capital in SCDs and SEPs
  • 2019 - March - After debating in a working group in 2018, the fundamental requirements for the implementation of the PA system
Las opiniones compartidas y expresadas por los analistas son libres e independientes, y de ellas son responsables sus autores. No reflejan ni comprometen el pensamiento u opinión de Latam Fintech Hub, por lo cual no pueden ser interpretadas como recomendaciones emitidas por la platafomra. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista sobre el ecosistema Fintech.

Brazilian fintechs received almost US $ 1 billion in investment last year, which means more than a third of the total amount allocated to the startups market, in eight segments of the country.

The amount represents an expressive jump of 181% in relation to the US $ 333 million invested in 2018 by venture capital funds to finance small and medium startups in the financial sector with potential for expansion in Brazil. The data are from the innovation consultancy Distrito, based on 271 negotiations made by these investors, of which 63 involved fintechs.

The pace of expansion is expected to increase even more in 2020, with the creation of specific rules for startups to operate in the country, the regulation of open banking in Brazil and the infrastructure for instant payments, announced for November by the Central Bank.

In the first two months of this year alone, Brazilian fintechs received US $ 55 million in investments, almost twice as much as in the same period last year, with the same number of contributions (11). Analysts at Distrito, who compile the data, see this increase in value as a sign of market maturation.

Among the main banks, which, by strategy, do not detail the values, investments for startups also advanced. The resources for innovation (including external agreements, internal solutions, labs, hubs, acceleration programs) are expanding.

Bradesco invested R $ 2 billion in innovation in 2019, which means 30% of the R $ 6.2 billion allocated to technology. At Itaú Unibanco, investment in technology increased by 19%, compared to 2018, and 54% compared to 2016.

Santander also announced, in Spain, that Brazil would receive 30% of all global investment in digitalization (around € 2 billion, R $ 10 billion), in addition to taking SuperDigital, the bank's platform that works with digital inclusion ( prepaid card, payments), for six Latin American countries.

The 233% increase in the start-up mergers and acquisitions market also gives an idea of ​​the interest in expanding partnerships with fintechs and acquiring new businesses, mainly in a less rigid regulatory environment.

Itaú Unibanco bought, for example, in November, the Minas Gerais developer of digital solutions Zup, specialized in big data services, for R $ 575 million. Not only to create more efficient internal solutions and processes, but with an eye on fintech's highly specialized workforce.

Acquisitions have also grown in the digital credit segment. Banco BV (Votorantim's new brand) acquired Just (from the personal finance app GuiaBolso), an unsecured personal credit platform that uses data analysis tools for personalized offers to bank customers. It also invested R $ 400 million, together with a North American fund, in fintech Neon (digital account and credit card).

The expansion of the fintechs also gained more strength with the change of habit of the Brazilians. Four out of ten consumers have used a fintech credit card in the last 12 months, according to a survey by the SPC (Credit Protection Service) Brazil in partnership with the confederation of tenants. A fifth has already made at least one personal loan with digital banks, and a third invests money through digital platforms.

Until March, 510 fintechs existed in the country, which represents a 50% growth compared to 2015, when ABStartups (Brazilian Association of Startups) counted 339 startups in the financial segment. Brazil is already the country with the most fintechs in Latin America, and remains in the lead, ahead of Mexico. It is the third largest creator of unicorns, startups valued at more than $ 1 billion, alongside Germany.

CONSUMER EYE

Fintechs have attracted investors' interest as the way they offer and consume products and services changes, experts say.

On the one hand, there is a more specific view of these companies to serve niches, less explored regions, self-employed, self-employed and unregistered workers - segments in which banks still have limited operations. On the other, the fintechs business model expands and migrates from exclusive customer service (B2C), the initial focus of these companies, to organizations (B2B).

They start with some point of contact with the banks, even with the profile of what they offer; and, over time, the offer of products, areas and services increases. They are fintechs offering services for agrotechs, edutechs, insurtechs; for small and medium-sized businesses; as well as commercial partnerships with banks and retailers.

“Even to reduce the cost of acquiring customers, fintechs have changed their business models, serving companies, as well as end consumers; but without losing its essence, of extracting the best experience in each product created ”,

At first, all financial services were grouped and concentrated in traditional banks (phase known as bundling). With the cheaper technology and more flexible rules, as of 2008, services have fragmented (unbundling), with the advancement of mobile, app stores, open APIs, cloud infrastructure and new regulations in the sector, explains the consultant.

"Now we are moving towards a phase of regrouped services (rebundling), with increased competition, partnerships between traditional banks and fintechs, and consumers demanding simple, agile and economical products", says Diniz, author of the recently launched book "The Phenomenon Fintech" .

He makes an analogy to explain this transformation: “It is as if, before, there was a block of solid plastic (phase when banks offered a complete package of products); with fragmentation, several Lego pieces (the specialized products of fintechs) appeared; now, these pieces will be chosen by customers and join this new phase of open banking ”, says the consultant.

"Caminhamos para uma fase de serviços reagrupados (rebundling), com aumento da competição, parcerias entre bancos tradicionais e fintechs" — Bruno Diniz, da ABStartups (Foto: Divulgação)

This process of regrouping opens space for fintechs to operate even more specifically in segments in which they are already - means of payment, credit, investments, insurance - and to explore areas with potential for growth. In the case of small and medium-sized companies, banking as a service (licensed institutions provide digital services to companies that do not have this permission) and microfinance, for an unbanked audience estimated at 40 million.

Another trend in this stage is the purchase of startups by large fintechs to expand services, says Diniz. The purchase of Creditoo (payroll loans for employees of private companies) by fintech Creditas, and the acquisition of MEI Fácil (specialized in serving individual microentrepreneurs) by Neon, to strengthen its strategy in the PJ segment, are examples of this movement.

WHAT'S NEXT

Financial solutions and products (credit, insurance) aimed at freelancers, professionals with no formal employment relationship and freelancers, in the so-called gig economy (alternative economy or “nozzle”), have the potential to develop in Brazil, in the evaluation of Fernando Freitas, executive superintendent of Research and Innovation at Bradesco. The bank has partnerships with 20 fintechs, of the 33 housed in InovaBra Habitat, Bradesco's innovation center. And it has 25 experiments in testing or contracting phase, through its open innovation program.

He believes that, in the next 12 months, this market should appear here. Today it is more present mainly in the USA, where 35% of the workforce is already in this “black economy”, according to recent data.

The challenge for banks and startups is to understand how to offer “tailored” services to these professionals. “The income stream is more volatile, and it will be necessary to understand the need for these professionals; they can use insurance, for example, at a certain time, when they exercise an activity, and not all the time ”, says Freitas.


Fernando Freitas, do Bradesco, avalia que soluções e produtos financeiros voltados a autônomos, profissionais sem vínculo formal de trabalho e freelancers, na chamada gig economy, têm potencial para se desenvolver no Brasil (Foto: Maurino Borges/Divulgação Bradesco)

In serving SMEs, fintechs see room to grow. Linker, which is in the Itaú Unibanco innovation space, chose to serve small and medium entrepreneurs, with a digital account for legal entities, a virtual credit card and the issuance of slips.

“Our focus is on non-bank accounts and companies that need assistance and lower costs, which today are not served by traditional institutions,” says Ingrid Barth, co-founder of Linker, which already has customers among startups.

“There are banks that see in fintechs the possibility of reaching an audience that they normally do not reach and there are others that do not even want to develop these areas internally; they take in fintech's technology to reach this market ”, says Barth, also director of Abfintech (Brazilian Association of Fintechs).

In a survey by PwC Brasil and Abfintech, 35% of startups in the financial segment say that big banks are current partners; 28% consider institutions as pos

Down the road

From credit card to digital account, Target Means of Payment, a startup that emerged in 2013 derived from other companies in the transportation sector, targets a specific audience among the self-employed - provides products and services to truck drivers who need help dealing with finances.

Known as the “fintech of the roads”, the company from Rio de Janeiro went from an audience of 6,000 truck drivers initially served, to more than 100,000 per month, in services such as mandatory toll vouchers and freight payment and receipt.

“We have 80,000 active credit cards for truck drivers, in partnership with Target and Visa and Bradesco, for whom we provide services on a bank platform, which serves around 1,500 carriers, logistics operators and companies,” says businessman José dos Santos , CEO of Target.

Target's platform provides technology for the bank to work on specific products, he says. “We have customers who, in practice, are our competitors in some areas,” he says, when quoting Valecard, which operates with payment methods in the fuel sector and uses part of Target's technology for toll service.


"Temos clientes que, na prática, são nossos concorrentes em algumas áreas" — José Santos, da Target (Foto: Ricardo Amaral/Divulgação Target)

In October, fintech launched Target's own digital account for truck drivers and will offer a personal loan and prepayment of receivables. He already negotiates with some banks.

“Shipping would be brought forward by around ten days; and personal credit, to buy parts, tires and items necessary to exercise the activity ”, says Santos. The hiring will be through the digital account app, which makes the cost of the operation cheaper.

Target's goal is to reach 30 thousand digital accounts this year. "For the segment, it is an expressive number because it is a challenge to take this tool to an audience that today uses prepaid cards and still runs to ATMs to withdraw money."

Timeline: regulations and initiatives in the fintech environment in Brazil

  • 2010 - July - Opening of the acquiring market in Brazil, with the end of the duopoly exercised by Redecard (Rede) and Visanet (Cielo)
  • 2013 - October - Legal framework of SPB, Brazilian Payment System (payment arrangements); Law 12.865 creates the figure of payment institutions, which opened space for the emergence of fintechs in this area
  • November - Regulation of payment institutions and services - BCB Circulars 3,680, 3,681, 3,682 and 3,683
  • 2015 - September - Changes, within the scope of payment arrangements, in relation to interoperability between institutions - credit portability, salary etc.
  • 2016 - April - Regulation of the opening and closing of accounts on the Internet with Law No. 4,480
  • December - Creation of the BC + agenda, with actions focused on structural issues of the institution and the SFN (National Financial System) and themes related to financial citizenship, more modern legislation, cheaper credit, among others.
  • 2017 - July - Regulation of investment crowdfunding (equity and debt), with CVM Instruction 588
  • 2018 - February - Inclusion of fintechs among agents authorized to operate and participate in the National Oriented Productive Microcredit Program (PNMPO), with the amendment of the text of MP 802
  • March - Change in the regulation of payment institutions and arrangements, in accordance with BC Circular No. 3,886
  • April - Regulation of P2P and online loans, with the creation of entities such as the Direct Credit Society (SCD) and the People Loan Society (SEP), according to CNM Resolution No. 4,656; allowed the creation of financial companies (fintechs) focused on bridging the gap between borrowers and creditors and insurance companies, credit analysis, areas previously restricted to financial institutions, with simpler rules for simpler operations
  • August - The LGPD (General Data Protection Law) is sanctioned, based on the European GDPR; the law goes into effect in August 2020
  • October - Decree nº 9,544 was signed, which allows the participation of up to 100% of foreign capital in SCDs and SEPs
  • 2019 - March - After debating in a working group in 2018, the fundamental requirements for the implementation of the PA system
Las opiniones compartidas y expresadas por los analistas son libres e independientes, y solamente sus autores son responsables de ellas. No reflejan ni comprometen el pensamiento o la opinión del equipo de Latam Fintech Hub y, por lo tanto, no pueden interpretarse como recomendaciones emitidas por la plataforma. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista en el ecosistema Fintech.