The COVID-19 pandemic has had a profound impact worldwide. In Brazil, pandemic repercussions are visible in all aspects of everyday life; from rising unemployment rates, economic stagnation, and inflation all leading to widespread uncertainty about the future. But the social isolation necessary to minimise human losses in the most critical periods of the pandemic accelerated the development of digital services to replace face-to-face interactions – creating growth opportunities for technologically innovative companies like Fintechs.

Fintechs are companies that use technology to offer financial products in an innovative way, always focused on a customised client experience. When compared to traditional financial service companies (banks, insurance companies, payment method companies, etc.), fintechs are characterised by being high-tech, specialised, more transparent, less bureaucratic, and without large physical structures – resulting in significant competitive advantages, such as being able to offer lower rates and greater benefits to their customers.

Fintech startups have taken a significant market-share from large banks and traditional insurance companies, but their services have also reached customers that were not served by the conventional infrastructure (such as young people and informal workers), guaranteeing promising prospects for expansion in the near future.

The first Fintechs appeared in Brazil in 2013, and the sector has been growing rapidly ever since. From 2015 to 2021, the number of Fintechs operating in Brazil grew by 147% (hitting over 1,100 companies in 2021), and the sector achieved US$517 million of investment in the first half of 2021 alone.

According to Findexable’s 2021 Global Fintech Rankings, Brazil is currently the largest fintech ecosystem in Latin America. São Paulo is the 4th city in the global ranking (behind San Francisco, London and New York), while Brazil takes 14th position in the ranking of nations. Undeniably, there are many possibilities for expansion in the short term, particularly in meeting the needs of promising markets such as the cities of Belo Horizonte, Rio de Janeiro, Curitiba, Porto Alegre, Florianópolis and Brasília.

147%

From 2015 to 2021, the number of Fintechs operating in Brazil grew by 147% (hitting over 1,100 companies in 2021), and the sector achieved US$517 million of investment in the first half of 2021 alone.

The Brazilian fintech ecosystem is concentrated in the South/Southeast regions, comprising the 4 neighboring states of Rio de Janeiro, São Paulo, Minas Gerais and Espírito Santo. More than 72% of companies are established here, though the sector is highly diversified. The most common Fintech classifications are payment methods (such as PicPay, Pag Seguro and Mercado Pago), credit (Creditas), insurance (Minuto Seguros) and digital banking services (NuBank, C6 Bank, Inter and Neon).

Although oligopolistic in nature (just 5 institutions hold 84% of the market), the financial sector in Brazil is maturing and undergoing a process of deconcentration, increasing competitiveness and creating business opportunities left and right. Even the big banks realised that they needed to change their way of operating, and recently started to associate themselves with Fintechs or develop similar services – further highlighting the dynamism of the market. (For example, COVID-related social benefit programmes required digital components, ultimately leading to an additional 14 million Brazilians joining the digital banking world in 2020.)

This dynamic movement is also visible on the stock exchange. Brazil’s traditional banks (Itaú, Bradesco, Santander and Banco de Brasil) saw an almost 40% drop during the pandemic, while Fintech unicorn, Inter, had a share rise of almost 25%.

Another important factor that spurred the sector’s growth are recent changes in legislation which regulated and stimulated the incursion of tech companies into the financial market. While the Brazilian financial system was already one of the most tech-involved in the world, the legislative changes have matured the system further, encouraging new Fintech development.

Significant changes to the Brazilian banking system include the recent adoption of the instant and free electronic payment method, “PIX”, in October 2020 and the launch of “Open Banking” in August 2021 (sharing of customer bank data among all financial institutions, subject to prior authorization) – both of which are important instruments for the creation of diversified financial products that better suit the needs of the clients and level the competitive field. Fintechs are perfectly adapted to make the most out of opportunities afforded by these legislative and regulatory changes.

Further, Brazil’s Central Bank (BACEN), responsible for monitoring all financial activities, has established a series of specific rules and norms for each type of financial product or service to be offered. Among the regulations that impact Fintechs is Law nº 12.865/2013, which can be seen as the trigger for the emergence of financial startups as it significantly modernized the Brazilian payment system. These new rules were followed by Resolutions nº 4656, 4657 and 4658/2018, both important to guarantee the independence of the fintech activities, and Law No. 3709/2018, dealing with Data Protection and establishing the penalties for the inappropriate use of personal data.

The pandemic and new technologies have created many profitable opportunities, and the country’s regulatory framework encourages investment.

There is even a controlled testing environment for financial innovations, nicknamed the “Regulatory Sandbox”, duly regulated by National Monetary Council (CMN) Resolution No. 4.685/2020.

Most recently, Complementary Law No. 182/2021 established a Legal Framework for Startups, successfully delimiting Fintech’s area of ​​operation and increasing transparency of companies entering the sector.

All this leads us to the irrefutable conclusion that Brazil’s competitive banking environment is highly amenable to the creation and expansion of Fintechs, and to the consequential disruption to the traditional banking domain. The pandemic and new technologies have created many profitable opportunities, and the country’s regulatory framework encourages investment.

We foresee fierce competition in Brazil’s Fintech market in the near future, but the size and potential of the domestic market (population 214.6 million) undoubtedly makes Brazil an extremely attractive option for investments in the Fintech sector.

If you’d like to discuss how Auxadi can help with your Brazilian operations, reach out to our Brazil Team.

Do you need more information?

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André Ricardo Dannemann
Brazil Country Manager

Andre Victor Cannux Radocza
Tax Brazil

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

All information contained in this publication is up to date on 2021. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.