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.