Financial Carnival: FinTech & Banking in Brazil

Charlie Laracy is a 1st MBA student interested in the payments space, soccer, and ceviche.

Charlie Laracy is a 1st MBA student interested in the payments space, soccer, and ceviche.

Vitor Cancian is a 1st MBA student interested in technology, strategy and soccer.

Vitor Cancian is a 1st MBA student interested in technology, strategy and soccer.

By: Charlie Laracy and Vitor Cancian

Though recently plagued by political instability and unemployment, Brazil has fostered an inclusive and innovative economic environment through financial policy, consumer protection, internet infrastructure, and, importantly, major bank buy-in. During this period, financial technology (“fintech”) has seen an abrupt increase in investment and startups, coinciding with new rules set by the Central Bank of Brazil making it easier for startups to obtain licensing and operate. Rather than attempt to reverse the startup trend, the Brazilian banking industry, in addition to the government, is embracing innovation.

Technological progress in financial services is often linked with an overhaul of the established banking industry, if not outright replacement. The Brazilian banking industry’s welcoming reception of fintech companies arises despite the significant threat that startups pose to traditional banking revenue streams – Goldman Sachs estimates 200 fintech companies in Brazil with the potential to take approximately $24B in business away from traditional banks over 10 years in lucrative sectors, such as credit cards.[1] However, collaboration with and investment in fintech demonstrates an adaptability in Brazilian banking that will drive the industry as consumer demand for digital banking services intensifies.

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Nubank, Brazil’s biggest new technology company breaking into the financial services space, serves as a reminder of the threat posed by tech companies. Since 2013, Nubank has received $179M from venture capital firms and is posing a serious challenge to the biggest banks. This month, Nubank doubled-down on its challenge to banks by announcing that it will expand credit cards from digital accounts allowing customers to make transfers, pay bills, and earn more interest than typical savings accounts. The success of Nubank is reflective of the industry as a whole: the number of firms in Brazil's financial technology sector has risen about six-fold in the past couple of years as they offer borrowers lower interest rates than traditional banks. Despite the threat, the Brazilian banking industry prefers collaboration and supports the innovation.

Fintech companies are not just about startups and disruption of established players. Last year, Brazilian banks invested over $6B in technology. Itaú Unibanco (Brazil’s largest private sector bank and Latin America’s biggest bank by market capitalization) is all-in. Itaú has its own coworking space, the Cubo, currently hosting over 53 startups and has opened a new office location with the capacity to host 210 additional tech startups. The bank has also set up “digital agencies” — virtual branches — and communicates with customers via instant messaging apps.

The burgeoning fintech environment in Brazil showcases the impact of tech-friendly government policies coupled with traditional banking partnerships. The region should follow Itaú’s lead in embracing change and being at the forefront in defining the role bank’s play in an interconnected, fast-changing economy and digitally-inclined consumers.

 

[1] Bracher, Candido. “Brazil’s Itaú Unibanco CEO Readies for Fintech Battle.” Financial Times, Oct. 2017

The Legacy of El Che

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By: Pablo Illuzzi

50 years ago, on October 9th 1967, Ernesto “Che” Guevara was captured and executed by the Bolivian Army, with support of the CIA, in La Higuera, Bolivia, a small town lost in the Bolivian forest.

There are a lot of truths, lies, and misunderstandings about el Che Guevara, but between all of them, I believe there are 2 key truths about Ernesto Guevara. These truths are relevant for us as future global leaders, regardless of political affiliation, and can help shed light on the dynamics of political leadership.

The first truth is that he was martyrized. Almost everyone thinks that they know something about el Che. Looking at his famous picture “Guerrillero Heróico” taken by Alberto Korda in 1960, we think that we know who he was. He was martyrized by the people who supported him, but also by his opponents in Latin America, as well as in the United States (even though this wasn’t the original intention).

Most people have a “socially transmitted” opinion on him. Someone can like him because of his “rebellious” character and his “revolutionary cause” in Latin America, or detest him because of his communist affiliation and his participation in creating the Cuban totalitarian regime.

I labeled these kind of opinions as “socially transmitted” simply because, it’s not based on people reading his biography, or his speeches, or judging work during his time as a Minister of Industry or Finance.

The second truth is that he was a true political leader (Please, before you start looking to tackle me at the Winter Garden, keep reading until you get my point).

Ernesto Guevara’s political ideas and actions were born from his own experience and had a true and pure motivation. He was highly educated, an avid reader, writer, and poet. He left his upper-class comfort zone in Buenos Aires to try to eliminate poverty and inequality. He met Fidel Castro in Mexico and saw in him a political ally, engaging himself in the Cuban revolutionary cause.

He was committed to his cause, not to build power. Once the Cuban State was founded and his agrarian redistribution finished, he left Cuba. He didn’t stay to enjoy the benefits and the power, he left again for his ideals. He left because he didn’t agree with Cuban political submission to the Soviet Union. Guevara saw the Soviet Union as an exploiter of Asian and African countries, as he saw the United States as an exploiter of Latin America. El Che was committed to keep the fight alive against inequality.

Today’s politicians move from power to power. We’ve seen both right and left-wing populist governments end stealing his people’s resources and being judged for corruption while not improving countries’ macroeconomic metrics.

He once said that if he was born in the United States, he would probably be marching with Martin Luther King Jr. Maybe if commitment to people instead to power characterized political classes around the world, there will be less poverty and inequality. Perhaps La Revolución isn’t over yet.

Brazilian House of Cards

By: Laura Gontijo de Vasconcellos

Last May, just before releasing its new season, the House of Cards Twitter posted “Tá Difícil Competir”, which means “it has been hard to compete” in Portuguese. It is true. Since the launch of Operation Car Wash, one of the largest bribery cases investigations ever carried out, in March of 2014, the Brazilian political scene has been on the news with shocking episodes more often than ever. Meanwhile, the country is suffering one of its worst recessions.

The political scandal, regarded as bigger than Watergate in the USA or Mani Pulite in Italy, started when police found evidence that a former top executive at Petrobras, a government-controlled oil company and one of the largest Brazilian companies, had accepted a bribe in return for awarding contracts to construction firms at inflated prices. From there, a huge bribery scheme was unveiled, involving the most senior executives of biggest construction companies in Brazil and politicians from different parties.

 

Operation Car Wash has been a turning point to on Brazil’s culture of impunity, which has made Sergio Moro, the judge who handles investigations and trials related to the Operation, a national hero. So far, 109 people have been convicted of 170 crimes and sentenced to a total of 1,680 years of prison. Among the names of people that are allegedly involved are: Luiz Inacio Lula da Silva, a popular former president, Eduardo Cunha, the former PMDB (political party of current president) speaker of the lower house of congress, and Marcelo Odebrecht, at the time of the accusation the CEO of Brazil’s biggest construction firm.

Most recently, current president Michel Temer has been accused of leading a “mega-gang” made up of politicians from his Party of the Brazilian Democratic Movement (PMDB), the left-wing Worker’s Party (PT) (Lula’s and Dilma’s party) and others. It is accused of having extracted bribes worth at least BRL 587M (USD 188M) from companies in return for public contracts and favors. Even though those are grave allegations, the case doesn’t look strong enough and Mr. Temer should remain in the office until the end of his term in December 2018.

With presidential elections coming up in 2018, leadership crisis in the country is evident, as there isn’t a clear vision on whether the current government will survive until then and the potential candidates are all currently under investigation. Under recent polls, former president Lula (accused of corruption and money laundering) has 36% of intention of votes, with the second candidate having only 16%.

Uncertainty is the word of the moment. The next chapter can be even more revealing than the previous ones. Brazilians are left with the hope that the investigation keeps progressing and those who are guilty go to jail.

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NFL Protests and the Hard Work of Critical Thinking

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After a rough night of caring for our two, sick little ones, my wife and I started our day at 5:30am with another chorus of coughing and whining. After much ado, they were eating breakfast and I took a moment to browse the social media headlines to see what was happening in the world. Hurricanes barreling through the South! Carmelo Anthony traded to OKC! North Korea is threatening nuclear war! Donald Trump blasts NFL anthem protestors: "Get that son of a bitch off the field!"1. I put my phone down; I wish I never picked it up.

Life in America today is complex and exhausting. In virtually every aspect of public and private life, we are confronted with issues that demand our opinion and participation, whether we want to play or not. The problem we face is that to think critically and objectively about just one of these issues, requires a focused effort and energy that, at best, most people just don't regularly have. Yet, play is a basic psychological need2 so we naturally look to diversions that can smooth out (or distract us from) the bumps on our journey through increasingly rocky terrain; this is a normal, natural part of human life. While the options are many, my guess is that among varied groups of people, you're likely to see "sports" near the top of the list and, in America, there's no panacea quite like professional football.

In a complicated world, the beauty of pro football lies, ironically, in its primal simplicity: the communal bond of my tribe, the pomp and spectacle, the energy of the crowd, the visceral competition out of which great champions rise. As an NFL alumnus, my excitement for pro sports has waned some, but these aspects still remain my favorite parts of the game. Football's broad appeal is surprisingly universal...and corporations, advertisers, and governments already know that.

In an age where everything is politicized, the last bastion of good, old, American fun can't expect to remain unscathed. While most have forgotten the original reason for Kaepernick's protest, the latest events in the year-long saga have brought our nation's biggest sociopolitical issues right into the middle of the last place of "rest" for many Americans...and we're all better for it.

The nature of non-violent protest is inconvenience that arrests your attention. Yet, this is not rain on your day off or a long line at the coffee shop; you shouldn't merely take issue that people are protesting. You've got to ask "Why?", ditch your assumptions, and actually value the answers of your equal, imperfect, fellow citizens, who are appropriately exercising their rights through the most impactful channels they have. This takes a level of empathy that is uncomfortable without prior practice, yet it's necessary for anything lasting of value to materialize in public discourse. We cannot run from this. The issues are not going anywhere and, just like life, the solutions will likely be multilayered, complex...and exhausting.

To quote Scott Hanselman, "If you're starting a sentence with 'Why don't you just...' then it's very likely you don't understand the complexity of the problem."

If you bring us down twice, we will get up three times.

On September 19, 1985, at 7:17 am, The Pacific and Cocos tectonic plates crashed in the Southern part of Mexico, unleashing a force equivalent to 114 Atomic bombs. In just two minutes of duration, the resulting 8.0 Earthquake produced one of the largest tragedies of our country. More than 10,000 deaths, 50,000 injured, the collapse of 412 buildings.

One would think that nothing good can come up from an event like this. However, in the aftermath of the tragedy Mexicans got closer by helping each other. People ran to rescue people trapped in the debris of collapsed buildings. Others gathered provisions and prepared food to feed the hungry and opened their houses to the thousands who lost their homes. Regulations were put in place to build structures capable of withstanding earthquakes. Even a specialized search and rescue team self-denominated "Los Topos" (The Moles) was created and has provided help internationally.

32 years later, on the exact same date, Central Mexico was struck by a 7.1 magnitude earthquake. A more prepared population with evacuation procedures in place was able to get out of buildings faster. However, not everyone was lucky enough to escape. 38 collapsed buildings took the lives of at least 300, driving the death toll to more than 400 after the 8.1 magnitude earthquake that hit the coast of Oaxaca only a week before.

The reaction of the Mexican people was similar as in 1985, but with better tools. “Los Topos” went to work to rescue those trapped in collapsed buildings. Those with motorcycles delivered provisions to carry out relief efforts day and night. Many makeshift shelters were opened around the city to host those who lost it all.

Technology and social networks played a vital role in the rescue efforts, with people communicating with their loved ones without saturating cellular networks, informing the community of how they could help, and even victims reporting their whereabouts in the debris.


The community at the University of Chicago swiftly started a fundraiser to send support for the relief of both earthquakes. With the assistance of the school, a table was set at Booth during the student group fair to inform incoming students about how they could help. The organizers of the MBA Mexico event from Booth and Kellogg reached out to other MBA programs to coordinate aid efforts, and agreed to donate half of the money collected from new tickets sales after the earthquakes.

Even though a significant amount of help has been received, the hardest part is yet to come. The effects of the quake will prevail for the following years. As people go back to their normal lives, there will be a void of resources to continue with the reconstruction of the country. If you are interested in helping, please contact anyone from our Mexican community at Booth for advice on how to help and consider donating directly to the Mexican Red Cross at: https://cruzrojadonaciones.org/

Thank you all for your support.

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NAFTA lead negotiator for Mexico visits Chicago Booth

On May 4 Dr. Herminio Blanco visited Chicago Booth for a fireside chat with Prof. Robert Topel. Even if you haven't heard Dr. Blanco's name before, you surely will have heard the name for which he became a national milestone in Mexico: NAFTA. Dr. Blanco, as chief negotiator for the three-party deal for Mexico, related through a guided Q&A the story of how one of the most cutting edge international trade agreements came to be. His appearance was particularly relevant given today's political scenario, and the criticism the agreement has received of late.

 

Dr. Blanco spoke about the troubles of coordinating across three economies, two of which are major not only in North America, but in the world. He also spoke about his perspective, working under the then-president Carlos Salinas, trying to consolidate Mexico's long list of requirements with those of world-class negotiators from Canada and the US. In particular, how Mexico had never entered an agreement such as this "and that my counterpart had been negotiating international trade agreements since before I was born" said Dr. Blanco (incidentally, he mentioned, because of this fact it is puzzling why today's US president would label NAFTA as "the worst trade deal in the history of trade deals, maybe ever.")

 

Dr. Blanco levied heavily on the failures of NAFTA, criticizing his own work as lacking in many areas of industry and many resolution mechanisms, and adding that were NAFTA to be re-negotiated (a point that Prof. Topel stressed), the resulting agreement would naught but fortify the positions of all parties. His thoughts center around how, in his position of int national trade consultant and think tank leader in Mexico, the governments of all three countries could shave areas in the agreement little used by anyone, and add areas that for a lack of expertise and time were not included in the original 1994 agreement.


Since NAFTA, Dr. Blanco led the team that negotiated the other 31 agreements that provided Mexico to be the country with the most international trade agreements in the world, which is just one of the many success stories Herminio has had along his 27-year career in international trade.

The New French Enlightenment

At his inauguration, President Macron stated “the integrity and unity of the EU will never be compromised”

At his inauguration, President Macron stated “the integrity and unity of the EU will never be compromised”

In 1715, more than 50 years before America was founded, the French people were already caught up in drama surrounding their political leaders. In that year, after the death of Louis XIV, an age of revolutionary ideas and philosophies ignited.

During the next century, against the classical teachings of the ruling monarchs and religious institutions, France experienced The Enlightenment: a time where a generation of scholars enacted ideas based on reason, developing societies based on the still-standing of liberty, tolerance, fraternity, and progress. These philosophies radically impacted the social, political, and economic development of Europe, and were used as the cornerstones to envision a free and independent America.

 

302 years later, in a time where the horrors of the world seem closer to our lives, the French have yet again shown their commitment to their original foundation ideas. As the world sees President Macron ascend to the highest position of power in France, we’re left to wonder how the election of a former investment banker without the backing of any conventional party, was the only hope for standing up for these ideals.

The main reason why people were excited for Macron was his value as the only alternative to Marine Le Pen and her different vision of the world. From Le Pen’s perspective, a perspective shared by more leaders these days, France is a country weakened by diversity of people, ideas, ethnicity, and cultural background. They hold a belief that the cost of globalization (e.g. people who have lost their jobs through the spread of automatization) is not worth the progress that comes with it. Given the spread of terrorism, the increasing competition in all areas of business, the exceedingly higher levels of skills needed, and the sprawl of revolutionary ideas, it’s simple to understand how much fear is behind their viewpoint. Their opinions are not based out of a corner of hate, but out of an instinctive need for a sense of security and protection from the winds of change.

 

No one can argue that there aren’t very tangible reasons to be fearful. Everyday, we get reminded of the threats of cyber terrorism, global warming, nuclear proliferation, religious extremism, and global health scares. But, in an era with so much ambiguity and uncertainty, the belief that any one country or culture can protect themselves against all of these threats without cooperation from their neighbors is myopic. The inter-connectivity of our worlds reminds us of how much we all depend on each other.


While the protectionist narratives we see coming from America have been regurgitated by some in Europe, France has, again, shown us the alternative. This presidential election was inundated with calls of how France should protect themselves from the threats of the world by isolating them from everyone else. But, at the end, the principles of liberté, equalité, and fraternité were engulfed in a new slogan of “Better Together”. France elected to work together to fight fear, giving light to the world.

Latin American Lessons on Populism for Business Leaders

By Leopoldo Gomez- Grassi

 

Leopoldo Gomez-Grassi, Class of 2017. Leopoldo is a Mexican American interested in finance and politics

 

 

On April 21, UoC’s Latin American Matters hosted former Mexican President (1994-2000) and current Director of the Yale Center for the Study of Globalization, Ernesto Zedillo, as keynote speaker of the 5th LAM Policy Forum. For me, Dr. Zedillo’s visit had additional meaning because I met the man of whom my father, who served under him, spoke so much about during my childhood. President Zedillo is widely credited for having strengthened democratic institutions and for an exemplary transition of power after his party’s 72-year rule.

Dr. Zedillo spoke about the lessons that Latin American populists’ regimes could teach a developed world currently experiencing a notable rise of this kind of politicians, both on the left and right. Zedillo identified common threads, including a tendency to blame others (especially foreigners), advancement of conspiracy theories, and a knack for exploiting nationalist feelings to advance an economically retrograde agenda that invariably has a sad or catastrophic ending.

However, it was his diagnosis of the dynamic between populists and the elites that I found particularly timely and persuasive:

Populists establish themselves in power by finding support from citizens with resentment, frustration and anger towards the economic and political elite. Once in power, rather soon the populist leaders, and at least some part of the elite, pursue mutual accommodation. For a while the populist leader and the elite play with one another a “useful idiot” game, in which members of the elite bet on manipulating the populist leader by pampering his narcissistic and messianic inclinations, even becoming willing to support some policies that they have traditionally opposed and that could possibly go against some of their interests- but they do it with a view to preserving, on balance, their “capture” of the system. In turn, the populist leader likes to believe that he has achieved early surrender from the elite and sets about using this group to advance his agenda. [This game] lasts while the economy stays out of deep trouble…

Earlier this year Harvard University’s President Emeritus Lawrence Summers expressed fears that something along those lines is taking place in the US.

As populism spreads beyond the tropics, it seems prudent for MBA students to be vigilant and outspoken of corporations and business leaders when they are cozy with populist regimes. It is not only incongruent to enable those whose policies conflict with an institution’s corporate social responsibility agenda, but also necessary to oppose those who seek greater authority to the detriment of economic and political systems around the globe.


Perhaps a sensible response to the blame that the “The Golden Passport” (D. McDonald, 2017) places on business schools for their role in the prevalence of greed and lack of moral compass parts of the business community, would be that students demand that CEOs use their position and resources to condemn and oppose attacks on minorities, the environment, cities and allies. After all, the long-term economic benefit of those actions outweighs any temporary gains from being in good graces with an ill-fated populist.