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