Brazil FinTechs could be worth $24bn to economy in next decade

Brazil is leading the charge in the Latin American region with the most FinTech startups, but expansion into neighbouring countries has been painfully slow.

Brazil is currently the largest FinTech hub in Latin America. Proof of this comes in the form of more than 188 new startups that in the last 18 months have seen the light of day for the very first time.

The South American country has been fighting shoulder-to-shoulder with Mexico for the lead position in Latin America. Moreover, in fact, Mexico overtook Brazil in August 2017 with 238 new FinTech startups, leaving Brazil behind with 219, according to an in-depth study by Finnovista and their FinTech Radar.

However, with all the new startups, Brazil has recovered the number one position with a total of 377, which represents an ecosystem 1.5 times the one in Mexico and three times larger than Colombia, which boasts third place.

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Before we continue, let’s get our numbers straight. Brazil would have 406 FinTech firms today if it weren’t for the collapse of close to 30 startups. In spite of these failures, FinTech ventures still increase by about 48% annually. To be fair, all countries in the region have reported a 50% increase in the sector, except for Chile, where it stands at about 22%.

One good reason for so many FinTech firms being launched in the only non-Spanish-speaking country in South America is the stratospheric cost of credit, which is 450%. This is one of the highest in the world.

Too much red tape

Also, the Brazilian banking system is among the most bureaucratic in the world. Moreover, five banks – Itáu Unibanco, Banco Santander, Banco Bradesco, Banco do Brasil and Caixa Econômica – own 80% of the credit market. This is a recipe for a very negative experience for consumers, states Finnovista.

“However, this concentration of power and its subsequent oligopolistic market leaves Brazil’s financial system in a more susceptible position to be disrupted by the FinTech innovation,” it adds.

So many smartphones

Another factor that makes Brazil ripe for FinTechs is the fact that the smartphone penetration at 138% is well above the global average of 115%. Transactions on mobile phones have increased by 100% in the last year, and in 2016 it accounted for 34% of all financial transactions.

“If these trends continue, it’s estimated that the FinTech sector in Brazil could generate potential revenues of up to $24 billion in the next 10 years,” says Fonnovista.

Lending and banking

When it comes to the lending sector, Brazil is third behind Mexico and Colombia, and that’s because Brazilian regulatory officials do not authorise electronic borrowing platforms.

Out of the 377 FinTech startups in the Portuguese-speaking nation – the largest in Latin America by geographic extension and population as well as economically – 16 are focused on digital banking services, which is an increase of 147% in respects to 2016.

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Nubank is arguably one of Brazil’s most significant successes within the FinTech industry. In 2016, they had 1.3 million customers and by the end of last year, three million. This startup has raised more than $330 million since 2013.

Where are they

Most of the startups in Brazil are in Sao Paulo, which is home to 71% of the country’s FinTech firms. Rio de Janeiro is second with only 8%: Belo Horizonte, 5%, and Port Alegre, 4%. Brazil’s FinTech’s have internationalised themselves at a rate of 30%. Argentina tops the list in this category with 48%.

Of those FinTechs that have ventured outside the country’s border lines, 85% have limited themselves to Latin America and the remaining 15%, to the rest of the world. Brazil’s international startups within the region are located mostly in Mexico, 22%, Chile, 15 %, and Colombia, 9%.

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The increasing number of FinTech startups in Brazil and their quick expansion among users poses an imminent challenge to traditional banking institutions, which will need to modernise rapidly, lower costs and make services more efficient, or face very tough times in the near future.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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