Financial technology, or fintech, is on the verge of a breakthrough in Brazil in 2020. In late November 2019, Brazil’s Central Bank set out draft rules for open banking, intending to phase in the rules during the second half of 2020. These new regulations make substantial changes to the way existing financial institutions and banks share transactional data, opening the gates for fintechs in Brazil to sweep up new customers. For financial institutions interested in fintech news, it’s essential to understand open banking in Brazil and what it means for fintechs and established financial organizations.

Open Banking Regulations in Brazil

As of 2019, Brazil was experiencing poor competition and high cost of credit within the financial community, compared to peer economies. The Brazilian Central Bank, or BACEN, implemented Brazil open banking regulations to improve these areas. These rules will force banks to share client transactional data with third parties, including fintech startups. At present, there’s no directive for large banks to share this information, meaning that smaller fintech companies must operate with publicly accessible information. Often, this results in them providing smaller loans to their clients, which can negatively impact the company-client relationship.

The following information is what BACEN requires banks to share.

• Products and services: Participating institutions must share the products and services they offer, including the characteristics, terms, costs, and locations of these products and services.
• Personal data: If clients permit, banks must release personal data, including their name, their tax identification number, membership type, and other identifying information.
• Transactional data:  If clients allow, banks must release transactional data, including the amounts of deposits, credit operations, and other financial purchases and activities.
• Payment data: If clients permit, banks must release payment data, including the amounts of their payments and transfers for loans and services.

By facilitating access to a deeper pool of financial data, open banking regulations in Brazil will allow startups to better analyze the credit of potential customers. 

Fintech Challenges in Brazil

As of May 2019, 380 fintechs were operating in Brazil, and two-thirds of Brazilian consumers had adopted some level of fintech, which is higher than the global average. We can attribute this success and the expected continued growth of fintech to several factors that have created an excellent environment for fintech adoption, some of which are as follows.

• High technology usage: In 2017, three-quarters of Brazilians used smartphones, and experts project that number to rise above 80% by 2025. Brazilians also tend to use digital payment systems more often than similar populations, with 73% of surveyed Brazilians saying they would feel comfortable using an online-only banking service provider.
• Lower median age: The median age in Brazil is 32, meaning that the country has a youthful population to work with. Younger people are more enthusiastic to adopt technological changes, though income and accessibility also affect that enthusiasm. 
• Large underserved population: Around 45 million people in Brazil have not used or had access to their bank in the last six months due to location or transportation problems. That makes accessibility a significant factor in adoption rates.
• Bank monopolization: Brazil’s largest banks control nearly 80% of the country’s total deposits. This monopolization, combined with the administrative costs and tax burdens of banks in the current system, have led to high fees for users.
• Favorable fintech regulation: Brazil has transitioned toward a fintech-friendly regulatory agenda in the past few years, improving the opportunities for and awareness of fintech options. 

While the above factors have led to fintech growth in the past and should help its development in the future, there are two aspects expected to hinder fintech growth — consumer trust and the population’s internet access. While most Brazilians recognize the benefits of open banking, almost a third of Brazilians are worried about cyber-risks, not trusting that fintechs will handle these appropriately. Additionally, only 13% of Brazil’s population has broadband internet access, making it difficult for consumers and small businesses to make use of internet-based banking opportunities.

Fintechs vs. Traditional Banking

Open banking regulations in Brazil will improve credit portability, allowing fintechs and banks alike to access credit information on potential customers. Financial institutions will be able to lend more money on better terms than they currently can, and the capacity for digital banking will increase. Some of the major opportunities for fintechs and fintech consumers include the following.

• Lower costs: Increased competition means that banks and fintechs must decrease their costs, which benefits consumers. Additionally, the use of digital tools reduces the need for brick-and-mortar facilities, reducing costs and increasing efficiencies. When digital players and traditional banks work together, these factors could improve costs for the entire credit system.
• Improved accessibility: Because they do not need to operate out of brick-and-mortar facilities, digital financial institutions are available to anyone with internet access. By increasing the amount of data these institutions can pull, this also improves the ability of smaller communities and businesses to take out loans.
• Improved portability: With greater credit portability, consumers and businesses can go to multiple potential lenders and shop around more effectively for rates on loans.

While these advantages prove beneficial to the Brazilian population as a whole, there are existing concerns with fintechs and the expansion of open banking. Some of these include the following.

• Cybersecurity and data risks: Many Brazilians are concerned about fraud or the mishandling of data. Bot factors can be costly for consumers, and with the digitization of their financial data, many are worried that fraud and cyberthreats will become more common. BACEN has introduced new regulations to combat these, but only time will tell if they are sufficient.  
• Disadvantaged banks: While the new open banking regulations benefit fintechs, lack of reciprocity is a concern to the established banking community. Fintechs may not face requirements to share the same level of data as larger financial institutions, which reduces the data pool from which banks can pull information for credit checks.
• Increased client mobility: At present, Brazilian banks enjoy a loyal customer base — customers do not change banks frequently. However, with open banking and shifts in popular opinion, this could become a more prevalent pattern. 

Fintech Players in Brazil

Brazil had the highest number of fintechs in Latin America in 2018, and in just the last 18 months, 188 new fintechs have launched. With fintech set to expand substantially over the next few years, it’s essential to keep an eye on the major players. Some of the top fintech startups in Brazil are below.

• Certisign: Based in Sao Paulo, Certisign provides back-office data exchange and transactional solutions for financial institutions and enterprises.
• ClearSale: Founded in Brazil in 2001, ClearSale is a fraud management company that monitors and identifies fraudulent transactions for enterprises.
• Conductor: This payment service gives consumers options to make payments in the retail and financial sectors.
• Conta Azul: This back-office service provider organizes finances and accounting, assisting businesses with financial services.
• Contabilizei: Another back-office service provider, Contabilizei offers online services for businesses of all sizes.
• Creditas: Creditas offers various loans for consumers, including car, home and private loans. 
• Ebanx: Ebanx offers localized payment and financial solutions for Latin American companies.
• Geru: Geru provides fast personal loans for consumers.
• GuiaBolso: GuiaBolso is a personal financial adviser for users, monitoring activity and providing financial advice.
• Neon: Neon is a digital bank in Brazil with nearly 2 million active accounts.
• Nubank: Nubank is the largest fintech in Latin America, issuing, administrating, processing and transferring payments for over 20 million customers. 
• Pravaler: Pravaler is a loan provider specializing in private student loans for Brazilian students.
• Rebel: Rebel is an online personal lender that provides financial literacy tools and credit at low interest rates. 
• RecaragaPay: RecaragaPay is a payment and digital service provider.
• Stone: Stone is a payment processing company that provides solutions for small businesses.
• Trigg: Trigg is a credit card company that relies entirely on digital access.
• Weel: Weel is a fintech that finances small to medium-sized businesses by leveraging artificial intelligence.
• Zoop: Zoop is a payment solution for businesses of all sizes that optimizes digital integration.