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Brazil is Fintech’s Next Frontier

The best place to be for business is up-and-coming countries. Being in on the ground floor as a country modernises means that you have the opportunity to become a vital part of its payments infrastructure and is one of the best ways to ensure decades of profitability.

In our lifetimes we have seen countries like China and India modernise rapidly, growing to worldwide economic powerhouses through industrialisation and urbanisation followed by digitalisation. They’ve gone through processes in 20 to 30 years that took countries/regions like the US and Western Europe 200 years, and that has put them at a point where they are making innovations in payments technology to suit the needs of an increasingly developed population. China, for example, is leading the world in app-based digital payments, so that 66% of POS systems come from apps like Alipay while only 24% come from cards.

Former ‘third world’ countries are petri-dishes for payments innovation, and one of the most promising is Brazil. This South American country of a 215 million population has seen some incredible advances in the last decade, and it is here that forward-thinking companies could make an incredible impact.

Brazil’s rise by numbers

Brazil is a country that is currently on its way from ‘developing’ to ‘developed’. Its ascent hasn’t been straightforward: the country’s GDP has previously been much higher, £13,201 per capita in 2011 versus $8,918 in 2022. That significant drop would seem to indicate a country stagnating, not thriving, but look closely at other measures of economic success and a different picture emerges. Wealth equality is perhaps the most important: at 52.9 on the Gini Coefficient, Brazil has the largest wealth gap between the rich and poor anywhere in the world, something that many argued has been its ‘Achilles heel’, holding back the country’s growth.

However, inequality has been dropping over time, and that 52.9 score should be read in context of the country’s score being 63.3 in 1989. Although it would take several decades for measures of inequality to reach a global average, the trends point to ordinary Brazilians’ having increasingly higher access to money. Poverty is decreasing significantly, down from 48% in 2001 to 23.5% today.

This means that there are more people than ever who are, broadly, in the middle class, and they are looking to spend their money. Retail growth has been very healthy, with growth of 5.9% in Q1 2024, though there were lingering effects from the pandemic and the distorting effects of the basic income granted to citizens during that time. This has meant that more people than ever are using digital means of payment, whether that is cards or payment apps, causing cash usage to drop from 56.7% in 2012 to 30.6% in 2021.

Possibilities in the Brazilian payments industry

Much like other companies who have joined the cutting edge of payments in the 21st century, Brazil has to some extent skipped the era of cards and gone straight to real-time app-based payments. Only four years old, Pix is an account-to-account payment method that allows payments to be sent from the apps of any of the 800 payment services providers in Brazil - these payments can be anything from in-store purchases to online purchases and rent and utilities payments. In stores (or even street vendors), QR codes are used to initiate payments, and because fees are very low small vendors that would otherwise be excluded from card payments by fees can participate in digital commerce.

This, and the traditional card-based payments infrastructure, gives payments companies a foundation on which to build transformative services with a potential user base of hundreds of millions. We have seen that there is huge potential in the country, with more partnerships taking place to create systems that allow Brazilian financial institutions, software vendors, payment facilitators and others to create innovative instant-payments products that will become permanent parts of this evolving economy.

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Radi El Haj

Radi El Haj

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RS2

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Berlin

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