Daily Management Review

Even As Political Scandal Swirls, Brazil Slowly Developing Into A Fintech Powerhouse


Brazil has a thriving financial technology (fintech) sector that has managed to defy the country's political and economic turmoil even as the country is attempting to extricate itself from a recession as its president fends off a corruption scandal.
The country may find itself in the position of having to remove its second consecutive leader before their time in office expires with President Michel Temer denying allegations that he condoned a bribe to silence a witness in Brazil's widening corruption scandal. And in the meantime. Hanging in the balance is Temer's economic reform agenda – unpopular with the public but embraced by markets.
A nascent boom in fintech and a tentative rebound in the economy has all but drowned by the political intrigue. Investments into digital disruption in the banking system has topped as much totaled 5 billion reais (more than $1.5 billion) per year, estimates Moody's Investor Service.
Innovation within the country's banking sector — an area known for being tightly held and bureaucratic is being driven by enthusiasm blooms for Brazil's fintech sector at least for the moment. In fact, to oversee the growing number of fintechs, Brazil's central bank is mulling new regulations this year.
Now making it the largest financial technology market in Latin America with more room for growth, the number of FinTech startups in Brazil has "surged" in recent years, highlights a recent report by Moody's.
Simultaneously, in order to appeal to millennial customers – a significant and growing segment of the population with particular preferences and increase efficiency, Brazil's largest banks are also investing heavily in fintech.
"The structural shift in customers' demands and behavior is leading banks to increasingly focus on alternative service channels," Ceres Lisboa, senior vice president with Moody's and co-author of the report, wrote in a research note last month.
"Lenders are also attracted to digital banking because they see opportunities to reduce costs as Brazil's economy remains weak after a protracted recession," he added.
There are other factors that loom large in Brazil's fintech sector aside from political risks. When it comes to the ability to reduce costs, as well as its "digital readiness", Brazil was cited as a "laggard" in a January report by Citi.
Yet Brazil is being forced to adapt to a younger and readily agile generation that is demands flexibility on the retail level with the growth in digital services forcing the country's banks to gradually downsize.
There are plans for Bradesco to shutter more branches after acquiring HSBC's Brazilian operations and banking giant Itau has closed 10 percent of its branch network over the last three years.
"Even government-owned Banco do Brasil, which has some limitation related to acquisition and partnerships, has closed branches in the past two years as it enhances its digital services through internal developments," Moody's noted.

"The system has modernized," said Philippe Buhannic, founder and board member of TradingScreen, a multi-asset trading firm. "Brazil's consumer banking is now modern, with a lot more" technology.

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