Fintech opportunities in Brazil attract venture capital investment

While Brazil’s political environment is mired in instability and allegations of corruption, the fintech industry has emerged strong, with the number of Fintech start-ups in Brazil surging in recent years, making it the largest financial technology market in Latin America(1).  Fintech firms are capitalising on some 210 million adults who remain unbanked, in the country.     (http://www.worldbank.org/en/news/press-release/2015/04/15/massive-drop-in-number-of-unbanked-says-new-report) , with the World Bank figures showing only 51% of adults in the region having a bank account.

A new report from Goldman Sachs(https://www.nytimes.com/topic/company/goldman-sachs-group-inc?inline=nyt-org) anticipates the 200+ fintech companies taking a share of Brazil’s financial market.  This market, currently dominated by 5 top banks who own 84% of the total loans an d90% of the consumer banking branches in the country (2)

This oligopolistic banking sector has lead Goldman Sachs to believe that “the Brazilian financial system is particularly susceptible,” with the fintech impact being greater in Brazil than anywhere else in the world. (2)  because of the monopoly of a few banks in the sector, consumers want alternative solutions to the banks which have dominated the country’s financial sector, especially the tech savvy millennials, open up new opportunities for innovative fintech offerings providing an alternative solution to the traditional banking system.

This analysis is consistent with other recent market developments.

Venture capital investments in fintech companies in Brazil have been increasing. The field is also open to Private equity firms who are starting to take note. In 2017 , the American private equity firm Advent International acquired a minority stake in Easynvest.(2)

The current estimated figure is that Brazil’s fintechs will generate some $24 billion over the next decade through financial services such as payments, lending and personal finance in particular (2), providing a more affordable alternative for consumers to Brazil’s banking fees and interest rates for loans which are regarded as one of the highest in the world.

According to reuters.com (https://www.reuters.com/article/us-brazil-banks-tech/fintechs-seek-slice-of-brazils-small-business-loan-market-idUSKBN19O2H9)  Borrowers in Latin America’s biggest country pay an average 250 percent a year for the riskiest type of unsecured rollover credit, the highest among the world’s 20 major economies. (3)

Added to this is the low availability for credit, opening up further opportunities to disrupt the market’s concentrated banking sector as well and expand on current offerings of fintech start-ups, many of whom are focused exclusively on either payment services or asset management, with only 2% offering multiple services,(1) creating additional opportunity for new fintech offerings and innovations.

 

References:

1 https://www.moodys.com/research/Moodys-Brazils-established-banks-will-dictate-nations-shift-to-digital–PR_365665

https://www.nytimes.com/2017/05/15/business/dealbook/goldman-sachs-sees-big-potential-for-fintech-in-brazil.html?

https://www.reuters.com/article/us-brazil-banks-tech/fintechs-seek-slice-of-brazils-small-business-loan-market-idUSKBN19O2H9

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