By Renan Raffo and Layon Lopes*
Over the last decade, Brazil has experienced a huge expansion of fintechs, being recognized as the greatest fintechs ecosystem in Latin America and one of the biggest in the world. For sure, the fact that Brazil has a population of more than 210 million inhabitants, from which almost fifty percent doesn’t have access to the traditional bank system, according to Brazilian Central Bank, indicates that the country still has an enormous market to be discovered and acquired. Furthermore, the bad quality of the services provided by a few big companies, which crontolled the monopoly of the financial system until a few years ago, has also contributed to the growth of fintechs in Brazil, aligned with the purpose of supplying innovative solutions to the field. But not only that: Brazilian Central Bank’s performance, setting policies to stimulate entrepreneurship and competition, has been a key factor for the success of the financial revolution that has been happening in the country so far.
There have been many initiatives from Brazilian Central Bank (“BCB”), the financial system’s regulatory body, in order to foment the arising of new players in the sector. The idea has always been clear: using technological innovation to decrease the complexity of providing financial and payment services so as to achieve a large amount of people and companies that had difficulties to make use of banking solutions in the country. Of course, in order to make the goal feasible, the autarchy had to implement concrete incentives for reducing the bureaucracy of setting up a business in the financial area as well as breaking the comercial domain from the big traditional players.
And so has it been: many policies, such as the Open Banking and the Regulatory Sandbox, have been put into action by BCB, creating a friendly and heated scenario for new enterprises and, specially, for big investments on these coming up companies. Nonetheless, BCB has also set specific regulations for some kinds of business models, facilitating the creation of peer to peer loan platforms and other online financing and payment institutions, among others. The main difference from these businesses to traditional banks is the fact that the compliance they are obliged to is, mostly, simpler than the others. In other words, BCB has fitted a specific corporate governance for fintechs in order to make their development possible.
Despite this effervescent scenario pointed out, setting up a fintech in Brazil has, for sure, many challenges. It’s important to have in mind that you need to have enough funding for developing good technological tools, in accordance with the regulatory prescriptions from BCB, as well as an interesting product to present to your consumers. Having a profound knowledge about the market in which you want to settle is fundamental for succeeding and, overall, being accompanied by people who understand the technical, regulatory and comercial particularities of this ecosystem might be crucial for raising a promising fintech instead of having na unsuccessful adventure.
*Layon Lopes is the CEO of Silva | Lopes and Renan Raffo is a member of the Silva | Lopes team.