As the fifth largest country in the world, occupying half of the entire Latin American land mass, Brazil is certainly an unmissable force in global industry. This is most definitely the case in terms of Fintech, which is short for Financial Technology, and essentially encompasses any program or technological development that can assist with financial services in the world of business. As the COVID-19 pandemic leads to greater innovation in numerous sectors, Fintech has started to become a prominent figure in global headlines as demand for new solutions to problems that did not exist before are coming to light. Therefore, if you are looking to convert some of your capital assets into investments in new markets this year following the COVID-19 pandemic, perhaps the Brazilian Fintech industry could be for you.
The purpose of today’s article is to explore a bit of background to the market, projections for the near future in Brazilian Fintech and its sub-sectors, and also where the gaps for investment are appearing.
Context is always key, and so a good place to start is the beginning, specifically 1967, when the first ATM was built and positioned at a Barclays bank. This is a pioneering moment because it signalled the changing times towards technology-based economic activity. This is furthered by two other key dates and corresponding events, namely the introduction of the NASDAQ online stock exchange in the 1970s and the 90s where banking through the internet became commonplace. This could be characterised, for example, by the establishment of PayPal in 1998.
This information serves nicely as a background to global Fintech, however, if we were to apply this to Brazil and how these events acted as the catalyst for its introduction in Latin America, it becomes clear that the timeline of development is really not that long at all. This is not to say there is no history, but what it definitely means is that there is a lot of room for innovation and presents an exciting opportunity for investment. The foundation for the market in Brazil may have been built in the early 2010s, but the pandemic has allowed it to rapidly accelerate as traditional banking has become less reliable and, in some cases, unviable due to lockdowns and fear of contracting COVID-19. Prior to the global health crisis, however, in 2018, peer-to-peer lending became allowed, meaning banks were no longer the only option, and therefore, companies were able to innovate Fintech to fulfil the purpose of expanding financial services in Brazil.
Now that the Fintech industry has been able to develop, the valuations of the market are more interesting. To take an example, it has been said that this year (2021), the average value of capital transactions that take place within the ‘Alternative Banking’ sector will surpass US$42,626. This is significant, especially in Brazil, as typically, traditional banks saw a large share of transactions take place within the confines of their buildings, however, this statistic demonstrates the scope of Fintech in an evolving market, and potentially the value of investments in this sector. Looking deeper into the investment potential of Brazilian Fintech, by 2025, the number of users of platforms relating to Digital Payments is said to increase to around 138 million, and in a population of 211 million, this figure represents more than 50% and exhibits the explosive potential in this market.
Specifically, however, one of the main gaps in the industry that presents itself following the pandemic especially is the demand for banking that avoids all interpersonal contact altogether. In the financial services sector, this is known as Neobanking. If you are not familiar with this, it is essentially an umbrella term encompassing highly developed digital banks that do not have any physical presence whatsoever. This certainly sounds enticing, as they are cheaper to run than a traditional bank, leaving more money to be spent on developing tools and other features for users. If we look at the numbers, the 2018 market valuation of Neobanking across the globe was US$18.6 billion, evidently much smaller than large chains of traditional, physical banks. Let this not put you off though, as between 2019 and 2026, it is estimated that the Compound Annual Growth Rate (CAGR) of the Neobanking sector will be 46.5%, increasing the value of the market to US$394.6 billion in 2026. This increase is drastic, and with Latin America becoming a hub for technological innovation, Brazil could well experience a boom in the Neobanking sub-sector of the Fintech industry too.
So, if you are interested in finding out more, contact us today! At Creimerman, our team of professional global citizens would be happy to help you with your personal or professional cross-border ventures and help make them a success.