FinTech in Brazil: Challenger banks unlocking credit to millions of people

fintech brazil

This is going to be a series of 7 articles about the FinTech landscape in Latin America. I will start with Brazil and there will be a new post every Wednesday about other Latin American countries

FinTech in Brazil: a quick overview 

In May 2019, there were 550 FinTechs in Brazil, according to the FinTech Mining Report 2019 with over half of them starting their operations between 2016 and 2018. The payment solutions segment has the biggest number of FinTechs (114), followed by lending (85), backoffice (66) and risk and compliance (51). Also, there were 26 FinTechs for digital services, including digital accounts, ewallets and digital banks.

This almost exponential growth is the result of Brazil’s Central Bank (BC) introducing regulation that would increase the competitiveness of the banking sector and encourage new business’ models. In 2019, BC’s president said that by the end of 2020, 60 new FinTechs will be approved taking into account this new regulation. 

There is a lot to talk about the FinTech sector in Brazil due to its size and diversity. However, I will be focusing on challenger banks and the benefits they brought to a largely unbanked population.

The FinTech sector in the country is growing so fast and already over two thirds of Brazilians started to use these newly available financial services. The FinTech adoption rose to 60% between 2017 and 2019, according to Statista. Before that, it was estimated that just over half of the adult population had a bank account and much fewer than that had credit cards.

Just over 70% of Brazil’s FinTechs raised capital from investment partners, and 14% have raised more than BRL$ 20m (US$6m) each in investment. Goldman Sachs estimates that Brazil’s FinTech companies will have revenues of around US$24b over the next 10 years.

And there are already a few unicorns. In the payment solutions sector, we can find PagSeguro, Stone and Ebanx.

Nubank: a unicorn’s journey with marketing strategy and excellent customer service.

We can’t talk about the Brazilian FinTech landscape without talking about challenger Nubank.

Founded in 2013, it had a meteoric rise and officially became the first Brazilian FinTech unicorn in 2018. 

In a recent interview, Nubank’s co-founder David Velez mentioned that the idea behind NuBank was to cut the long and bureaucratic process of opening a bank account in Brazil.

Nubank already has over 20 million customers, which is a reminder of how big the Brazilian population is. That’s twice as much as Revolut. 

It’s worth mentioning that Nubanks’ success was a happy combination of factors.

First, NuBank came up with a very intuitive mobile application: all tasks are done in-app and to tackle security issues, Nubank introduced biometric authentication. I already mentioned in one of my previous posts how important an easy to use and intuitive app is crucial for a successful customer retention.

One of Nubank’s first digital marketing strategies was to relate to clients in a way completely different from the competition, leaving aside the typical formality of banks when talking about finance.

To do this, they created a marketing plan to discover the identity of customers. Thus, with a broad knowledge of who these people are, Nubank started to establish close relationships with these people on the internet.

Nubank’s stopped focusing so much on TV, newspapers and magazines ads and decided to focus on online platforms, creating an intimate and effective connection with its clients.

They used social media in a very ingenious way. For example, on Facebook, Nubank would talk to its customers in a very informal way, more like a friend. That was something that was unheard of in the banking industry.

Another aspect of Nubank’s success was to provide excellent customer service, something that mainstream banks had been notorious for. 

There are a lot of stories on the internet about Nubank going the extra mile for a client. One of the most famous is the story of a pregnant woman that wanted to book a cab ride for a hospital appointment but the transaction was declined because she reached her card limit. Chatting with the customer service in the app, the customer representative gave her an emergency increase in her credit limit, so she could use the card in that instance. The lady ended up joining the Nubank’s team as an employee later. 

Unlocking credit to a wider population

Unlocking credit for millions would be essential for Brazil’s economy. So, how does a FinTech do this when most of clients don’t even have a credit history to begin with?

Nubank’s strategy is to start small. They usually offer a starting credit limit of BRL$ 50 (US$ 10) so their clients can start building their credit history. After that, Nubank analyzes their pattern of spending behaviour and they can increase their limits later on.

The lack of data points is Brazil has been a challenge for Nubank and they use “non-traditional” sources of information. Nubank co-found David Velz mentioned most of Nubank’s clients are referred by existing clients, so good clients tend to refer to good clients and vice-versa. He also added that they also use information about spending patterns, to try to create a more holistic picture of their clients.

In this video below, Velez explains more about Nubank’s strategy about unlocking credit:

Banking in Brazil is difficult. We wanted to change that.

Velez for

Nubank doesn’t charge any banking fees and its consumer rates for credit cards are between 3 and 11% monthly and are well below the Brazilian average reported by Brazil’s central bank.

The Latin American unbanked population is estimated to be 250million, this could be an huge opportunity for Nubank to expand outside Brazil. They already launched their operations in Mexico – with a rebranded name “Nu” –  and also in neighboring Argentina.

In the next article, I will talk about the Future of FinTech in Brazil and much more.

This article was originally published on LinkedIn

Marcel van Oost is known as an independent commentator on FinTech through his blog and LinkedIn.

He is an early stage investor and advisor for several FinTechs and neobanks, and leads a FinTech focussed Angel Investor Syndicate.

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