Brazil is currently undergoing a remarkable and unique year for competition and innovation in its financial and payments sectors: this year, major projects led by the Central Bank of Brazil, such as the implementation of the Open Banking ecosystem, the instant payments ecosystem (which received the brand “PIX” by the Brazilian regulator) and the Regulatory Sandbox, began to be implemented in the country, opening several perspectives and opportunities for new and innovative players.
Such projects came in a movement of opening of the Brazilian financial and payments sectors since a huge banking consolidation that took place during the 90’s in the country due to two plans executed by the Brazilian Government in order to remove distressed financial institutions from the National Financial System: the Program of Stimulation to the Restructuring and Strengthening of the National Financial System (Programa de Estímulo à Reestruturação e ao Fortalecimento do Sistema Financeiro Nacional ─ PROER), which was aimed at the financial entities of the private sector, and the Program of Incentives to the Reduction of the Public Sector in the Banking Activity (Programa de Incentivos à Redução do Setor Público Estadual na Atividade Bancária ─ PROES), which was aimed at the public banks. Basically, the implementation of those plans gave rise to mergers and acquisitions of banks and other distressed financial institutions, which led to the concentration of the financial sector in Brazil in few, but sound, financial institutions.
A similar situation could be observed in the payments sector: by the end of the past decade (2009-2010) there were only two relevant acquirers operating in Brazil with different settlement systems and closely related with card schemes and traditional banks, and the barriers for entrance of new players were still considerable and difficult to surpass.
In 2013, the Brazilian government enacted a provisional measure, later converted into a law, which forced payment institutions and card schemes to operate under the scope of regulation and supervision of the Central Bank. Such a legislative landmark, along with the growing digitisation of financial services, as well as the profile change of the Brazilian consumers, who became more and more inclined to using digital services and electronic means to perform their financial and payment activities, resulting in the growth of the number of players operating in the payments sector, with the rise of important new players such as PayPal, Nubank and Stone, and consequently the reduction of costs to consumers.
Since then, it has been possible to perceive an alignment in the Brazilian government, the Central Bank and the private sector in order to foster competition, new business and the opening of the financial and payments sectors to new players.
As to the credit sector, in 2018, the National Monetary Council issued a resolution creating two new credit entities: the Direct Credit Company (SCD) and the Interpersonal Credit Company, or P2P Credit Company (SEP), with a lower regulatory cost for entities intending to provide credit in Brazil.
Also in 2018, the Central Bank issued a communiqué announcing that it would lead the implementation of the instant payments ecosystem in the country, with the intention of creating the tools for expansion and democratization of payment means in Brazil.
In 2019, the Central Bank announced the implementation of the Open Banking ecosystem in Brazil, intending to shatter the information asymmetry barriers that historically constituted an obstacle for the players in the credit and payments markets in the country. Furthermore, this implementation forced big financial conglomerates, such as Itaú, Bradesco and Santander, to share their data within the ecosystem.
All those movements culminated this year at the beginning of the implementation of milestone projects by the Central Bank: the Open Banking ecosystem, the instant payments ecosystem, the Regulatory Sandbox and the Receivables Registration Regime (which will allow small and medium-sized companies to open their agendas for players in a neutral system in order to expand their possibilities of credit), among others.
According to a paper recently published by the Bank of International Settlements (The Dawn of fintech in Latin America: landscape, prospects and challenges), in 2019, Brazil was the largest fintech market in terms of investment, volume of alternative finance and number of deals. Given the clear intention and leadership of the Central Bank of new innovative projects such as Open Banking, instant payments and the Regulatory Sandbox, the perspective is that the investments, financings and deals involving fintechs will be maintained or even enhanced in the country in the coming years, despite the outbreak of the COVID-19 crisis which, on the one hand adversely impacted the Brazilian economy, but on the other hand fostered the need for new and alternative sources of credit and electronic payment means.
2020 is undoubtedly a turning point for innovation, new opportunities and outlooks in the financial and payments sectors in Brazil over the coming years.
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