Voice of the Industry

Brazilian Embedded Finance: BRL 24 billion revenue potential by 2026

Thursday 28 September 2023 09:52 CET | Editor: Claudia Pincovski | Voice of the industry

Sergio Biagini, Leader of the Financial Services Industry at Deloitte Brazil, explains how to navigate regulation and define a strong value proposition in order to succeed in the Embedded Finance market.

The financial industry undergoes profound transformations year after year in Brazil and worldwide. One of them, undoubtedly, is BaaS (Banking-as-a-Service), a model that enables companies of all sizes and segments to connect directly and include or enhance banking products and services in their offerings using a pre-existing and regulated banking infrastructure. In order to meet market demands and expand their sources of revenue, financial institutions and technology companies are becoming suppliers of banking solutions to institutions in different sectors that wish to offer these services without having to deal with regulatory rules.

These institutions can be consumers, financial or technological. Consumer institutions are those companies that wish to incorporate financial products and solutions into their portfolio without the need to comply with the obligations demanded by regulatory bodies or undergo significant internal development and allocation. They can be from different market segments, including the financial sector. Financial institutions are providers of products and services that can be implemented by consumer institutions; they have ample resources and expertise in the sector, offering value with regulatory knowledge and existing solutions in their portfolio. Technological institutions typically play the role of facilitators in the interaction between financial institutions and consumers, developing solutions that enable quick and efficient integration between them. They are highly agile and possess significant technological knowledge.

For the non-financial sector, such as retail, telecommunications, beverage segments, etc., there is a range of opportunities to offer financial services. Virtually any non-financial player is a candidate to develop an offering of Embedded Finance, a concept in which companies that are not native to the financial sector integrate and offer products and services from this area as part of their solutions; whether to provide products and services to their customers and suppliers (it can be B2B, a business model where the end customer is another company, or B2C, where the end customer is an individual) or to reduce costs and increase internal efficiency. An example of incorporating new solutions into the existing portfolio is when an ecommerce company starts offering the end customer a payment account or credit products or insurance, in addition to their product selling platform.

Deloitte, the organisation with the most diversified portfolio of professional services in the world, reveals in a recent study the potential size of this ‘Embedded Finance’ market, in which it analysed the A, B, and C classes and Small and Medium Enterprises in Brazil. This market could generate additional annual revenue of up to BRL 24 billion by 2026 for the retail, consumer goods, and other service sectors, which together account for over 35% of the country’s GDP (Gross Domestic Product). Of this total, BRL 13.9 billion would come from credit offerings, and BRL 10.1 billion from other services such as payment accounts, acquiring services, investments, PIX (a Brazilian instant payment system), and boleto (a Brazilian payment method).

These opportunities for non-financial institutions are due to regulatory changes and market flexibilities. Since 2013, the Central Bank has been creating regulations that provide flexibility in the necessary structures for new entrants to offer financial services in a secure manner, thereby increasing competition and improving the quality of services provided. Adjacent services related to financial management also gain space with Embedded Finance, both through the offering of traditional products within new business models and as a means to gain efficiency and take over the operation of products traditionally offered by banks. Retail companies and the consumer industry start offering services such as issuing payment slips, receivables anticipation, cash management, investment accounts, and other products that enable greater internal efficiency and/or new sources of revenue.

The discussed opportunities also apply to traditional banks and financial institutions. It is evident that the non-financial industry does not want to lose focus on its core business but rather wants to add financial products to its customers’ journey. Thus, these companies may seek support from financial partners with robust structures in terms of processes, systems, and personnel. In this context, there is a relevant opportunity for the financial industry to reinvent itself, with possible offerings such as the ‘platformisation’ of core banking and the provision under the Banking-as-a-Service model. Through the ‘as a Service’ model, it is possible to expand the customer base and generate cross-selling opportunities; sell back-office outsourcing services; and provide support throughout the regulatory process and relationship with regulators.

For financial organisations to seize existing opportunities, the first step is to evaluate the potential market, the niche, and the value proposition that will be added to their current customers’ journey, and then define products and a market entry strategy. Despite all the simplifications promoted by regulators, marketing financial products requires the development of important functions within the organisation, not to mention the regulatory framework required to operate in the financial market.

This article was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2023, which is the latest comprehensive market overview and analysis focusing on the key products and players within the Embedded Finance and BaaS ecosystem.

About Sergio Biagini

Sergio Biagini, Leader of the Financial Services Industry at Deloitte Brazil, brings over 20 years of consulting experience working on complex and strategic transformation projects.Sergio Biagini, Leader of the Financial Services Industry at Deloitte Brazil, brings over 20 years of consulting experience working on complex and strategic transformation projects. Biagini has a strong background in establishing operations, designing new business models, and leading large-scale transformation programs for financial institutions.

About Deloitte

Deloitte is the organisation with the most diversified portfolio of professional services in the world, with 415,000 professionals impacting over 150 countries. In Brazil, where it has been operating since 1911, Deloitte is a market leader with approximately 7,000 professionals and a presence throughout the national territory with 15 offices.

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Keywords: embedded finance, financial services, regulation, BaaS, financial institutions, retail, B2B payments, ecommerce, investment, central bank
Categories: Banking & Fintech
Companies: Deloitte
Countries: Brazil
This article is part of category

Banking & Fintech


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