Brazilian credit fintechs allowed to initiate payment transactions

Monday 28 November 2022 14:39 CET | News

Brazil's National Monetary Council has allowed credit fintechs to initiate payment transactions, clearing them to provide payment services to consumers.

To operate as payment initiators, fintechs currently need to open another company specifically for this purpose. With the change, they will be able to offer this service within their routine operation.

Customers of credit fintechs will be able to make purchases or financial transactions without the need to enter the institution's application, simply by clicking on links provided by the recipient of the funds. The National Monetary Council (CMN) authorised these institutions, a type of financial startups, to act as payment transaction initiators.

Payment initiators, according to the central bank, initiate a transaction ordered by the final user but never manage the payment account, nor hold the funds of the transactions.

The central bank stressed that the change should promote innovations in the financial system and increase competition between companies authorised to provide this service. As mentioned by the officials, this improvement is of a complementary nature to the activities of credit fintechs and, for the Central Bank, it has the potential to promote innovations in the National Financial System (SFN).

Recent news on fintech regulation

This is the second easing for fintechs in recent days. Earlier in November, the Central Bank postponed by six months the prudential capital requirement for larger fintechs , which in recent years have started to offer financial services similar to those of banks, but without the same financial regulation. The rules, which would come into force in January, were extended to July 2023.

Announced in March 2023, the new rules equate the functioning of fintechs to that of commercial banks. With the expansion of the segment, several fintechs created subsidiaries that began to offer services similar to those of banks, such as digital wallets, but without the same security and risk assessment standards.

The regulation mainly affects payment institutions with strong growth in recent years, such as Nubank, PagSeguro, PicPay, and Stone. According to the Central Bank, the offer of new financial services by these fintechs made it necessary to improve the rules. This is because payment institutions, little by little, began to create subsidiaries that carry out activities similar to those of banks.

The evolving regulation space

Brazil, one of the largest fintech ecosystem in Latin America, has been advancing fintech regulations for years now, focusing particularly on payments, online lending, and crowdfunding.

Brazil's National Monetary Council allows credit fintechs to initiate payment transactions.

In 2013, new payments regulation was introduced, paving the way for mobile payments innovation and digital wallets. This was followed in 2017 by crowdfunding rules, and in 2018 by the release of regulation for so-called credit startups as well as establishing a licensing regime for peer-to-peer (P2P) lenders.

Brazil’s central bank approved the Brazilian Open Banking in early 2019 as part of a broader modernisation push of the country’s financial sector. Implementation started in February 2021. Moreover, because the PIX system has a neutral, open, and interoperable structure maintained by the BACEN itself, it is expected to be integrated with the Open Banking shortly, specifically at the third phase of the Open Banking’s implementation time frame, when instant payment services will be included in the Open Banking system.

In late-2020, Brazil established guidelines for the operation of its regulatory sandbox, an environment in which entities from the financial or payment industries are licensed to test, for a specified period, an innovative solution.

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Keywords: fintech, transactions , payments , banks, startup
Categories: Banking & Fintech
Countries: Brazil
This article is part of category

Banking & Fintech