Voice of the Industry

How regulation created a fintech boom in Brazil

Thursday 29 November 2018 09:40 CET | Voice of the industry

Ralf Germer and Alex Hoffmann, co-founders of PagBrasil, explain what stays behind the fintech boom in Brazil 

Brazil is the ninth biggest economy in the world and leads ecommerce in Latin America with its 150,000,000 internet users. Brazilian fintech companies are playing an important role in navigating domestic complexities and creating forward-looking solutions for businesses and consumers. Regulatory changes are fostering competition, and the entry of new players is shaking up the industry.

Historic view of the Brazilian payments industry

In order to understand the current regulatory framework and trends in Brazil, it is important to take a look back at the industry’s history. Brazil’s payment sector has always been regarded as a concentrated market. Up until 2007, 90% of all debit and credit cards issued were Visa or Mastercard labeled. 66% of credit card and 77% of debit card transactions were concentrated in four major issuing banks.

Additionally, only two acquirers operated in Brazil: Visanet and Redecard (now Cielo and Rede), with the former exclusively capturing Visa and the latter Mastercard payments.

In 2010, following recommendations from the Central Bank of Brazil and the Brazilian Council for Economic Defense, regulations were implemented, opening the acquiring market for new players. In addition, Cielo and Rede no longer had exclusivity on capturing Visa or Mastercard labeled cards.

However, in 2012, the Central Bank of Brazil published a report on the Brazilian card industry revealing that the concentration rate was still high.

In 2013, the Brazilian Government enacted Law 12,865, empowering the Central Bank to act as a regulator. At this point, a new regulatory framework was issued, introducing the concept of payment arrangement and payment accounts. The new regulations implemented from then on were aimed at creating competition, with non-discriminatory treatment of participants and bearing in mind the protection of merchants, giving them freedom to choose the institution for the deposit of funds and the mechanisms for protecting their receivables.

The Brazilian payments industry today

The new regulatory framework opened the door to new players. According to consulting company Boanerges and Cia, there are 13 acquirers operating in Brazil at the moment. Additionally, as of May 2018, there were 377 fintech companies established in the country, with 25% of them dedicated to payments and remittances. This number is rising quickly. There were 22% more fintechs in May 2018 than in October 2017, and throughout 2017, there was a 40% increase. These are some of the main players in the Brazilian payments industry today:

The new players, in particular fintech companies, are closing the gap left by traditional financial institutions and contributing to financial inclusion. There is a growing trend in foreign investments into Brazilian fintechs. China’s Tencent is investing USD 180 million in Nubank. Stone had its IPO in October 2018, with Warren Buffett’s Berkshire Hathaway and Alibaba Group subsidiary Ant Financial among its shareholders. PagSeguro raised USD 2.3 billion in its IPO on the New York Stock Exchange earlier in 2018.

In 2016, the Central Bank of Brazil introduced its “Agenda BC+” with an action plan to update and simplify regulation following international standards, promote financial education and inclusion, facilitate access to credit and payments within the national financial system and promote a more competitive and efficient system.

In 2018, regulations aimed at introducing competition in the credit market also created an opportunity for credit fintechs to lend money directly, with two types of institutions:

Direct Credit Institution (Sociedade de Crédito Direto – SCD): a financial institution authorised to provide loans with their own capital.

Peer-to-Peer Institution (Sociedades de Empréstimo entre Pessoas – SEP): a financial institution authorised to connect investors and borrowers in a P2P lending arrangement.

It is also worth noting that on 29 October 2018, Brazilian president Michel Temer published presidential decree 9.544/2018, recognising federal government interest in the participation of foreign capital of up to 100% in both types of financial institutions.

What is next?

The near future holds opportunities and changes in different areas. A major project in Brazil is the implementation of an instant payments system, a Central Bank initiative. These real-time payments are planned to be available 24x7x365 and will encompass different scenarios of transfers between people, businesses, consumers and governments. Instant payments, in combination with mobile solutions, will generate inclusion, replace cash and checks, and potentially also transform the card industry.

Another trend is Open Banking. In this area, the Central Bank expects to enact regulations in 2019 to make banking data held by financial institutions available for processing and use by fintechs.

Cryptocurrency and crypto exchanges are big trends worldwide. However, in Brazil they are still not regulated. The Central Bank of Brazil and the Securities and Exchange Commission of Brazil (CVM) are in observation mode for crypto, keeping an eye on the market to act when and if appropriate.

Whatever the future holds for the Brazilian payments industry, it is clear that fintech companies play a major role in driving changes and opening up space for the discussion of new regulations.

Alex Hoffmann

Alex has co-founded PagBrasil in 2010. He has a strong track record in the Brazilian market, expertise in payment processing, as well as software development background. He is also Founder & CEO at SiliconAction, the largest online software store in Latin America.


Ralf Germer

Ralf is Co-Founder and Co-CEO at PagBrasil. His fields of expertise are business management, international business development, marketing and online sales, and payment processing. Prior to PagBrasil, he was Vice President of Product Marketing Europe at Actebis and later founded 4M Iberoamérica.


About PagBrasil

PagBrasil is a leading Brazilian fintech company processing payments in Brazil for multinational ecommerce businesses. With focus on innovation, we created the best infrastructure for the Brazilian market. By providing an outstanding service and innovative products, such as Boleto Flash®, we create unique value for our clients and their customers. Our complete online payments platform is the result of more than 20 years’ experience in the segment and relies on innovative resources, designed specifically for the Brazilian market. Local and international merchants gain access to the most advanced portfolio of products and services, which help them boost their sales immediately.

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Keywords: PagBrasil, Brazil, fintech, Central Bank of Brazil, Cielo, Visa, Ralf Germer, Alex Hoffmann, P2P lending, cryptocurrency, Rede, acquiring market, Visa, MasterCard, crypto exchange, Direct Credit Institution, credit card, debit card
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