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APPs Updated: 05 Aug 2016

Six features of financial innovation in Brazil

In August, the whole world will turn its eyes to Brazil, and not only because of sporting events that will be taking place. The country’s security, facilities, resources and problem-solving skills will be held to close scrutiny, especially in its position as emerging economy in the midst of a profound political and economic crisis.

In contrast with the growth rates the country enjoyed in the past and its more recent decline, indicators suggest that Brazil’s economy is stabilizing, and that it is poised to go back to 2 to 3% growth rates in coming years, according to some experts. The occasion has provided the perfect scenario for financial innovation and for the country to shine as one of the standard-bearers of financial inclusion in Latin America.

But, how is the country faring in the field of fintech? What points developed in it stand out in this ecosystem? Here we take a look at different key points to shed some light on the topic and assess the country’s situation.

1. An singular enterprise: Banco Original, 100% Digital

One of the things that Brazil can boast about is having 100% digital bank. Created by a former chairman of Brazil’s Central Bank, Banco Original was born –according to the premises stated on its website - “to untangle your relationship with money.” In other words, to offer the same services as traditional banks, minus the queues and paperwork.

The creation of the bank was possible in parts thanks to Brazil’s Central Bank regulations, which seem designed to promote the creation of this type of services.

2. A commitment: financial inclusion

Brazil’s regulatory body is highly committed to promote financial inclusion, and in fact, it is one of the 10 leading countries in the world in these matters. Without a doubt, the launch of Banco Original is a significant step to drive inclusion.

According to the Global Microscope report published by Brazil has one of the highest scores in facilitating agent operations. Brazil regulations allow a broad range of institutions to operate as intermediaries in a number of transactions, including paying bills, opening accounts, and cash deposits and withdrawals.

Also, four years ago, the country created a new regulatory framework to promote microinsurance. This new framework authorized bank branches and representatives to start offering this type of products. This expanded the access to and use of microinsurance policies in remote locations of the country and among underserved populations.

3. Start-ups, on the rise

The start-up sector has definitely taken off. According to the FintechLab Report published in 2016, the startups that are being in the country engage in different fields of activity. There are over 130 startups in areas such as financial management, lending, funding, insurance, bitcoin and blockchain. The report highlights that “during the year, 50% of the businesses mapped posted turnover in excess of $280,000 and 1 in every 5 will have more than 20 employees.”

Among the issues that entrepreneurs have to face, indebtedness is one of the most pressing in Brazil. However, it seems that VC investors have started warming up to Latin America’s potential, despite far more modest activity figures than in U.S., Asia or Europe. In 2015, they invested almost $600 million (€535 million) on technology startups in the region, according to the  Latin American Private Equity & Venture Capital Association (LAVCA), with Brazil being one of the biggest beneficiaries after Mexico, Argentina and Chile.

4. Some key players

One of Brazil’s most recently successful startups is Glio, a social network where users share their experiences at bars, restaurants, movie theaters, shops… It was created in the University of Rio de Janeiro and then travelled to Silicon Valley, where it was signed by YCombinator, the business accelerator that also backed Dropbox and Airbnb in their early days.

Also, Eduardo Luiz Saverin is one of the most recognizable names in Brazil’s technology industry. This investor played a key role in the birth of Facebook’s and is considered one of its five co-founders, together with Mark Zuckerberg, Dustin Moskovitz, Chris Hughes and Andrew McCollum, as reflected in, for example, ‘The Social Network’, David Fincher’s firm.

5. Google, with its eyes set on the country

Google seems to be seriously considering Brazil as a ‘strategic startup point.’ Besides the many Brazilian startups applying to Google’s Launchpad Accelerator program - which offers six months of technical support and training and $50,000 in funding - the technology firm is gearing up to launch its first digital business initiative in São Paulo.

Google intends to set up an innovation and acceleration hub, a space that will also host courses and seminars for digital startups. Google has already set up other ‘Campuses’ in cities such as London, Madrid or Tel Aviv. André Barrence, creator of Seed, one of the fastest growing Brazilian projects, has been appointed as head of the São Paulo Campus. All startups interested in joining these initiatives can apply already.

6. A key challenge: growing e-commerce

e-Commerce seems to be struggling getting off the ground in Brazil, as consumers have cut back spending due to the recession and the prospects for the year are not good. However, online e-commerce sales are expected to increase 8% this year.

Offline sales have only increased by 3.2%, a figure that is anything but encouraging, especially if we take into account that Brazil is one of the top emerging economies.