Brazil is the ninth largest economy in the world, but its payments market has always been regarded as extremely concentrated. This is not surprising considering the majority of debit and credit cards in circulation were issued by four major banks, and 9 in 10 cards were either Visa or Mastercard, until 2007. However, in recent years there has been a significant increase in the number of fintech companies entering the market. Between October 2017 and May 2018, there was a 22% increase in the number of fintechs in the market, and as of May 2018, 377 fintech companies were established in the country, a quarter of which are dedicated to payments and remittances.
The increasing number of new and disruptive players has been driven by Banco Central do Brasil (BCB), Brazil’s central bank. In 2018, BCB announced plans to establish a new open banking and payments system that would not only be open to traditional FIs, but new players. The aim of the system is to facilitate real-time payments, mobile payments and mobile banking services, as well as offer P2P, P2B, B2B and payments to and from government agencies in real-time. While Brazilian consumers can currently transfer money between bank accounts in seconds, this service is only available during limited hours on weekdays. The new system, which is due to be in operation by 2021, will enable Brazilians to make payments and transfers between various people and institutions 24/7/365.
A key part of this open banking initiative is to encourage more competition within the concentrated Brazilian market, allowing non-banks to register as payment providers and initiate payments through current accounts or alternative e-money accounts. These new regulations are expected to encourage the adoption of mobile payments and mobile banking in the country.
The perfect storm
In countries like Brazil, where there is access to traditional banking services – with 86.5% of Brazilians over 15 having bank accounts (according to BCB) - growing the mobile money market has been challenging. However, Brazil’s young, tech savvy population and large underserved population provide unlimited opportunities to players entering the market. Initially slow in smartphone adoption, today Brazil boasts more smartphones than people – with an average of two devices per person – and, according to GSMA’s The Mobile Economy 2019 report, the country is expected to account for 3% of all new mobile subscribers by 2025.
These favourable conditions coupled with the regulations encouraging competition in payments creates the perfect storm for utilising the mobile device for payments. As a result, the mobile space will undoubtedly open up as traditional FIs and fintechs seek to implement branchless solutions for consumers and provide alternatives to cash.
According to Travelex, 6 in 10 Brazilians are worried about the threat of cash being stolen from them. With an underserved population of 55 million, who rely heavily on cash, this is where the mobile device could really make a difference. However, NFC payments are yet to become mainstream – even with the introduction of Samsung Pay in 2016 and Apple Pay in 2018 – so FIs might want to look to other examples of mobile technology in a bid for consumer adoption and a slice of the market. While QR codes are considered an older technology, practical applications of it are being used nowadays - for example they are being used to make payments on public transport.
Future-proofing your business
For traditional FIs to compete in the evolving Brazilian market, having the right technology is key. Fintechs are agile and can move quickly, therefore, FIs need to be able to do the same. They need a modern, flexible underlying payments infrastructure that can enable them to truly differentiate their business by bringing new innovative products and services to market quickly and at a low cost, as well as deal with the unknown future advancements of the payments industry. However, simply having a modern system does not guarantee that it is future-proof. The future of payments in Brazil is set to be both exciting and fast-paced; new regulations, real-time payments, open banking, mobile banking and payments all provide the opportunity for FIs to evaluate their system to see if it fits with their business needs - and those of consumers - and actually compete with the new disruptive players in the market.