Arguably one of the biggest driving forces of FinTech innovation is financial inclusion.
Financial exclusion is particularly problematic in developing countries where people in rural areas simply do not have access to traditional financial services. Even those that can get access, struggle to get past layers of bureaucratic red tape that precludes them from qualifying for even the most basic services.
And for the lucky few that do qualify, they will often find it’s under very unfavourable terms of service.
However, with the advent of FinTech startups looking to disrupt the traditional banking landscape, there’s a definitive shift to greater financial inclusion.
This is especially true in Latin America where almost 50% of adults don’t have a simple bank account. The potential for FinTech innovation and disruption is therefore immense.
As much as 93% of incumbents in this part of the world believe their business is at risk to standalone FinTech companies.
(Source: PWC Global FinTech Report 2017)
At the forefront of this Latin American FinTech charge is Brazil, with around 230 (more than 32%) of the region’s 703 FinTech companies calling the ‘Land of the Palms’ their home.
Brazil’s banking crisis
Borrowing costs in Brazil are the third highest in the world, after Madagascar and Malawi.
(Source: Financial Times)
Customers can expect to pay up to 450% in APR’s through traditional financial providers, while these giants continue to turn huge profits, even throughout the country’s worst recession to date.
This has forced many users to look to alternative forms of financing such as Nubank, an online banking provider that enables customers to pay bills, make transfers earn higher interest on savings and pay lower interest rates on borrowings.
Nubank is the largest FinTech startup in Brazil and has attracted over $370 million in funding. Their main target is the 60 million Brazilians that do not have a bank account.
Another FinTech startup in Brazil aiming to reduce the cost of borrowing is Creditas, a Sao Paulo based loan provider that wants to cut down interest rates on secured loans to below 2%, by exploiting the benefits in advancements of data intelligence technologies.
Mobile adoption further fuels FinTech growth
Brazil has one of the highest smartphone adoption rates throughout the world.
There are around 198 million smartphones in use throughout the country, compared to a population of around 208 million. Considering that close to a third of Brazil’s adults are unbanked, and that mobile adoption is expected to grow to 236 million by 2022, it once again confirms the opportunities that the Brazilian ecosystem holds for FinTech startups.
This has allowed mobile payment platforms and wallets, such as RecargaPay, to raise over $8 million in funding, enabling users to make wire transfers, pay bills, make cash deposits and even load prepaid cards, all without charging any added fees.
Iungu is a mobile payments application, offering an innovative API for businesses to manage and integrate all their online transactions. The platform developed technologies to encrypt customer card information so that the seller, or even Iungu themselves, don’t have access to this information.
The seller merely receives an access key allowing them to receive payment when the customer is ready to make a purchase, putting more control in the hands of the purchaser.
Brazil’s mobile penetration means that the FinTech payments industry, including mobile wallets, is expected to reach $81 billion in transaction value by 2021.
Startups need support to overcome the challenges that any new market entrant faces.
FinTech accelerators and incubators in Brazil go a long way to help the country stand out as a nurturer of Financial Technology.
Visa Brazil provides the Track Acceleration program in partnership with GSVlabs and Kyvo. It’s a unique acceleration program hosted in Silicon Valley and some of the Brazilian startups that have been chosen for the program include Foxbit (leading cryptocurrency trader) and BeeTech (international transfers and foreign currency).
Brazil continues to thrive as a FinTech hotspot, despite political and economic challenges that have plagued the country in recent years.
The country’s love of mobile technology and adverse attitude towards sub-par services provided by traditional financial organizations mean that FinTech startups are perfectly positioned to provide ideal market solutions that customers have been longing for.