Our proprietary survey of 215 fintechs enables them to: 1) reveal the factors driving their success to date; 2) describe their strategic plans; and 3) highlight the main challenges they foresee to the growth of their businesses. For the Brazilian cohort of our survey, we present the main results here, as well as comparing with global peers and our earlier 2020 survey results.
Brazilian fintechs attribute their success to date to their ability to deliver innovative service offerings, and to the strong support they receive from their shareholders. Relative to fintechs elsewhere, there is less credit given to distribution networks and competitive pricing.
Strategic priorities are centered on delivering new products and services, entering new customer segments and developing new use-cases for existing products and services. Relative to global peers, there is less emphasis on boosting operational efficiency.
The main factors that are slowing fintech growth in Brazil include access to funding, regulation, slow customer adoption and the overall growth of the market. Competition (both from traditional financial institutions and other fintechs) is less of an issue for Brazilian fintechs compared to those in other emerging markets.
Key fintech success factors: Innovative offerings, strong shareholders
The top two factors that Brazilian fintechs credit for their success to date are: 1) innovative service offerings; and 2) well-connected/financially strong shareholders.
Relative to those in other emerging markets, Brazilian fintechs feel extensive distribution networks and competitive product pricing have been less relevant to their success.
In comparison with our previous survey, Brazilian fintechs now give more weight to strong shareholders for their success. Meanwhile, the importance of targeting the financially excluded and of an extensive distribution network have both decreased.
Innovative service offerings
Innovation is a key pillar for fintech success. It can, for example, allow fintechs to improve their service offerings and, hence, enhance the consumer experience. Firms that are striving to innovate include mGrana (lending) and Transfeera (investech).
Well-connected/financially strong shareholders
Well-connected/financially strong shareholders can be helpful in several ways. They can put in place effective governance structures to drive the long-term success of a company. They can contribute capital to expand operations, enter new markets or enhance liquidity without any change of control. And they can help to deliver co-operation partnerships to accelerate business development.
Fintechs citing well-connected/financially strong shareholders as a key success factor include Vindi (payments) and Foxbit (blockchain).
Fintechs’ plans: New products and customer segments, more use-cases
As per our survey, the top three strategic priorities over the next three years for Brazilian fintechs are introducing new products/services, entering new customer segments and increasing the use-cases of existing products/services. In comparison with other emerging markets, Brazilian fintechs are less focused on enhancing operational efficiency and driving in-house innovation.
In contrast to our previous survey, strategic priorities have now moved away from technology investment and entering strategic partnerships towards introducing new products and increasing use-cases for existing ones. Meanwhile, entering new customer segments has retained its leadership position as the top strategic priority for Brazilian fintechs.
Introducing new products/services
Fintechs tend to expand their service offerings to new products when they achieve a certain scale in their primary offering. For example, payments fintechs often look to expand into lending or investments; this can help to lift their share of wallet and boost financial returns. Brazilian fintechs that plan to launch new products include Pier (Insurtech) and Zoop (payments).
Entering new customer segments
Brazil is Latin America’s most populous country, with a diverse customer base by geography, age and income. It makes sense for fintechs to modify their existing offerings to appeal to a broader range of customer segments. Firms planning to enter new customer segments include Bitshopp (blockchain) and Geru (lending).
Increasing use-cases of existing products/services
Firms can partner with merchants and institutions to expand the use-cases for existing products. This can help to drive growth in the user base and in transaction volume. Firms planning to enhance product/service use-cases include PLIPAG (CRM) and Vindi (payments).
Targeted fintech innovations: Blockchain, cloud, chatbots, AI
Regarding planned innovations over the next three years, Brazilian fintechs are targeting blockchain technology, cloud technology, chatbots and virtual assistants for customer education, and artificial intelligence for predictive analysis. Compared with fintechs in other emerging markets, those in Brazil are less focused on machine learning and technology to prevent fraud/defaults.
In our 2020 survey, Brazilian fintechs placed less emphasis on blockchain technology innovation, but it is now the most cited area of activity. The fintech innovations that were most targeted before included chatbots and virtual assistants for customer education, digital banking and cloud technology.
Blockchain has gone beyond cryptocurrency and has the power to boost performance in many areas of fintech operations, including operational efficiency and the user experience. Fintechs targeting blockchain innovations include Neon (lending) and Gorila (investech).
Fintechs use cloud technology to store and protect consumer data and to host services, which helps to reduce both operating costs and operating risk. Firms planning to innovate in this area include Code Money (payments) and FacilitaPay (payments).
Chatbots and virtual assistants
Chatbots and virtual assistants help improve the customer experience by automating customer service/education and simultaneously allowing fintechs to reduce their operating costs by limiting the staff required to handle customer queries. Fintechs with plans in this area include Alymente (payments) and Mercado Bitcoin (blockchain).
Artificial intelligence for predictive analysis
Artificial intelligence can be utilised in many ways, for example, predictive analysis to assess future outcomes and boost risk management. Other potential uses include improving operating efficiency or enhancing customer engagement levels. Some firms targeting greater use of AI include mGrana (lending) and Transfeera (investech).
Key growth constraints: Funding, regulation, customer adoption, market growth
Funding/capital, regulation, slow customer adoption and growth of the market are the key growth constraints faced by Brazilian fintechs. Relative to fintechs elsewhere, those in Brazil are less concerned by competition from traditional financial institutions and other fintechs.
In comparison with our previous survey, funding/capital and regulations have become a more severe growth constraint to Brazilian fintechs. Meanwhile, their concerns about Covid-19 and informal competition as growth constraints have declined.
Funding is essentially the lifeblood of lending firms, but it is also important for fintechs active in other areas. Fintechs citing this constraint include Vality (lending) and Hallo (lending).
Fintech operations differ considerably from those of incumbents and rulebooks are being continuously updated as regulators catch up with the pace of innovation. Regulatory oversight also tends to rise as fintech firms grow larger. As a result, fintechs are often subject to considerable regulatory uncertainty, which can act as a barrier to investment and growth.
Brazilian fintechs that regard regulation as a growth constraint include Alymente (payments) and Pier (insurtech).
Slow customer adoption
Fintechs can provide a wide range of benefits to their users. However, customers may still raise barriers to these organisations. For example, they may be unwilling to share personal information or to funnel a large proportion of their business through an industry newcomer. Fintechs citing slow customer adoption as an issue include Bitshopp (blockchain) and Transfeera (investech).
Growth of the market
It can be difficult for industry leaders to outgrow the overall market, particularly as the number of competing fintechs rises. We think market size is impacted by customer awareness; for example, insurance is a less-penetrated product in low-income countries and blockchain is an area where corporates and individuals have limited understanding. Vindi (payments) and Mercado Bitcoin (blockchain) are among the fintechs that cite market dynamics as a concern.
Fintech regulatory hurdles: KYC/AML, data protection, capital requirements
Brazilian fintechs cite KYC/AML, data protection and capital requirements as the most significant regulatory hurdles. Compared with other emerging markets, fintechs in Brazil seem more concerned about KYC/AML regulations. Meanwhile, they pay much less attention to taxation and deposit insurance laws.
In comparison with the previous survey, the concern of Brazilian fintechs for taxation and deposit insurance laws has declined. Meanwhile, KYC/AML laws have become more stringent.
KYC/AML can be tougher in countries with a significant undocumented economy (at least relative to informal providers). Fintechs that have cited this as a major challenge to their operations include Zoop (payments) and Neon (lending).
Data protection regulations
One way fintechs can generate competitive advantages is through the collection and utilisation of customer data. Data protection regulations play a key role in determining the extent to which these companies can obtain and use such information, and the processes they must follow to protect it. Fintechs citing data protection regulations as a hurdle to their growth include Beblue (loyalty and rewards) and Konduto (cybersecurity).
Capital requirements create significant entry barriers for new players; in general, fintechs tend to favour capital-lite business models. They are also a key consideration for incumbents expanding their businesses. Fintechs citing this regulatory hurdle include Foxbit (blockchain) and CodeMoney (payments).