Brazil’s fintech ecosystem is broad and diverse. Growth in key operating metrics such as users, revenue and operating profit has surpassed that seen in other emerging markets. Perhaps, for these reasons, funding flows to Brazilian fintechs have been strong, culminating in Nubank’s US$50bn IPO in December 2021.
Our database of almost 3,400 fintechs across 14 emerging markets helps us position Brazil in a broader EM context. In the near term, Brazil's fintech firms are targeting improvements in performance via user growth, transaction value increases and product/service innovation.
They plan to introduce new products, increase the use-cases for existing ones and enter new customer segments. Planned innovations are focused on blockchain and cloud technology, virtual assistance and artificial intelligence.
In this report, we take a detailed look at Brazil’s fintech landscape, including:
The current state of the fintech ecosystem
Fintech funding trends
Key industry growth trends
Fintech profitability versus EM peers
Financial services provider market shares and expected three-year changes
The key performance indicators fintechs are targeting
The competitive environment
Fintechs’ values and success factors
Fintechs’ plans and targeted innovations
Fintechs’ growth constraints and regulatory hurdles
We also compare our current findings with those from our 2020 industry survey and highlight five Brazilian fintechs to watch.
Brazil’s fintech ecosystem is substantial and diverse
Brazil’s fintech landscape comprises a broad spectrum of companies. At the aggregate level, the mix of operators has a similar profile to the broader emerging market fintech ecosystem, with payments and lending together accounting for 48% of the total fintech universe.
One sector where Brazil surpasses other emerging markets is investech. As of October 2020, only 1.9% of Brazilian adults invested in the stock markets against the median of 2.4% in other emerging markets – this suggests strong growth potential in this area.
Fewer Brazilian fintechs are active in software solutions than elsewhere. Blockchain is also underweighted in Brazil, which is somewhat surprising given that Brazil has been one of the early adopters of cryptocurrency (it ranks 14th in Chainalysis' 2021 cryptocurrency adoption index).
Comparing the current ecosystem with our 2020 survey reveals an almost tripling of blockchain’s weighting in the system. At 4.9% of the population, exposure to cryptocurrency is around four times that of stock market exposure.
Venture capital funding has been breaking records
According to Distrito, 2021 witnessed VC investment in Brazil of US$9.4bn, more than 2.5x the US$3.6bn 2020 figure and representing a 5-year CAGR of 92%. The 2021 volume was generated through 779 deals, up 38% on 2020.
Fintechs attracted US$3.7bn (39%) of 2021’s total venture capital investment across 176 deals (23%), more than any other sector. Retail tech was the second-largest destination, with US$1.4bn (15%) investment in 87 transactions (11%). Real estate received US$1.1bn investment but was surpassed by health tech in relation to the number of deals.
In Q1 22, venture capital investment has remained strong, up 4% yoy at US$2.0bn. However, the number of deals decreased to 167 from 200 last year. As for the industry mix, retail techs gained more attention from VCs than fintechs, raising US$163mn against US$142mn for financial services.
The Brazilian startup ecosystem is on a path to maturity, with 31 rounds above US$100mn in 2021. The largest deal was closed by Nubank (Series G, US$1.15bn), followed by another fintech, Ebanx (Series C, US$400mn). There were also two mega-rounds in the real estate sector, including Loft (Series D, US$425mn) and Quinto Andar (Series E, US$300mn). In retail tech, the largest deal was secured by Facily (Series D, US$250mn).
Brazilian fintechs have delivered faster growth than their EM peers
Our survey of 215 fintech firms across 14 emerging markets provides a clear view of performance differentials by sector and geography. Brazilian fintechs outperform across various growth metrics, in relation to the user base, top line and operating profit. Average revenue per user has declined, but less than for other emerging market fintechs. However, operating margins have compressed slightly, whereas, elsewhere, there has tended to be an improvement.
Brazil's fintech profitability is better than elsewhere in emerging markets
Based on our survey, a much higher proportion of fintechs in Brazil are already profitable compared with elsewhere. Moreover, even those Brazilian fintechs that are not profitable expect to move past breakeven much sooner than fintechs in other countries.
Comparing our findings with our 2020 survey, the proportion of profitable fintechs has almost doubled, indicating that increased scale and other operational improvements are helping firms to deliver better financial performance to their investors.
Brazil fintechs are likely to gain market share
We asked 900 consumers in 14 emerging markets about the types of providers meeting their current financial services needs, and the provider types they expected to use in three years. This data allows us to estimate the current market share of the different industry players and likely future shifts. Note that the survey responses are unweighted; we think traditional financial institutions would have a much higher share if our survey were value-weighted.
As for the current scenario, fintechs have a 30% market share in Brazil, which is broadly in line with the results of our broader emerging markets survey. In the next three years, consumers expect to increase their usage of fintechs, driving an 8 percentage point rise in market share. The fintech gains largely arise from improved financial inclusion and reduced reliance on informal channels, rather than any weakening in the position of traditional financial institutions.
Over the next three years, fintechs are likely to gain market share in 10 out of 11 surveyed financial products. The largest changes are expected in savings/fixed accounts, international remittances, current accounts and credit/debit card payments. Fintechs already lead against other operator types in mobile payments and domestic money transfers, which limits future development potential.
Our survey results suggest fintechs may, within three years, also build industry leadership positions in credit/debit card payments, current accounts and international remittances.
Targeted KPIs: Users, transaction value and innovation
According to Brazilian fintechs, the key performance indicators they are most focused on include growing their user base and transaction value, plus product/service innovation. The focus on these three metrics is in line with what we see in other emerging markets. However, boosting customer loyalty/reducing customer churn is less of a priority for Brazilian fintechs versus operators elsewhere. Instead, Brazilian firms have a greater focus on building scale.
In our previous survey, customer satisfaction, market share and bottom-line growth topped the targeted KPIs. However, the focus on bottom line growth and profitability has lessened (perhaps because most of our surveyed firms have moved above break-even) and the emphasis on customer satisfaction/loyalty has also declined. In contrast, efforts to lift market share via increasing transaction value are more intense than before.
Number of users
Growing the user base is key to generating scale and opening the door to cross-selling/up-selling opportunities. Brazilian fintechs focusing on growing their customer base include Neon (lending) and Hallo (lending).
This is one of the most frequently targeted KPIs cited by Brazilian fintechs and is also one of the key metrics used by investors to assess operators, particularly in the payments segment. Firms actively targeting transaction value growth include Code Money (payments) and FacilitaPay (payments).
Product and service innovation
Product and service innovation enables fintechs to reach their customers more cheaply and effectively. It also helps fintechs to be more relevant to their customers, for example by offering them greater convenience and/or a better user experience. Fintechs that cite these innovations as key to success include Geru (lending) and Vality (lending).
The competitive landscape for Brazilian fintechs
Brazilian fintechs consider each type of financial service provider (fintechs, traditional financial institutions and informal channels) as delivering an equal competitive threat. This is very different from elsewhere in emerging markets, where incumbents and other fintechs are typically regarded as stronger competitors than informal channels.
Despite the large proportion of the adult population possessing bank accounts (70% versus 58% emerging markets median), we think the informal sector looms large in the Brazilian fintech’s consciousness because they tend to be more focused on lower income customers for whom informal providers have attractions, including low cost, easy access, convenience and less cumbersome onboarding processes.
The customer-value proposition: Secure, seamless and fast execution
According to Brazilian fintechs, the top values they deliver to their customers are seamless execution, fast approvals and security. Fintechs in Brazil regard security as a more important feature than those in other emerging markets, where responsiveness to customers’ needs holds more sway.
These survey results broadly mirror those from 2020, although the importance of low product cost and pricing transparency has declined.
Users increasingly demand that fintech-operated platforms and mobile applications should operate without any delays or interruptions. Fintechs that cite seamless execution as their key value include Beblue (loyalty and rewards) and Vality (lending).
Fintechs can bypass the legacy systems used by incumbent firms that require human interaction. They may also be less constrained by compliance checks. However, fintechs will need to keep progressing in this area as incumbents are also lifting their game. Zoop (payments) and Gorila (investech) are among the fintechs that regard fast approvals as a key value proposition.
Cybersecurity is a key concern for the financial services industry; both fintechs and incumbents need to continually enhance their security protocols to protect consumer data. Blockchain technology can improve transaction security, making it more difficult for hackers. Fintechs highlighting strong security as one of their key values include Sinqia (fintech software solutions) and Konduto (cybersecurity).
Key fintech success factors: Innovative offerings, strong shareholders
The top two factors that Brazilian fintechs credit for their success to date are innovative service offerings and well-connected/financially strong shareholders. Compared with 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 structure 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 one of the world’s most populous countries, with a diverse customer base by geography, age and income. Therefore, 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. Compared with 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).
Five Brazilian fintechs to watch
Nubank (Digital banking)
Nubank is a digital bank providing services in Latin America, principally Brazil. It has a growing suite of financial services for individuals and small and medium-sized enterprises (SMEs), including payments services (eg cards, QR code-based and PIX instant payment network), saving products, investments, lending and insurance.
As of December 2021, the company had 53.9mn customers; monthly active users accounted for 76% of this number. Nubank has been able to acquire customers at a low cost; at an average of US$5.4 per customer in 2021. The bank’s revenue grew by 130% yoy to US$1,698mn in 2021, from US$737mn in 2020.
Nubank went on to IPO in December 2021, with its shares rising 15% on their first day of trading, giving the digital bank a market capitalisation of cUS$50bn. However, this has since collapsed to US$21bn. The bank reported a net loss of US$45mn in Q1 22 (down from US$54mn in the previous quarter), which dampened investor sentiment. Other factors driving down the share price recently include rising inflation, higher interest rates, elevated geopolitical risks and the risk of an economic slowdown.
PagSeguro, launched in 2006, is a market-leading Brazilian online/mobile payment-based e-commerce service. It is a payments facilitator for entrepreneurs, sellers and buyers; any person or entity can create an account on the platform through which they can receive and make payments easily and safely. PagSeguro supports various payment options, such as credit cards, online debits, bank slips, deposit accounts and transfers between PagSeguro accounts.
It belongs to Universo Online (UOL) group, the largest internet portal in Brazil (as per Ibope Nielsen Online). The company also has a digital banking arm, PagBank, which offers its clients access to products such as third-party investment funds, marketplaces and home insurance. It has also acquired a minority stake in Boletoflex, an online Buy Now Pay Later specialist.
In 2021, the company’s consolidated TPV grew by 97% to BRL456bn (US$85bn) from BRL232bn (US$43bn) in 2020, while the number of active merchants was at 7.7mn (up 9% yoy). PagSeguro registered revenue of BRL10,449mn (US$1,938mn), up 53% compared with 2020. Meanwhile, the net income clocked in at BRL1,166mn (US$216mn), down 10% yoy.
Creditas is a digital lending platform founded in 2012. The firm offers loans secured against property or vehicle collateral, and payroll loans. Creditas Auto provides vehicle financing, in addition to other services involving buying, selling or exchanging the vehicle and insurance. Creditas Homes disburses loans for property renovation and sale.
In January 2022, the company closed a US$260mn Series F round taking its valuation to US$4.8bn from US$1.75bn at its previous fundraising (December 2020). In Q3 21, Creditas registered US$46.8mn revenue, up 233% from US$14mn in Q3 20. As of Q3 21, the credit portfolio clocked in at US$532mn, up from US$189.3mn in Q3 20.
RecargaPay is a mobile payments fintech launched in 2010. The company offers a wide range of payment solutions, including bill payments, mobile recharges, transport card recharges, gift cards, money transfer services (via QR code, phone or email), etc. It also offers different payment methods to the users for conveniences such as credit card, debit card, bank transfer, boleto or deposit.
In February 2021, the company raised US$70mn in a Series C round to expand its financial service offerings to small businesses and consumers, including further development of its popular subscription program Prime+.
RecargaPay does not disclose its financial results. However, in September 2021, the company’s founder reported that it operates with positive EBITDA and an annualised revenue of BRL275mn (US$51mn). The fintech also made a debut in the debt market in the same month by issuing a debenture of BRL40mn (US$7mn) to be used to finance microcredit.
Mercado Bitcoin (Blockchain)
Mercado Bitcoin is a cryptocurrency exchange that allows users to buy, sell and trade digital assets. In July 2021, the company raised US$200mn in a Series B round valuing its non-operating parent company, 2TM Group, at US$2.1bn and ranking it among the 10 largest unicorns in Latin America. The company plans to use the investment for hiring, expanding services and investing in infrastructure.
Mercado Bitcoin cited that it onboarded 700,000 new customers in the first five months of 2021, bringing its customer base to 2.8mn. In addition, the firm's trading volume surged to US$5bn, which is more than 11x the volume in the same period in 2020. The company has not disclosed more recent data.