Fintechs gather strength in BrazilValor International
Financial-services technology startups, the so-called fintechs, began to gather strength in Brazil in late 2014, and since then have grown at an accelerated pace. A survey conducted last September by FintechLab shows that more than 130 companies — a 30% increase year over year — are operating in segments such as payments, financial management, loans and debt negotiation, investment, investment funding, insurance, financial efficiency, security, connectivity and bitcoin/blockchain.
The industry’s leading names include credit card Nubank, financial management app Guia Bolso, investment website Magnetis and “f(x)”, which offer loans to medium-sized businesses.
In the most recent survey, one in five companies said it had more than 20 employees. Of the total, 70% are in operation, that is, have customers and revenue. Half of the 130 companies posted revenues over R$1 million. A significant improvement compared with last year when the percentage was 30%. Together, these companies’ revenue amount to R$173 million, equivalent to the operating profit of the 16th largest Brazilian bank, according to Central Bank data.
The fintechs’ figures in Brazil are still tiny compared with the industry’s size globally. In the US, the estimate points to at least 2,000 financial services startups divided between the country’s east and west coasts. According to The Economist magazine, global mutual funds invested $15 billion in fintechs throughout 2015.
But the progress of initiatives in the country has drawn investors’ attention. Two-thirds of the companies have already received some capital injection, and 38% got more than R$1 million. FintechLab — created by innovation agency Clay Innovation to follow the industry’s performance — estimates that in 2015 nearly R$200 million were invested in Brazilian fintechs. For 2016, the amount can reach R$450 million. The number will be driven by the sale of payment system Moip to Germany’s Wirecard, and the R$200 million investment received by Nubank in January. In its fourth investment round, the company, founded less than two years ago, was valued at $500 million.
"In any market that is concentrated in a few banks, you have a very big opportunity. The fintechs have the advantage of having flexible structures, with lower cost, and can pass on this gain to the user," said David Vélez, founder of Nubank. According to a survey by PwC, in a period of five years, fintechs may grab on average 23% of businesses that today are handled by financial institutions around the world.
No wonder traditional banks are on alert. Itaú set up Cubo, a building in São Paulo with space for 50 startups. The bank is also investing in Sinergia, a similar space in Uruguay. As for Bradesco, it has created InovaBRA, a program to support companies with operations and strategic segments for the bank. Santander will bring to Brazil InnoVentures, its investment arm in fintechs. The first activity in the country, Fintech Venture Days, will take place in São Paulo on May 5, and will select three companies to invest.