Brazil has seen a recent boom in fintech with startups providing digital, low-interest banking solutions. These innovative alternatives are in turn causing big banks to reevaluate their own services. In Goldman Sachs’ latest report to the New York Times, Brazil’s fintech leaders are revolutionizing the traditional banking sector.
Entitled “Fintech Brazil’s Moment,” the 45-page research report estimates that the more than 200 financial technology companies in Brazil should generate a potential revenue pool of about $24 billion over the next 10 years. Payments, lending and personal finance are three promising segments, as is insurance, the report found.
“We believe the Brazilian financial system is particularly susceptible,” wrote the report’s authors, Carlos G. Macedo, Marcelo Cintra, Steven Goncalves and Nelson Catala.
Indeed, the report states that Brazil’s banking sector is especially susceptible to a fintech revolution due to its “oligopolistic market structure”. In Brazil, the top five banks hold 84 percent of total loans (excluding development banks). Moreover, in retail branch banking, the top five banks hold 90 percent of branches. This concentration has actually gone up 71 percent in the last decade, following the 2008 financial crisis.
To provide a sense of comparison, the top five banks in the U.S. hold only 20 percent of all branches. In India, that number is a bit over 30 percent. Meanwhile, Mexico and Russia both have less concentrated banking sectors than Brazil.
Finally, Brazilian banks have some of the highest fees and interest rates for loans in the world. “We believe this unique market structure positions FinTechs to have a larger impact in Brazil than in other developed markets,” the report said.
The New York Times noted that venture capital firms are eyeing FinTech companies in Brazil at an increasing pace, as are private equity firms. The report pointed out that in March, Advent International acquired a stake in Easynet.
“We expect a lot more in the space to happen in the near future,” Isaias Sznifer, managing director at the boutique advisory firm Greenhill & Company in Brazil, said in an interview with the New York Times.
Different experts have their own tallies, but all signs point to dramatic expansion. “The number of startups in the sector have tripled in the last two years,” Rodrigo Ubaldo, president of the Brazilian fintech association ABFintechs, said according to TechCrunch.
All things considered, Brazil’s fintech scene is ripe and ready for expansion. Brazil is the most populous country in Latin America, with more than 200 million people and a huge economic market to match. Maybe in few years, São Paulo’s robust fintech ecosystem will rival more established hubs like London and New York.
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