In this column we talk about different countries, their economies, and their peculiarities. This time we're going to look at the perfect example of how discontent and need can create the perfect breeding ground for innovation: Welcome to Brazil.
Surprisingly, for the second flight in a row (the first one you can find here), you and I have seats across the street. Sure, you can have a seat by the window.
A quick rundown.
Brazil covers about 8.5 million square kilometers. It stretches across the eastern and central parts of South America and has borders with all South American countries except Chile and Ecuador. More than 210 million people live in the entire area, making it the fifth most populous country.
The capital of Brazil is Brasilia. Although the most popular city among tourists is Rio de Janeiro. Many even think that the city with its famous beaches and carnivals is the capital, but this is not true.
Brazil has a diverse and rapidly growing economy. It is considered one of the largest emerging markets in the world. Several areas can be distinguished:
Agriculture. Brazil's agricultural sector is a resource that contributes significantly to the country's economic growth. Vast areas of fertile land combined with favorable climatic conditions have made Brazil a global leader in agricultural products. The country's exports include soybeans, coffee, sugarcane and beef, reinforcing its position as a key player in the global food market. However, sustainability issues and the need for responsible use of land remain important challenges for Brazil's agricultural sector.
Industry. The automotive, aerospace, engineering and textile industries are thriving, contributing to industrial evolution. Brazil's industrial centers, such as São Paulo and Rio de Janeiro, have become magnets for national and international investment, contributing to economic dynamism and the development of productive opportunities. However, the sector faces the need to improve competitiveness and infrastructure to reach its full potential.
Services. The services sector is a significant factor in Brazil's economy. It includes finance, telecommunications, tourism, and retail trade. Cities such as São Paulo and Rio de Janeiro are major financial centers.
Corruption, inequality and crime problems are also notorious, but at the end of such a dark tunnel there is only and truly limitless potential for growth.
The fintech revolution is causing profound changes in payments and finance in Brazil. These innovators are providing millions of Brazilians with their first bank accounts and reshaping the country's financial landscape on their own. Project after project, bank after bank is launching a new startup. In search of an income and social mission, Brazil has proven to be fertile ground for fintech innovation, and there are a number of reasons for that:
First, the country's banking system is tiny compared to its size and population, and only a few giant banks dictate its terms.
The five huge banks account for 80% of commercial assets, compared with only 50% in the United States.
The rigid and oligopolistic structure of Brazil's banking sector has stifled the economy, leaving many Brazilians without access to banking services and wanting more convenient options.
Second, consumer preferences are undergoing a profound transformation. Flexible fintech startups in Brazil have sensed the general dissatisfaction of customers with existing banks and have promptly intervened with a wide range of fintech products available via smartphones and delivered at super speed.
In addition, Brazil has a long-standing attachment to installment payments, dating back to the 1950s, when "creditarius" became a real fashion. Shoppers could sign up at the store, purchase items, and split the payment over several months. This ingrained culture of installment payments is creating fertile ground for the development of digital finance and is leading to the flowering of fintech payment startups in Brazil.
In 2013, Brazil's Central Bank took over the regulation of the payments industry. This ensured the universal acceptance of all payment cards by acquirers. In addition, the Central Bank launched programs to improve financial literacy and provide more affordable credit. Since then, residents have seen an increase in the number of participants in the payment industry and a revitalization of the variety of new products, stimulating competition and literally resuscitating the market.
An important milestone was Pix, a government initiative that turned things around in November 2020. Pix is an instant payment system organized by the Central Bank that allows consumers and merchants to easily send and receive money using QR codes. A kind of Latin Kaspi. Pix became a kind of a shield for ordinary citizens, it saved them from commissions, waits and greatly simplified life. The consequence of this digitalization was a crazy number of customers: almost ⅔ of the population started to use Pix.
Brazil's fintech sector is a prime example of the need that breeds innovation. For decades, millions of Brazilians have been underserved by the banking system, but thanks to the invasion of fintech startups, they have access to new and convenient financial services. This causes a change in the relationship between consumers and financial institutions, and stimulates competition, resulting in increased financial inclusion and well-being in the country.
So in recent years, people who have never held a bank card in their hands have been transferring money through QRs and paying for electricity with crypto. And all these are links of one chain: digitalization and fintech revolution with social implication.
It's meaningless enough to talk about Brazil and the fintech industry there without Nubank. It's like Revolut and talking about the impossibility of getting a banking license in England. It's hard to separate the two.
In Mexico, in just one month of existence, Nubank has crossed the one million user mark, and in its home country, that number has long crossed the 40,000,000 mark. Which is almost ⅕ of everyone who lives there and half of those who can open a bank account. Also, it's right now the most expensive neobank in the world. And it all started in 2013. And it started as a revolt, a revolt against bureaucracy, commissions, and complexity.
In fact, the company's story began in 2012, when its co-founder, Colombian entrepreneur and former Sequoia Capital partner David Velez, moved to Brazil. He had a fresh Stanford degree in hand.
Velez saw great potential in Brazil's banking sector, or rather, he saw an opportunity to disrupt the traditional banking model by leveraging technology and providing customers with a more transparent and convenient banking experience. That opportunity was not seen by the people who originally sent David there. They saw something else entirely: the University of São Paulo, in 2011, graduated only 42 IT professionals. Which meant the market had no future.
But as early as 2014, Nubank launched its first product, a free credit card that customers could manage through a mobile app. The company sought to solve the problems of traditional banks, such as lengthy paperwork, high interest rates and hidden fees. By offering a simple, efficient and customer-focused credit card, Nubank quickly gained popularity and attracted a large number of users. Moreover, the credit card is more of a child of circumstance than a gift from above. The original plan was to open debit accounts and cards, but failed to get a license in time. Although credit card rates in Brazil were excessively high (up to 400% APR), Velez saw a profit in transfers and fees for them. There was even a rule for this that the card could not be opened without an invitation from a friend. This only fuelled interest, and the benefit of opening was obvious at first glance. The company reached its first million customers precisely because of recommendations.
Nubank's success can be attributed to several key factors. First, the company prioritized the customer experience and focused on providing exceptional service. Through its mobile app, Nubank offered a simple and user-friendly interface that allowed customers to easily manage their finances, make payments and track expenses. This approach resonated with Brazilians who were frustrated with the complicated and impersonal services offered by traditional banks.
Second, Nubank applied data-driven decision-making. Using advanced analytics and machine learning algorithms, the company gained deep insights into customer behavior, preferences, and creditworthiness. This allowed Nubank to make more accurate risk assessments and offer personalized financial solutions to its customers.
In addition, Nubank's aggressive marketing and recommendations from satisfied customers played a significant role in its growth. Satisfied customers became brand ambassadors, sharing their positive experiences with friends and family, which further accelerated the company's user engagement. The word-of-mouth really did work.
In addition, Nubank was able to attract significant investment from leading venture capitalists and financial institutions, which allowed them to grow and scale quickly. The company has attracted several rounds of funding, including investments from prominent investors such as Sequoia Capital, Tencent and Berkshire Hathaway.
Brazil is one of the most active markets right now. Innovations, needs, giants, victories, defeats and drama - you will find all this not only in soap operas, but also in the economic sector of this magical country. Now it has only the way forward, with laws that implement cryptocurrencies, a government that truly believes in fintech, and people who are tired of tradition and inconvenience - the perfect underdog to cheer for.
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