The intense innovation process experienced in recent years has created a fertile ground for the digitalization of financial services and products. In this context, after six years in decline, the number of financial institutions grew again in 2019, a movement that gained traction amid the Covid-19 pandemic. In February, according to the last data released by the Central Bank, the country had 649 banks, fintechs and finance companies, 15% more than in 2019.
The growth was driven by the boom of fintechs and digital banks. Payment institutions, for example, more than doubled in the period and went to 43 in February this year from 19 in 2019. Direct lending and person-to-person lending companies, meanwhile — which are credit fintechs — went to 78 from 15 in the same period, up 420%. This increase reverses the trend seen between 2013 and 2018, when the industry shrank. In the period, the number of financial institutions fell by 11%.
The number of banks, however, remained stable and reached the lowest number in 2018, with 171. In February 2022, there were 177, the same number registered in 2013 and in the last two years. When including cooperatives and consortium administrators, the total number of participants in the financial system rises to 1,648, up 1.16% compared to 2019.
In March 2021, the Central Bank changed the rules for payment institutions, which may explain part of the growth of companies authorized by the monetary authority in this segment. With the change, those fintechs need to apply for authorization before setting up the business. Before, non-regulated institutions could operate until they reached R$500 million a year in transactions and only then would ask for approval.
“To create a fintech after March 2021, one needs to request authorization from day zero. That is why we have seen the increase in authorized institutions, and we will see exponential growth this year and next. The institutions that already existed before the new norm and were not authorized are still able to operate, but the there is a decreasing order of volume until 2023, when all of them will need authorization,” says Marcelo Martins, head of the Brazilian Association of Fintechs (ABFintechs) and CEO of the payment company Iniciador.
Although they have grown in number, fintechs are still not very expressive in the credit market. To a large extent, this is because large banks can receive demand deposits (in current accounts) and lend those resources, a dynamic known as leverage.
Payment institutions, which offer simpler digital accounts, cannot provide financing with customers’ money, as can credit fintechs, which must use their own capital.
“New fintechs certainly help in the deconcentration of the industry, as end users have more options. It is one of the main measures for the dilution [of the segment]. As the concentration is still very large — more than 85% of financial services are held by five banks — the result is that you can’t realize it immediately,” points out the president of ABFintechs, Diego Pérez.
The executive points out that, in the payments market, the presence of those new institutions is more relevant. “Pix boosted a lot the access of small entrants, because a fintech has the same computational, availability, and financial settlement capacity as a large bank, because the structure is maintained by the Central Bank itself,” says Mr. Pérez.
Source: Valor International