People & Money

Five Things to Learn From Brazil’s Fintech Industry

Brazil just like Nigeria has a dynamic fintech ecosystem that has received investments in billions of US Dollars. Brazil, currently the world’s ninth-largest economy in the world, has a fintech adoption rate of 40%, according to the FT Partners report on Brazil’s fintech ecosystem. There are also over 1,440 Fintech companies in Brazil. 

In this article, we highlight 5 key things that Nigeria could learn from the development of the fintech industry in Brazil. The piece is based on an account of a visit to Brazil by Ngozi Dozie, the co-founder of Carbon, a digital finance platform, to study the footballing nation’s fintech industry.  

1. The Brazilian Financial System is Very Innovative.

Ngozi noted that the Brazilian Central Bank takes a “Little Red Riding Hood approach” to the regulation of the fintech ecosystem. He also asserted that Brazil probably has the most innovative framework in the world. Explaining further, he noted the ease of licensing for new startups in Brazil, as well as the system that fosters competition and innovation in the country.

For example, the Good Law in  Brazil provides benefits such as deduction from the calculation basis of income tax and social contribution of investments made in innovation. The country has favorable tax regimes that incentivize innovation among businesses. 

2. Licensing is Easy

Citing the example of NuBank, one of Brazil’s most successful digital banks, Ngozi noted the ease of acquiring a Fintech license in Brazil. NuBank first acquired a pre-paid license with a regulatory capital of $400,000, then they acquired a post-paid license with a minimum regulatory capital of $400,000. NuBank then acquired a third license with a minimum capital requirement of $1.5 million. The licenses allowed them to provide services that regular banks were providing. 

Also Read: Exit emerging economies, enter growth economies; a long-overdue name change

Today, NuBank is listed on the New York Stock Exchange (NYSE) and is also one of the largest digital banks in the world. 

In Brazil, payment services can be provided by non-bank institutions termed “payment institutions”. These payment institutions have a regulatory framework that is different from that of banks. The different types of payment institutions regulated in Brazil include issuers of electronic currency, issuers of post-paid payment instruments, acquirers, and payment initiation service providers (PISP). 

3. Consumer Protection

Another thing noted was the level of protection afforded to customers by the Brazilian financial system. He noted that the regulators require payment institutions with lower regulatory requirements to invest all deposits overnight in government bonds to prevent funds from being misused. 

Nigeria’s fintech ecosystem is also regulated to offer consumer protection. For example, the Federal Competition and Consumer Protection Commission (FCCPC) has tried to regulate Fintechs concerning consumer protection. However, Banks and Other Financial Institutions Act, 2020 (BOFIA 2020) restricts how much interference can have in financial institutions. The Nigerian fintech space has tried to provide consumer protection through the National Data Protection Regulations (NDPR) of 2019, and the CBN’s Consumer Protection Framework (CPF) of 2016. 

4. Innovative Nature of The Regulatory Bodies

Unlike in Nigeria where the CBN placed a ban on cryptocurrency without making efforts to create regulatory frameworks, the Brazilian financial regulators have been able to create regulatory frameworks concerning the use of bitcoin. Brazil is one of the few countries in the world where sufficient clarity has been provided about the nature of crypto either as a medium of exchange or an asset. 

Ngozi also pointed out that Brazil’s doors are open to the world with little regulation, enabling foreigners to establish Fintech businesses. The innovative nature of the Brazilian regulators is seen in the manner in which bad debts can be securitized and sold to investors via an investment fund. According to Ngozi, this feature allows Fintechs to focus on business and exchange their loans for cash assets. 

Also Read: About the CBN’s National Domestic Card

The Nigerian government handles non-performing loans through AMCON, which effectively liquidates all shareholders’ shares. And the method adopted by the Brazilian government incentivizes participation in their capital market which is great for the economy. 

5. Large Market

Brazil is 5th largest population in the world, and Nigeria is the 6th largest population in the world. While Brazil is the 12th largest economy by GDP, Nigeria is the 30th largest economy. Brazil has a significantly larger economy, however, just like Nigeria, the country has a small GDP per capita. 

Brazil has a banked population of 68%, and Nigeria has a banked population of 64%. Just like Brazil’s Fintechs are scaling across the South American continent, Nigerian Fintechs can take advantage of the AfCFTA and expand across the African continent. 

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