Brazil’s big banks rattled by fintech competition

Four banks dominate Brazil: Banco do Brasil, Bradesco, Caixa Econômica Federal and Itaú hold 73 percent of all active accounts and 80 percent of the country’s credit. For every 10 BRL deposited in the country, 7.67 BRL will end up in accounts held at one of these four. Even Brazil’s deepest recession has benefitted them, as the financial crisis toppled many emerging competitors.

This gives Brazil’s biggest banks a higher concentration of power than in the U.S., where, according to World Bank data, the top four hold just 42 percent of the market.

They hold more power than those closer to home, as well: in both Mexico and Argentina, the five main banks hold approximately 70 percent of the market. However, domestic regulators assert that this is lower than in other developed countries, such as Australia and Canada, where five banks cater to 93 and 83 percent, respectively.

Numerous mergers and acquisitions in recent decades have led to Brazil’s current situation. When state-owned banks were privatized in the late 1990s, Bradesco, Itaú, and Santander all benefitted. Bank mergers between private companies are worth handsome sums: in 2008, the Itaú-Unibanco merger was valued at BRL 575 billion.

But since 2014, fintech firms – corporations adopting the latest technology to provide new solutions to banking and finance – have been disrupting the sector, with approximately 300 currently authorized to operate. Covering everything from digital finance, investment apps, and payment systems to loan services and cryptocurrencies, this new wave of fintechs poses a threat to long-established financial institutions.

Yet it is not solely the consumers who welcome the new range of services and offerings, which are seen as a way to disrupt the concentration of financial power. Research shows that the Brazilian government has actively incentivized mergers like the Itaú-Unibanco deal as far back as the 1960s.

These mergers have grown...