Market roundup: Brazilian neobanks face regulatory risk

🔔 The dashboard: Brazil’s benchmark stock index Ibovespa lost 1.5 percent this week, on the eve of the first round of the Brazilian elections. Meanwhile, the Brazilian Real gained 2.94 percent against the U.S. Dollar. 

• Biggest gains: Cyrela (real estate), + 9.49 percent.
• Biggest losses: Rede D’Or (healthcare), -13.73 percent.

How a new cap on prepaid card fees can undermine neobanks

The country’s Central Bank published a resolution that sets a 0.7 percent cap on prepaid card interchange fees. It also determined that any debit transaction made through prepaid cards will have fees restricted to 0.5 percent – the same limit imposed by the authority on debit card transactions four years ago. 

Why it matters. Brazilian neobanks rely extensively on interchange fees for a large part of their revenue, and the change will cause them serious problems. 

• Even Nubank, Latin America’s largest digital bank with 70 million customers, took 7 percent of its revenues from interchange fees between July 2021 and June 2022. If the new rules were already in place, Nubank would have lost 2.9 percent of total.
• Earlier this year, when Mastercard capped prepaid interchange fees on face-to-face transactions to 0.8 percent and the other types to 1.20 percent, Nubank said this self-regulation act would impact its revenues by 2.4 percent.
• The new rules do not differentiate between types of transactions.

State of play. Fintechs and networks such as Visa and Mastercard hoped the Central Bank would let the industry regulate itself. Banks and acquirers (companies that own POS terminals used by merchants)...