Becoming a business owner has its trials, which Brazilians have found out that the hard way, becoming entrepreneurs amid the worst economic crisis in the country’s history. Apart from finding clients and dealing with Brazil’s notorious bureaucracy, they also realized that doing their finances would not be easy. And this is precisely where fintechs have spotted an opportunity.

For many of those entrepreneurs,

the journey <a href="https://brazilian.report/money/2019/08/14/brazil-tax-mei-entrepreneurs-changing-labor-landscape/">starts with MEI</a>, a simpler tax system for individual entrepreneurs that earn up to BRL 81,000 per year. By adopting it, small business owners are given a corporate tax ID and may operate as a company. Though they are not required to have a separate bank account for their business, they usually need access to tools such as bank-issued invoices as the business grows.</p> <p>It is at this point that they face a hurdle: Brazil’s banking system. Designed as they are, company bank accounts are focused on larger companies. They often offer complex—and expensive—tools that are not necessarily useful for small entrepreneurs, charging higher tariffs as they go.</p> <p>This is where fintechs come in. By default, these companies aim to offer simpler, digital, nimble designs and, above all, tariff-free accounts. The combination of better services at cheaper prices made fintechs such as <a href="https://brazilian.report/money/2019/08/02/softbank-uber-banco-inter-investments/">Nubank and Banco Inter </a>increasingly popular in Brazil. Enjoying their status as well-established companies among the overall population, they now look for ways to increase their foothold, and the MEI system offered the perfect opportunity.</p> <p>“Low tariffs are alluring, but they won’t work if the person is unable to solve their problems with us. [MEI entrepreneurs&#8217;] demands are very similar to those of an individual, it is way more simple to deal with, they don’t need things like huge detailed bank statements. Having a more simple experience makes the customer’s life easier,” says Marcos Berto, product manager at Neon, a fintech that has been offering company accounts since 2018.</p> <h2>The next frontier</h2> <p>The opportunity posed by small entrepreneurs is becoming more attractive by the day. A 2018 <a href="https://www.em.com.br/app/noticia/economia/2018/04/05/internas_economia,949271/do-total-de-cnpjs-do-brasil-65-estao-registrados-no-simples-mostra.shtml">study</a> by BigData Corp showed that 65 percent of Brazilian companies are registered on the Simples Nacional regime—a special tax system for small companies. In São Paulo, the wealthiest state of the country, small businesses make up 98 percent of all companies and half of jobs, according to <a href="http://www.sebrae.com.br/Sebrae/Portal%20Sebrae/UFs/SP/Pesquisas/Panorama_dos_Pequenos_Negocios_2018_AF.pdf">Sebrae</a>. Looking just at the MEI segment, the Brazilian tax authority places the number of corporate taxpayer IDs at 8.7 million.</p> <p>Such a large market could make room for everyone, but it seems that competition will be fierce nonetheless. Among fintechs, <a href="https://brazilian.report/money/2019/06/13/fintech-banco-inter-brazil/">Banco Inter</a> has been leading the race, offering a large number of free bank transfers and bank-issued invoices; also, to register, the entrepreneur needs to have a personal account, increasing customer exposure to the banks’ services. Nubank, which recently reached a USD 10 billion valuation after a new fundraising round, is testing a new company account for MEIs, after expanding from credit cards to personal accounts.</p> <p>But big banks are standing by doing nothing. Santander Brasil created a new account for MEIs in April. Among its main competitive edges are advantages to hiring acquirer machines serviced by Santander’s brand, GetNet. The bank also offers it’s customers the chance to have the same bank manager handling both their personal and company accounts.</p> <p>For Mr. Berto, the quality of services and innovation will be the secret weapon in this battle—especially considering an audience of tech-savvy entrepreneurs.</p> <p>“Our most important audience today is related to technology, and these people are way more connected to fintechs than traditional banks. People are more interested in trying technology nowadays and we focus on experiences. They probably have had a bad experience with their personal accounts in big banks and may be willing to change,” says Mr. Berto. Neon doesn’t share data about the share of company accounts in their portfolio but highlights that the company aims to double down on current accounts during 2019’s second half and increase customer engagement.</p> <p>By getting ahead and becoming acquainted with MEIs, Mr. Berto believes fintechs may enjoy their customer success as well, improving the portfolio of products to serve them as their businesses grow and become small companies.

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MoneyOct 14, 2019

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BY Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.