Fintechs sidestep the economic crisis in Brazil

. Oct 29, 2020
fintechs investment brazil Photo: Beto Chagas/Shutterstock

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Today, we cover one of the fastest-growing sectors in Brazil: fintechs. São Paulo’s plan to attract foreign money. And why Black Friday 2020 won’t save retailers.

Brazilian fintechs raise over USD 1 billion in 2020

Amid a sluggish economy with at best uncertain prospects, one sector of the Brazilian economy has largely skirted the crisis:

<a href="">fintechs</a>. According to a new report by startup monitoring platform Distrito, Brazilian fintechs raised USD 36 million from investors in October alone. Since January, a total of 76 investment rounds attracted USD 1.16 billion.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/4172899"><script src=""></script></div> <p><strong>Market outlook. </strong>The market is <a href="">becoming more crowded</a>, with a total of 828 fintechs representing a 34-percent increase on a year-on-year basis. Three segments dominate the sector: firms focused on payment methods (16.3 percent), back-office (15.5 percent), and credit (15 percent).</p> <p><strong>Why it matters.</strong> Fintechs have the potential to disrupt a massively concentrated banking market, and helped the government produce what is arguably the broadest <a href="">financial inclusion process</a> in the world.</p> <ul><li>The number of individual taxpayers with a bank account rose from 164.66 million in December 2019 to 175.45 million now.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/4172853"><script src=""></script></div> <p><strong>Regulation. </strong>This week, the Central Bank approved the implementation of the so-called &#8220;regulatory sandbox&#8221; for fintechs. It consists of a controlled environment in which authorized companies can test innovative projects which have yet to jump through all regulatory hoops. They will be able to hold small-scale trials of new solutions directly with consumers under certain conditions, to be decided by the Central Bank.</p> <ul><li>The initiative is part of a years-long strategy by regulators to encourage competition among banks, promote innovation, and digitalize the economy.</li></ul> <hr class="wp-block-separator"/> <h2>São Paulo governor to start new investment roadshow</h2> <p>In 2019, his first year in office as governor of São Paulo, João Doria became notable for his multiple international trips to seek foreign investment for his state&#8217;s infrastructure projects. The highest-profile visits were to the United Arad Emirates and China, where he created a business bureau for the state. Now, as Brazil&#8217;s coronavirus death and infection rates continue to fall, the governor plans to resume his globetrotting ways.</p> <ul><li>Investment-seeking meetings will start remotely this week — Mr. Doria will initially target domestic banks and private equity funds.</li><li>He intends to visit the U.S. and Canada as early as January. Germany, the United Kingdom, France — as well as multiple countries in Asia and the Middle East — are also on the radar. In June 2021, São Paulo will inaugurate a new business bureau in Munich.</li></ul> <p><strong>Why it matters.</strong> Last week, São Paulo launched an <a href="">economic recovery plan</a>, aiming to attract BRL 36 billion (USD 6.4 billion) in investments by way of concession deals. Without foreign money, Mr. Doria won&#8217;t be able to pull it off.</p> <p><strong>The pitch.</strong> To lure foreign investors, Mr. Doria will talk about his coronavirus response in an attempt to distance himself from President Jair Bolsonaro, who became a sort of international poster child for <a href="">Covid-19 denialism</a> alongside U.S. President Donald Trump.&nbsp;</p> <ul><li>He will also highlight that his infrastructure projects are predicated on ESG (environment, social, governance) principles. This would be yet another way to set him apart from Mr. Bolsonaro.</li></ul> <p><strong>Yes, but … </strong>Mr. Doria&#8217;s traveling schedule might be unfeasible, given that Covid-19 cases are reaching record highs in the U.S. and Europe —&nbsp;and many countries are set to close borders and impose new strict lockdowns.&nbsp;</p> <hr class="wp-block-separator"/> <h2>2020 Black Friday to be a sum-of-all-fears scenario</h2> <p>This year marks the tenth anniversary of Black Friday&#8217;s first <a href="">introduction to Brazilian consumers</a> — but retailers are expecting anything but a big celebration. Despite overtaking Christmas as the biggest shopping event of the year, Black Friday 2020 will face problems in both supply and demand.</p> <ul><li>Massive discounts are unlikely to be found. Vendors have fewer products in stock, industries face <a href="">supply shortages</a>, and months of a halted economy have strained businesses to their financial limit. Plus, the most sought-after products —&nbsp;smartphones, electronics, and appliances —&nbsp;are mostly imported and suffer the impacts of a rise of the U.S. Dollar against the Brazilian currency.</li><li>While 91 percent of Brazilian consumers plan to make at least one Black Friday purchase, they are not keen on spending much. Almost half of families have less money than prior to the 2019 event, according to consultancy GfK.</li></ul> <p><strong>Why it matters.</strong> In crisis scenarios, Black Friday has become a life vest for retailers —&nbsp;and to the Brazilian economy, as family consumption is the <a href="">biggest driver of the GDP</a>.</p> <p><strong>Concentration.</strong> This year&#8217;s Black Friday should be particularly brutal for small shops and regional retail chains —&nbsp;while major online shops such as Amazon or Magazine Luiza have bigger margins that allow them to offer more discounts.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Approval ratings.</strong> A <a href="">new survey</a> by PoderData shows a 4-point drop in President Jair Bolsonaro&#8217;s approval ratings — from 52 to 48 percent between October 14 and 28. The poll suggests that the president&#8217;s disregard for a potential coronavirus vaccine could have taken its toll on Bolsonaro&#8217;s popularity. In just two weeks, support among male voters (the government&#8217;s most favorable demographic) dropped from 60 to 50 percent.</li><li><strong>Markets.</strong> The decisions by France and Germany to enact new lockdowns ahead of a second coronavirus wave caused markets to crash around the globe. In Brazil, the U.S. Dollar reached BRL 5.76 — after peaking at BRL 5.79 and forcing the Central Bank to intervene. The São Paulo stock exchange saw its fourth consecutive negative day, closing down 4.25 percent, the worst single-day fall since April.</li><li><strong>Impeachment.</strong> The rapporteur in the <a href="">impeachment trial</a> against Rio de Janeiro Governor Wilson Witzel will present his recommendations today to the 10-member committee (made up of five lawmakers and five judges) that will decide, on November 5, whether an impeachment vote is to be held in the State Congress. The rapporteur has been coy about his position, but Mr. Witzel&#8217;s utter lack of support from political parties suggests that his fate is sealed.</li><li><strong>Elections. </strong>President Jair Bolsonaro had initially opted to stay out of the <a href="">municipal elections</a> before the runoff stage — allowing him to support strong conservative candidates and avoid attaching his name to failed bids. But the president couldn&#8217;t help but vouch for Congressman Celso Russomano in São Paulo, and is now set to officially endorse Mayor Marcelo Crivella in Rio de Janeiro. The former is sinking fast in the polls, while the latter faces massive rejection rates.</li><li><strong>Social media. </strong>Brazil&#8217;s embattled Environment Minister Ricardo Salles has drawn further criticism for his infantile social media attacks toward prominent political figures. Last week, he used Twitter to call Secretary of Government Luiz Eduardo Ramos a &#8220;gossiper,&#8221; which sparked many complaints from the <a href="">government&#8217;s military wing</a>. His comments drew criticism from House Speaker Rodrigo Maia, who said Mr. Salles appeared determined to destroy both the environment and the Bolsonaro administration. In response, Mr. Salles called the Speaker &#8220;<a href=""><em>Nhonho</em></a>,&#8221; a fictional character from Mexican children&#8217;s sitcom &#8220;El Chavo del Ocho,&#8221; known for being unintelligent, naïve, and overweight. After the post was made, Mr. Salles said his account was hacked — and <a href="">left Twitter</a>.</li><li><strong>5G.</strong> While facing a court-supervised reorganization process, Oi Telecom has launched a 5G network in Brasília — spanning over 80 percent of the federal capital. The technology has been tested since 2019, when Oi provided 5G connections during the Rock in Rio music festival.

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