You’re reading The Brazilian Report’s weekly tech roundup, a digest of the most important news on technology and innovation in Brazil. This week’s topics: Covid-19 to accelerate big banks’ digital transformation; how a court decision based on the pandemic may be catastrophic for the local movie industry, and how exposed Brazilian Android devices are.
Covid-19 to expedite big banks transformation in Brazil
Unable to leave their homes due to self-isolation measures, millions of Brazilians will have to adapt to online banking systems during the pandemic. While this is part of a digitalization trend that has been going on for some time, such an abrupt change in customer behavior is set to accelerate the digital transformation of the Brazilian financial industry, say experts
No turning back … For Carlos Macedo, founding partner at consulting firm Cortex and an expert in the financial industry, the fact that customers cannot go to branches and are still able to solve their banking tasks tends to be a trigger in the preference for non-physical channels. “This should accelerate the demand for other alternatives of financial services, not getting stuck on physical branches as an entrance barrier. (…) The digitalization movement is absolutely necessary for banks. It is essential that they do it.”
… But not so fast. Over time, he says, branches have become more of a cost than a competitive advantage for banks. However, hefty labor costs and the possibility of backlashes and reputation damage prevent deeper structural changes that could lead to massive layoffs.
Early signs. This week, news broke that Itaú Unibanco, Brazil’s largest private bank, was temporarily closing 400 branches due to the Covid-19 pandemic, given the reduced working hours and smaller influx of customers. Meanwhile, news website Brazil Journal reports that Bradesco bank is in negotiations to acquire a share in fintech C6 Bank, a move that could increase the digital presence of one of Brazil’s most traditional financial institutions.
Backoffice. In a recent article for website CryptoID, Visa’s Senior VP of Solutions and Innovation for Latin America and Caribbean, Ruben Salazar Genovez, highlights that banks’ digital transformation must follow the adoption of an omnichannel business model with a nuclear banking system that may aggregate many kinds of technology.
- “To make this connected core available, banks need a clear API strategy, a cloud-base operational model, AI processes, an efficient middleware layer to quickly integrate services of many partners and a restless focus on simplifying user interfaces,” he wrote.
- For Mr. Macedo, one of the obstacles standing in the way is that banks still heavily rely on legacy systems, built over decades. In his view, “it’s much harder for a bank to innovate then it is for a new company due to these legacy systems. Besides, their priority is to keep the system up and running, not necessarily to innovate at a fast pace. (…) But this doesn’t mean they don’t want to innovate”, he told The Brazilian Report.
Open Banking. Even without the disruptions caused by Covid-19, 2020 was already set to be a landmark for the financial industry, as Brazil’s Central Bank intends to implement open banking regulations by the end of the year. Lately, important digital regulations such as the new Data Protection Law may be postponed, which casts doubt over whether the Central Bank will push through with its idea amid the crisis.
- For Mr. Macedo, open banking is more a matter of when rather than if it is applied, and even after it comes into force, the continued evolution of the market will force companies and authorities to adjust themselves. “Even if it gets delayed, it is very important for banks, because it breaks the paradigm of bank branches once and for all. Banks will have to adapt and they know it. Their challenges are limitations such as legacy systems and branches that they can’t get rid of.”
Covid-19 may be coup de grace for Brazil’s movie industry
Brazilian telecom operators obtained a legal injunction to halt the payment of Condecine, a tax for the use of audiovisual content for commercial purposes that is directly related to the public funding of audiovisual productions in Brazil. While the decision may still be overturned, the potential lack of the resources responsible for the bulk of domestic audiovisual productions may be the knockout blow for an already embattled industry.
Condecine v. Companies. Telecom operators started to pay Condecine in 2011, when Brazil regulated the distribution of paid TV, allowing them to take part in this market. Nowadays, they are the biggest players, and America Movil’s Claro is the market leader with a share of 49.3 percent of Brazil’s paid-TV market, according to consultancy Teleco. It was established that the Condecine money would be directed to the Audiovisual Sector Fund, which supports productions through funding, investments or even grants. As professor Luciana Rodrigues, coordinator of Faap’s postgraduate course in Management of Audiovisual Products, explains “it was a virtuous cycle; money coming from the sector itself funding new productions.”
Results. Indeed, Condecine increased steeply after telecom operators were included and, according to IBGE, it was their participation that helped Ancine increase investments by nearly 200 percent from 2011 to 2018.
How much money is involved? Condecine payments related to the 2019 fiscal year amount to BRL 743 million. Companies have asked courts to suspend the payment due to the economic impacts of Covid-19 and federal judge Ângela Catão granted the request. However, as the decision came on March 31 — the deadline for payment — part of the companies had already settled their debts and now demand reimbursement, according to specialized website Telesíntese. Consulted by The Brazilian Report, Ancine did not respond to a request for comment on whether it would contest the decision in court.
A long-standing battle. Companies have been questioning Condecine’s legality in court since 2016, after the government increased contribution rates by 28.5 percent. By that time, they claimed that only 47 percent of the funds were applied and the tax did not result in benefits for the telecom sector. However, as Ms. Rodrigues notes, the telecom sector is one of the few that were not disrupted by Covid-19, along with audiovisual content, as streaming services have been responsible for an increase in traffic.
Coup de grace. While an interruption of FSA resources would be catastrophic in terms of funding, Ms. Rodrigues warns that guaranteeing the money is just one part of the process. “There is money, but the projects are not being analyzed or approved. When you see Brazilian movies in Berlin and other festivals, you must remember they were already approved a long time ago. From now on, we are forecasting a blackout in the industry,” she told The Brazilian Report. While FSA’s website only shows budget data up to 2018, a report by newspaper Folha de S.Paulo shows that, up to November 2019, BRL 724 million were puddled, as Ancine’s annual investment plan had not been approved yet, while previous accounts were contested by the Federal Accounts Court.
One-third of Android smartphones in Brazil are infected with malware, says company
A report by mobile technology company Upstream shows that 23 million Android handsets are infected with hidden malware that commits background fraud targeting advertisers, operators, and consumers. The source of infections are apps that behave “normally” and some remain available on the Google Play store even after being reported.
How do the schemes work? The malware comes within apps that appear to be normal but contain phishing links and advertisements that sign users up to subscription services and consume vast amounts of data from prepaid contracts without leaving a trace. “Not only do advertisers pay app developers for the false clicks, the fraudulent apps also are used to steal personal data about the smartphone user without any visible sign of doing so,” warns Upstream.
What are the most dangerous apps? File-sharing app 4Shared is said to be the most dangerous one, with 166 million blocked transactions. It generates ads and delivers them to the device for fake clicks, fake views, and even fake purchases, according to Upstream. It remains available on Google Play, as well as Videoder, an app that enables users to download video content to view later, but generates fake clicks and purchases and downloads other suspicious apps without the user’s knowledge. The other malicious apps, World Weather Accurate Radar, VidMat and Snaptube were no longer found in the Google Play store by The Brazilian Report.
How big is the fraud? According to Upstream’s 2019 report, the company checked almost 1 billion Android transactions in Brazil, of which 91 percent were blocked for being considered fraudulent.
- Venture capital investments in Brazilian startups have fallen by 85 percent in March, to just USD 18.6 million, despite being a month that historically records an acceleration of investments after the Carnival holidays, according to innovation company Distrito. The drawdown in investments was already expected due to the uncertainties connected to Covid-19, as we reported in our April 3 Tech Roundup.
- On the other hand, Softbank’s Latin America fund invested BRL 250 million in Brazilian e-commerce PetLove, which focuses on products for pets. The company intends to use the funds to expand its subscription service and become the main platform for the sector in Brazil. Besides Softbank, PetLove has major venture capital funds as investors, including Monashees, KasZek and private equity fund Tarpon.
- Covid-19 is causing a wave of layoffs in Brazilian startups, as reported by newspaper O Estado de S.Paulo, quoting sources. Among the companies that have been firing personnel are management platform Omiexperience, recruiting platform Kenoby and freelancing platform GetNinjas. Fintech Creditas — quoted as one of Brazil’s next unicorns — denied that its cuts were caused by Covid-19, but as part of planned restructuring, according to the report.
- A report by marketing intelligence firm Compre&Confie shows that Brazil’s e-commerce increased by 26.7 percent in the first quarter of 2020, reaching BRL 20.4 billion. However, the average ticket price was 4.5 percent smaller than last year’s, which the study attributed to the Covid-19 impacts. “As social isolation measures take place, more people choose to buy staples online. Meanwhile, more expensive items, such as electronics, came in second place. This helps to explain the fall of average prices in the period,” said Compre&Confie’s executive André Dias, in a note to the press.[/restricted]