Fintech innovation agenda likely to continue in Brazil despite government change

The ambitious fintech innovation plan the Brazilian central bank put forward will likely prevail in the upcoming years, even as recent elections mandate a change at the country’s top office as of next January.

Last month, former president Luiz Inácio Lula da Silva bested incumbent Jair Bolsonaro in a close presidential contest, winning 50.9% to 49.1% on the second round and ultimately earning his way for a new term – the third – at the helm of the Brazilian government.

Regardless of the ballots, digitization progress in the Brazilian financial system over the past years is expected to continue. To some extent, this is grounded on the fact that the country achieved central bank independence in a 2021 law.

 “Roberto Campos Neto will serve as president of the central bank until the end of 2024,” Israel Medeiros, a political analyst at Brazilian consultancy firm Fatto Inteligência Política, told Fintech Nexus. “Under the new law, the central bank president’s term does not coincide with that of the Brazilian presidency. Thus, the entity is less susceptible to political pressures. His agenda should continue until that date at the very least.”

The incoming president Lula has yet to unveil his economic team. He has provided little hints about what economic policy could look like under his term.

Campos Neto said he would work with President-elect in the “best way possible,” underscoring the institution’s legal autonomy. Also, a commitment to tame inflation.

An ambitious agenda

Beyond its monetary mandate, the central bank governor has successfully led the rollout of a comprehensive innovation roadmap. These initiatives include open finance – a framework for sharing financial data – and PIX, a system that has profoundly shaped the payments ecosystem.

 Israel Medeiros headshot
Israel Medeiros, a political analyst at Fatto Inteligência Política.

PIX, a low-cost 24-7 payment network adopted by more than half of the Brazilian population, broke new records recently. It surpassed the 1 trillion reais threshold in monthly transactions.

Several PIX features are constantly being developed, such as payment initiators or offline transactions. Analysts expect other functionalities, such as international transfers, to be brought about in the following years.

Open finance in Brazil

At a later stage, the regulator also implemented the framework for open finance in Brazil. This concept allows registered financial institutions to share customer data with the user’s consent. The goal is to reduce information asymmetry among participants (such as fintechs). They are, ultimately, lowering the price of financial products.

The framework, which is now in place, has yet to see as sizeable traction as Pix experienced. However, some argue that its long-lasting legacy will be highly impactful.

“Open Finance in Brazil is just getting started, Paulo Oliveira Andreoli, a fintech consultant, said. He compares its potential in the financial system to the internet and argues that it provides fertile ground for new products that do not exist today. “In the next few years, we will see many very innovative products and services using this same infrastructure,” he said.

Central Bank Digital Currency

The third of Campos Neto’s initiatives is a central bank digital currency or CBDC. The tests of the Digital Real started in early September and are expected to continue until January 2023. After this phase, the bank will implement the pilot phase, which should extend into the second quarter of 2024.

Those timelines fall well within Campos Neto’s mandate. The governor has been a great enthusiast of the crypto world, especially tokenization. However, the project is still in its early stages. This year, it has been impacted by a long, drawn-out strike at the bank, which paralyzed much of the innovation agenda for months.

Shares of Brazilian publicly traded fintechs such as PagSeguros, Banco Inter, and Nubank reacted favorably following the election, with ups of almost 9% in New York markets on the day after. However, the euphoria has receded ever since on the back of a complex outlook for most Latin American economies.

The economy bears a more significant risk

Over the past few years, the rise of fintechs in Latin America and Brazil, mainly, has been meteoric. Over $15 billion last year alone fueled the growth of disruptive companies in the financial sector. For next year, the economy looks challenging in the face of inflation and the risks of a recession in the US.

Indeed, investors continue to bet on the region but have become more selective in projects, with year-over-year funding dropping from record levels last year.

In the regional ranking, Brazil tops the list with 31% of all Latin American fintechs. Mexico follows with 21%, and Argentina and Colombia share the third position with 11%. Chile opens the group of the five most developed countries, with 7%.

  • David Feliba

    David Feliba is a Latin American financial and business journalist. He reports fintech, banking, and economic news for global news organizations. His work includes interviews with senior executives, cabinet members, and policymakers across the region. Over the past years, David has reported from several locations in the Americas. His features have been published in leading global media such as The Washington Post, The Financial Times, Americas Quarterly and S&P Global news. He lives in Buenos Aires.