Brazil Fintech Evolution: From Open Banking to Pix Crédito

Brazil’s fintech sector has undergone a significant transformation, driven by digital innovation and regulatory advancements. Back in 2021, I interviewed Carlos Kazuo Missao, then director of the GFT Group in Brazil, in the episode we talked about financial inclusion, the rise of challenger banks, the introduction of Brazil’s Central Bank instant payment system called Pix and the adoption of open banking. 

And because I republished the episode I wanted to do an update on how Brazil’s fintech sector, highlighting everything we talked about and how things have evolved since then.

Brazil’s Fintech Landscape in 2021: Pix launches and Rise of Digital Wallets

The year 2021 marked a pivotal moment for Brazil’s fintech landscape, highlighted by the introduction of Pix in late 2020, which had a massive adoption in the first few months. 

The Brazilian Central Bank’s initiation of open banking regulations signaled a shift towards a more inclusive financial ecosystem. The period also saw a surge in digital wallets, reflecting a broader trend of financial inclusion and a supportive regulatory environment conducive to fintech innovation.

The growth of digital wallets in Latin America, particularly in Brazil, has been pivotal in advancing financial inclusion. Digital wallet transactions are projected to surpass $16 trillion by 2028, with a 20% annual increase in usage expected until 2025. This surge has effectively extended financial services to previously unbanked or underbanked segments of the population​​.

The Brazil Fintech Evolution: 2021 to 2023

From 2021 to 2023, Brazil’s fintech sector witnessed considerable evolution of open banking:

Open Finance on the Rise

Expanding Active Consents: By December 2022, over 10.5 million active consents had been recorded in Brazil’s Open Finance system, a substantial figure for a program of its age. This represents about 6% of Brazilians with a bank account actively participating in Open Finance. The system has seen almost 4 billion API calls, indicating the high level of data exchange and interaction within the ecosystem​​.

Sustainable Growth and API Development: The Brazilian Open Finance ecosystem is expected to experience more sustainable growth in 2023. With continuous refinement of APIs and over 600 people involved in the development process, improvements in payment initiation and new payment methods are anticipated. This includes the integration of Pix and exploration of variable recurring payments (VRP)​​.

Expansion Beyond Banking: Client data sharing is set to extend beyond traditional banking to include insurance, pensions, investments, and other financial sectors. This expansion further justifies the Open Finance designation, with forward credit proposals being a unique feature under consideration for implementation in 2024​​.

Governance and Technical Development: The Open Finance governance structure involves multiple institutions, from major banks to fintechs. The technical groups from various institutions are collaborating to bring specifications to life, monitor, and support the ecosystem’s operations, highlighting a healthy governance framework for Open Finance in Brazil​​.

Rapid Customer and Account Growth: As of September 2023, Brazil’s Open Finance ecosystem reported over 27 million customers with 41 million accounts participating. This rapid expansion and sharp uptake can be attributed to factors like the implementation of Pix and a vibrant fintech market featuring players like Mercado Pago, PicPay, and NuBank​​.

Predictions for 2024: Pix Crédito Will Launch

As of August 2023, Pix, Brazil’s instant payment system, has reached a significant milestone with over 150 million users, encompassing both private and business accounts​​. This extensive user base underscores Pix’s impact on the Brazilian financial landscape and sets the stage for another potential success: the launch of Pix Crédito.

Pix Crédito has the potential to significantly increase access to credit for underserved populations in Brazil. This is because the product will be integrated into the Pix platform, which is already used by over 150 million people. This means that Pix Crédito will be accessible to a wide range of people, including those who do not have a traditional bank account.

In addition, Pix Crédito will offer a number of features that will make it more affordable and accessible to underserved populations. For example, the product will offer lower interest rates than traditional credit products. Pix Crédito will also offer flexible repayment terms, which will make it easier for borrowers to repay their loans.

Another important point, Pix Crédito is also expected to reduce the cost of credit in Brazil. This is because the product will be more efficient than traditional credit products. Pix Crédito will also benefit from the economies of scale that are possible with a large user base.

As a result of these factors, Pix Crédito is expected to offer lower interest rates than traditional credit products. This will make credit more affordable for borrowers, and it will also help to stimulate economic growth.

If you want to know more about Brazil’s Fintech evolution, listen to the podcast episode here