Digital Banks in Brazil

In the last couple of years, Brazilian economy has recovered momentum: the GDP is rising, the inflation rate is decreasing, and the consumer confidence index is far above the historical average, as well as the industry confidence index. But as much as these indicators favor the emergence of fintech in Brazil, the fact remains that the real drivers of digital banks’ expansion are the increasing access to internet and smartphones.

In 2019, Brazil was ranked #5 in top 20 countries with the highest number of internet users – 149.06 million – and 97% Brazilians used mobile phone to access internet. They spent an average of almost 10 hours daily online (Brazil has one of the highest rate in the world).

And when it comes to apps usage, Brazil was ranked #4 in the top 10 leading markets in 2019, with a 92% share. As for the leading apps categories, Brazilians use social media (75%) and banking (46%) the most.

The drastic and unforeseen Covid-19 pandemic crisis triggered a change in consumer habits and online behavior that further increased those figures, has we reported in the article How Coronavirus is changing online behavior in LATAM.

So, what are digital banks?

Digital banks are those providing for web-based services and solutions accessed through desktop, mobile phone app or ATM, such as simple transaction services, digital payments, lending services and alternative funding, and personal finance (i.e., bill pay services and direct deposit of salary).

Different from the traditional ones, digital banks don’t have in-branches services, allowing customers to do their banking at any time, and at any place as long as there’s internet access. In a country such as Brazil, where distances are a barrier to financial inclusion, digital banks gain ground and acquire millions of new customers.

What’s in for the client?

One of the most attractive features of digital banks is the ease of opening a bank account, removing bureaucracy: no need to fill out financial paperwork, nor to comply with a list of requirements. More, it’s such a simple process that it only takes a few minutes, and it’s set up directly from a mobile phone.

Other popular features are the absence of fees and the fact that digital banks such as PagBank encourage savings by offering higher interest rates:

  • Free-fee account
  • Free-fee debit and credit card
  • Free-fee money transfers and payments
  • Free-fee mobile recharges
  • Current account with higher interest rates than a traditional savings bank account
  • 3% cashback on payments via QR code
  • Loan rates lower than traditional banks

And in a time of quarantine and restrictions on social life that we live in Brazil and around the world, digital banks have yet another advantageous feature – customers can solve all their issues online.

Digital banks’ impact on consumers and finance institutions

Definitely, the rise of digital banking has changed the way the consumer manages their personal finances. First and most significant is the fact that banks are no longer just a deposit of money – consumers are choosing digital banking to make payments and transfer.

And they rely on multiple channels to do so: online platforms, mobile apps, ATM, phone. Although trust and unawareness are issues of some importance for Brazilians, digital banks are acquiring more and more customers among all ages, especially adults 24-34 and 55-64.

As for other players, traditional finance institutions are realizing the impact of this trend, and are investing in their own startups.

Digital banks are a trend not only in Brazil, but across the Latin American region. They are contributing to LATAM’s financial inclusion index, they leverage e-commerce in the region’s markets, and they top most of Latin American unicorn companies.

PagBank: an unique digital ecosystem in Brazil

One of these companies is PagSeguro/PagBank, of which BoaCompra is a part of. Together we provide for financial technology solutions that enable companies to easily access emerging markets, including true, local payment methods. Our vast experience and expertize allows us to provide international merchants with advice and guidance on market behavior, and the intricacies of the LATAM region.