How Brazil's central bank launched its own fintech startup
How Brazil's central bank launched its own fintech startup
The Banco Central Do Brasil has had no problem disrupting the country's incumbent financial institutions in an effort to modernize the economy.
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A thought-out plan
In 2016, the Brazilian Central Bank launched the BC# agenda to modernize the Brazilian economy around 5 main pillars: inclusion, competitiveness, transparency, education, and sustainability. Historically, a couple of major institutions have monopolized the Brazilian banking sector. Brazilian banks were some of the best performing in the world, given that they usually chose to serve only rich segments of the population. When they did decide to serve lower socio-economic segments, it was often through absurd interest rates, sometimes breaking 300% a year.
This left large swaths of the population unbanked, reliant on cash, and unable to access essential financial services such as credit and insurance.
In the past decade however, the exponential growth of startup activity in Brazil has led to the creation of numerous “fintech” startups, aimed at disrupting incumbent financial institutions. The Brazilian government facilitated this rise through the unbundling of banking licenses, which enabled fintech founders to launch their products without needing to become regulated banks. a16z aptly breaks down some of the new, narrow licenses such as:
Postpaid instrument issuers – i.e., non-financial institutions that issue postpaid accounts like credit cards
Electronic money issuers – i.e., non-financial institutions that manage prepaid accounts like food vouchers
Payment acquirers – i.e., non-financial institutions that help companies accept payments
The epitome of this Brazilian fintech revolution is Nubank, a neobank founded in 2013 that eventually went public on the NYSE in December 2021.
In short, the previously exclusive and old-school Brazilian financial system has been severely shaken up in the past decade, thanks to forward-looking legislation enabling fintech innovation to flourish. Customers now have more choices than ever, and the dispensing of “financial services” isn’t exclusive to only banks.
The story of Pix
Pix is the instant payment system built by Banco Central do Brazil, which launched in November 2020. Brazil already had a system for same-day transfers named TED, which was cumbersome due to high fees and offered a complicated user experience that required the sender to have the recipient’s complete bank details before sending.