FinTech Competition Pressures Brazil’s Biggest Banks

Brazil’s big banks, long known for high rates despite occasional public outcries, are racing to modernize amid challenges posed by low interest rates, the pandemic’s fallout and new digital rivals, the Financial Times (FT) reported.

“The Brazilian banking sector has been changing rapidly, and this is very good for both consumers and the so-called traditional banks,” said Itaú Unibanco CEO Milton Maluhy, per FT. He acknowledged, however: “We need to be quicker and better for our products and services to outdo competition.”

FT reported that newcomers such as Nubank, “Brazil’s internet banking unicorn,” are posing challenges to five major traditional banks: Itaú, Bradesco, Santander Brasil, Banco do Brasil and Caixa Econômica Federal.

Traditional banks have been cutting costs by closing branches and laying off staff, according to FT, while regulators are taking their own steps to increase options for the banking public. One such effort is the country’s central bank’s open banking initiative intended to give clients increased control over data.

Also, FT reported, Brazil’s central bank in November launched a free-for-individuals instant payment system called Pix. The system reportedly helps individuals avoid fees tied to current accounts and wire transfers.

“There’s a big debate going on in Brazil [on] what’s going to happen to the profitability of the big banks,” Bank of America analyst Mario Pierry told FT. “Now interest rates have come down, they can’t just survive buying government securities — they need to start lending more.”

In response, big banks are copying some of the FinTech startups’ popular offerings, such as online brokerages, and also acquiring smaller innovative companies, according to FT.

In Brazil, the average household loan carries an interest rate of 22 percent and the average business loan comes at 11.3 percent annual interest, FT reported, citing central bank data.

“Lending rates are still very high, and they’re now going down over time — it’s a process,” FT quoted Ilan Goldfajn, chairman of Credit Suisse in Brazil and a former central bank president, as having said.